With most mergers, consumers lose.
However, with the latest merger in the online travel industry between Expedia, Travelocity and Orbitz, competition should be enhanced rather than diminished.
Why? The real competition is not from other travel agents, but from the airlines and hotels.
If they could, hotels and airlines would do away with travel agents. To hotels and airlines, travel agents are an unnecessary middleman in the economic equation. Not only do they gobble up a part of the profits through commissions, but they (gasp!) provide a forum to compare prices across brands.
Without the foil of online and brick-and-mortar travel agencies, airlines and hotels would run amok with little countervailing consumer price comparisons.
Yes. With the emergence of strong price-comparison platforms, consumers and the free market may come out on top.
If we only look at this as a merger within the online travel agency (OTA) world, it appears that competition between Orbitz and Expedia will be eliminated. However, that competition is basically cosmetic. All three of these agencies have become mirror images of each other with small differences. All are spoon-fed information from airlines and hotels and then find ways to bundle it that saves consumers money. Expedia, by virtue of its earlier start and fierce expansion into international markets, managed to become the big dog.
Travelocity was always the poor stepchild of a giant travel IT system that was spun off by American Airlines and that still provides streaming airfare and hotel price information to thousands of travel agents across the world. Its participation as a full fledged OTA agent was always a bit in competition with its real money-making operations.
Orbitz, that was launched by airlines and then sold, never really regained its footing. It was only through brilliant management that it differentiated itself from Expedia, Travelocity and Priceline (really booking.com). Orbitz has always been my go-to site for car rentals and it ran the best loyalty program of the OTA agents.
Now, these big OTAs — Expedia, Travelocity and Orbitz — are under one umbrella. Their biggest competition is from booking.com.
About this time, airlines and hotels were “regaining control of their inventory.” In the beginning, the OTAs would purchase blocks of rooms at deep discounts and then resell them at prices lower than what the hotels were selling the rooms themselves. The OTAs also tried to do the same thing with airline tickets.
In the end, the big hotel chains began a system that mandated all room rates be the same online whether purchased from OTAs or from the hotel sites themselves. Airlines also created a similar system and they took the restrictions even further. They eliminated most commissions in the hopes that OTAs would abandon the aviation market.
It didn’t go quite that way. OTAs still had the ability to blend hotels and airlines together in creative ways that made consumer prices lower. And, these OTA platforms became the place where consumers could compare prices. (Unfortunately, many travelers would compare prices and then go directly to the airlines to purchase tickets, in effect endangering the only price-comparison platform that they had.)
These changes were reflected in the online travel agency world. Priceline made the biggest change — one that served them very well. They purchased booking.com, a European hotel booking site.
The story of booking.com is a bit unusual. Priceline was the big kid on the block back a decade or so ago. Its bidding system made airline tickets affordable for many. However, in its rush to expand the bidding platform to everything from gasoline to groceries, it lost its way. The CEO was sacked, going from hero one year to cast-aside the next, and a new CEO began repairing the brand.
Priceline remained a powerful entity. Its management saw that hotels (and airline bookings in Europe) provided the biggest bang for the dollar. It all but abandoned US airline reservations and focused on hotels, especially the smaller European hotels that had not been aggregated.
Over the years, booking.com took over the Priceline balance sheet. As of three years ago, according to conversations with booking.com executives, it was providing something like 80 percent of Priceline’s profits. The term “booking” became synonymous with “online” among the European hotels world. When arriving at a hotel, saying “I booked with Expedia” drew blank stares. But, saying my reservation was with “booking” registered an immediate, “Ah hah.”
Of course, Expedia was not dragging its feet. It has expanded into Europe with its purchase of Venere.com (similar to booking.com) and across the Asian market as well.
But, for all of the online travel agents, the real competition is not from other travel agents. The real competition comes from airlines and hotel companies which would love to live in a world without competition and price comparisons. Some big companies, specifically Delta Air Lines, have begun to restrict the publication of its airfares from price-comparison online sites like Skyscanner, Hipmunk, TripAdvisor, Cheapflights and others.
Fortunately, big, strong, international platforms that provide the ability to comparison shop like Expedia and Priceline/Booking cannot be ignored or shut out by airline powers-that-be or hotel chains. The consolidation in the OTA world is not reducing competition, but increasing it when the entire ecosystem is considered. Plus, the ability to comparison shop is priceless.
For that, consumers should be thankful.
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