Expedia Inc’s $1.3 billion deal to take over Orbitz Worldwide has received approval from the US Justice Department, after intenser-than-usual scrutiny.
The merger of content between the online travel agencies Expedia and Orbitz gives the combined entity about three-fourths of the US domestic market for reservations made through online travel agencies, says Phocuswright, the research firm. Priceline Group owns another 20% share of the US domestic market.
Less than a month ago, Expedia bought out the remaining parts of rival online travel agency Travelocity which it didn’t already control, in a deal worth $280 million.
The American Hotel and Lodging Association filed a letter with the Justice Department a month ago hoping to derail the merger. But to no avail.
The DOJ gave the following reasons, in a statement:
"First, we uncovered no evidence in our investigation that the merger is likely to result in new charges being imposed directly on consumers for using Expedia or Orbitz. So we focused our investigation on the commissions Expedia and Orbitz negotiate with airlines, car rental companies and hotels.
“Second, we found that Orbitz is only a small source of bookings for most of these companies and thus has had no impact in recent years on the commissions Expedia charges. Many independent hotel operators, for example, do not contract with Orbitz, and those hotels that do often obtain very few bookings from its site. In addition, beyond Expedia and Orbitz, travel service providers have alternative ways to attract customers and obtain bookings, including Expedia’s largest online travel agent rival, Priceline.
“Third, the evidence suggests that the online travel business is rapidly evolving. In the past 18 months, for example, the industry has seen the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.
“Looking at the facts and applying our Horizontal Merger Guidelines, we concluded that Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers.”
Some industry watchers speculated that the trial by Google of an instant hotel booking option via its metasearch tool and TripAdvisor's success in luring global brands like Marriott into its instant booking tool made the field seem competitive enough to the Justice Department's attorneys and researchers.
Expedia has said that Orbitz was "nicely profitable’" with $12 billion in gross bookings and that there would be benefits in bringing it under Expedia’s ownership including $75 million in synergies.
Dara Khosrowshahi, president and CEO of Expedia Inc, has said:
“The brands compete for the toss-up customer, those that have no loyalty and I think that will continue going forward.”
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