Though Priceline (
) is one of the few names people think for online travel services
along with competitors Expedia (NASDAQ;EXPE), Travelocity, and
), air travel bookings make up less than 2% of our
$479 Trefis price estimate of Priceline's stock
. The real gem here is hotel bookings which constitutes a dominant
91% of its value.
Priceline is the second largest online travel agency in the
world after Expedia in terms of booking volumes. Through its online
travel portals such as Priceline.com, booking.com, agoda.com,
rentalcars.com, breezenet.com and lowestfares.com, Priceline
provides consumers with travel services that include bookings for
hotel stays, airline tickets, vacation packages, car rentals and
Priceline makes money by charging a percentage of the dollar
value for bookings. Hence, the factors that drive this division are
average airfares (value of bookings), Priceline's commission (%) on
air ticket bookings and the expected future air ticket bookings.
Overall air booking activity and Priceline's market share of air
ticket bookings determine how much Priceline earns from this
In addition, air tickets bookings' low contribution to
Priceline's stock is predominantly due to the fact that commissions
are declining for bookings in an increasingly competitive market
place that dims the prospects for this business.
Some factors contributing to this decline are:
◦ Increasing competition from low cost air
carriers as well as other online travel agencies is taking market
◦ Competitive pricing is lowering commissions and
fees charged for online bookings, and Priceline earns a fixed
percentage of airfares.
◦ Airfares on average have declined leading to
lower earned margins on air travel bookings, though this has turned
around some recently.
Nevertheless air tickets bookings draw traffic and account for
over two-thirds of online bookings overall, which necessitates
their presence at any online travel agency especially for those
that offer packaged deals or discounts for group travel.
See our detailed analysis behind the
$479 price estimate for Priceline's stock