Expedia’s buyout of online booking rival Orbitz Worldwide for roughly $1.6 billion pushed it to the No. 1 spot as a digital travel provider. The takeover seemed to bring cheer to market since after Expedia (EXPE, Financial) announced its interest in Orbitz Worldwide, Inc. (OWW, Financial), the latter’s shares performed extremely well in the stock market as it touched a new yearly high of $11.76. It gained 2.1 points or 21.83% on share price, with 135,965,870 being the number of shares traded. But even though stakeholders see this as a promising move, will it benefit the customers of the websites in the long run?
This may seem like a good move for the consumers who will now find more consolidated travel options on the portal but there are some fallouts of monopoly too. According to data by comScore, Expedia and Orbitz together had 29.4 million unique visitors in the U.S. in December. Orbitz’s customers bought many many flights but the website was lacking in the more lucrative hotel booking scene, a wrong which will now be righted by Expedia's larger inventory of hotels. "It's going to be good for consumers of those websites,'' says Robert Cole, a travel industry analyst and consultant, referring to Orbitz as well as Travelocity, which too was bought over by Expedia for $280 million last month.
However, since rival Priceline (PCLN, Financial) too has been following an aggressive buyout policy, these two are effectively killing the competition. As often happens when an industry is ruled by only a couple of companies, fact becomes fiction and numbers get inflated. As the choice for customers keep slimming, the rates can also be manipulated. With more competition comes drive to provide better deals to outdo the other, which is good news for the traveler. Now, as smaller portals come under one umbrella banner, the possibility of manipulation arises too, as ratings and visibility can also be bought.
Not so customer crazy
When limited to a handful and forced to consider few options, the customers will have to believe what the websites show. And it is a commonly known secret that hotels or restaurants often pay for that extra star or hike in rankings. Rather than providing cheaper rates for better quality, there may be financial consideration into slightly tweaking the facts. Killing the competition is never good for the quality of services being given, neither is it good for the honest, smaller business that may provide better stuff but refuse to buy their way to the top. These guys may lose out in the race if the websites start promoting hotels for a cost. Rankings and ratings obviously matters to a traveler as well as the restaurateurs, and both might now be at a disadvantage.
A red flag for hotels, airlines
The other fallout of such a monopolizing race is the toll on the flight and hotel industry. Although their bookings or sales are not wholly dependent on outside portals, however, a part of the sales definitely takes place via independent websites. Airlines witness around 10% to 15% of their bookings through online agencies, but there is no commission involved, hence the websites don’t get anything. But it is not so with hotel booking - the revenue earning space for the websites which are responsible for roughly 19% of their sales. Hotels pay an average of 15% fees to sites for such bookings. Hence the placement of the hotel on a website is crucial for business for both sides, and to facilitate better earnings, a hotel may pay more for better visibility or the website charge more for the same. Either way, as there are lesser options to vie for, money takes the driver’s seat.
Wait and watch
The crux of the rat race is that culling competition does not bode well for the travellers and customers, especially now that one is very much dependent on the internet as a guide. Katherine Lugar, president and CEO of the American Hotel and Lodging Association, put it very succinctly in a statement: "This most recent merger raises questions, and appears to be counter to the goal of creating more consumer choice. We will be watching this development closely as the process moves forward." For those keenly watching the developments, any more major takeovers by either Expedia or Priceline should ring a warning bell. To protect the consumers' interest as well as the business groups, a consolidation is a must no-no. The online market should remain a free and fair trading place for big as well as smaller agencies.
