The leading online travel agency, Expedia (
) draws almost 41% of its business from outside of the U.S. Expedia
had started to rely heavily on the growth opportunities
internationally, particularly in Asia Pacific similar to peers
) and Kayak. Despite Japan's technology-savvy demographic, online
activities accounted for only 24% of Japan's travel market, which
might be small compared to the U.S. but presents much upside to
online travel agencies. Expedia's sales grew in Japan by about 50%
in 2010, and the recent tsunami and subsequent nuclear disaster
will certainly take its toll on growth in this market.
The hotel bookings segment is the most crucial for Expedia's
business and makes up over 55% of our
$29.12 Trefis price estimate of its stock
How Much Do Japan Woes Impact Expedia?
We currently estimate the occupancy rate of hotel rooms to rise
from close to 55% in 2010 to beyond pre-recession levels of 63%.
Since much of the growth in tourism is expected to come from South
Asia, we can expect the tourism in this region to take a hit
resulting in a lower occupancy rate. For example, if the occupancy
rate increased to only 60% over our forecast horizon, this would
lead to a 5% potential downside to our current $29.12 Trefis price
You can drag the graph below to see the impact on Expedia's
How Could Expedia Deal with Japan's Crisis?
There is no denying that leisure travel to and from Japan will
take a plunge. However, business travel to Japan, which accounted
for over 40% of the total size of the tourism in Japan could
present Expedia with an opportunity to shore up its business in
South-East Asia assuming that nuclear concerns to not deter
Japan is the home of some of the biggest automakers like Toyota
and Honda as well as electronics manufacturers such as Sony. As
these major multinational corporations have professionals traveling
extensively, Expedia could customize its Egencia corporate travel
services to meet the needs of these businesses. Egencia currently
constitutes only about 2% of its stock price; however, focusing on
the corporate segment could provide growth and a way to
differentiate itself from other online travel agencies such as
Priceline and Travelocity, which do not have a separate corporate
travel services arm.
You can see a detailed analysis of our
$29.12 Trefis price estimate for Expedia