Expedia should buy or face takeover threat

Expedia faces being a target for takeover by rivals in a shrinking internet travel market if it doesn’t use its strong business model to grow through acquisition, a leading research house has warned.


The Euromonitor report said Expedia Inc’s low debt-equity ratio – 25% in 2005 – has put the company in a “strong position” to continue its recent strategy of buying other travel businesses.


But while the US-based group has scored highly with the purchases of accommodation aggregator Hotels.com in 2003 and user review site TripAdvisor in 2004, it could become an attractive prospect for groups such as Sabre’s Travelocity or MyTravel in the future.


The Euromonitor report, looking at Expedia’s activities in 2006, said: “The online travel industry has become more concentrated and competitive in the latter half of the review period, due to a large number of acquisitions by major groups such as Cendant [Travelport].


“Moreover, in 2005, Expedia’s rival online operator, Travelocity, acquired UK-based online vendor Lastminute.com. This presents a strategic challenge to Expedia to maintain growth, or risk being acquired.”


“With low levels of debt, and increasing concentration and competition in the online travel sector, it is expected that leading online operators such as Expedia and Travelocity will continue to buy up small and medium-sized operators in order to optimise resources and expand internationally.”


The report highlighted the general slowing of online travel growth in the North American market – Expedia’s strongest region, accounting for 90% of sales in 2005 – but said the company’s dual model, as a merchant of record and an agency, will give it “flexibility” to adapt to the fast-moving business environment.


Despite being hindered a “continued lack of automation” for some critical business systems, a major upgrade of Expedia’s widely praised technology platform in the next 12 months would help with long term cost-savings and “higher return-on-investment in online and offline advertising”.

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