Microsoft's ( MSFT ) Bing has recently added a new feature called Price Predictors to its travel searches, which automatically suggest flights based on the best air fares and suggests if you should buy now or hold off for a better fare based on how fares are trending. For flexible travelers, suggestions are offered as one types in the search bar. We believe this will have an impact on companies like Expedia ( EXPE ), the largest U.S. online travel agency by booking volumes, and challenge Google's ( GOOG ) move into the travel search.
We have a $31.77 price estimate for Microsoft , which is about 23% ahead of the current market price.
Microsoft Bing to Draw Travel Search from Google
Bing's new feature makes travel searches even quicker and more convenient than what's available elsewhere by suggesting a best price deal based on flexible dates and times for travel. If one searches, "flights to Boston" this service will offer the best prices on flights from your current location. For more specific searches, one can specify date and location and then look across 100+ to find the best deal, similar to what other aggregator sites do. This includes a chart that shows how fares trend through the date range specified so a user knows when the cheapest time to travel is.
Google's search lacks the suggested travel option and so takes more steps to find the best deals for travelers.
'Best' Air Fares Emphasized Over Bundled Packages
Bing's new feature highlights comparison solely on the basis of airfare. While online travel agencies such as Expedia attract a major bulk of their bookings from air ticket reservations, they make most of their money by hotel reservations.
The revenue margin (OTAs revenue as a percentage of booking size) on air ticket bookings is around 3% while that for hotel reservations is in excess of 25%. Online travel agencies often bundle deals together such as holiday packages and related destination services such as airport pickup, car rentals and cruises.
As Bing compares solely on airfares, this aims right at suppliers' (airlines themselves) websites, which could also reduce booking volumes at online travel agencies like Expedia.
Reduced Traffic at Expedia's
The budget traveler normally looks up at various sources over the Internet for best deals on airfares, hotel stays and special holiday packages. While the quick comparison facilitated by Bing's new feature might make the travel bookings more convenient for users, it reduces the number of visitors to online travel sites like Expedia. The reduced traffic translates into lower revenue from advertising placements on the websites as well as lower booking fees.
Air ticket bookings make up less than 10% of our $29.12 Trefis price estimate of Expedia's stock . Given the low revenue margin on air ticket bookings, we see a small impact on Expedia's cash flows if Bing Travel takes off. However, the reduction in the number of visitors could also impact revenue from advertising on Expedia's websites, which currently make up over 3% of Expedia's stock.
You can see a detailed analysis of our $29.12 Trefis price estimate of Expedia's stock here .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.