Expedia Partners with AirTran Airways, Extending its Affiliate Network

After having partnered with AirAsia and South African Airways, Expedia ( EXPE ) is expanding its private-label partnership with AirTran Airways, now a subsidiary of Southwest Airlines (NYSE:LUV). Through this partnership, Expedia will provide bookings at over 70,000 hotel properties at AirTran destinations in the US, Mexico and the Carribean. We believe these ongoing partnerships between online travel services providers and airlines/hotels will make competition more fierce in the online travel industry with players such as Expedia, Priceline (NASDAQ:PCLN), Orbitz (NASDAQ:OWW) and Travelocity.

We have a Trefis price estimate of $30.60 for Expedia's stock , implying an upside of ~10% to current market price.

A Boost to Expedia's Occupied Hotel Rooms Market Share

  • More hotel stays for Expedia through the AirTran Airways partnership
    • AirTran Airways flew 24 million passengers in 2010.
    • Assuming that 1 in every 10 passengers booked a hotel stay at Expedia, this translates into 2.4 million more hotel stays

  • More hotel nights booked through Expedia
    • We estimate, on average, there will be 2 persons per hotel room and 3 nights per stay leading to additional 3.6 million hotel room night bookings at Expedia in a year (2.4 million visitors / 2 visitors per room X 3 nights per stay). Over the remaining 6 months (July-Dec) in 2011, this shall contribute 1.8 million (3.5 million/2) hotel-nights booked at Expedia.
    • We assume the hotel-nights booked at Expedia through AirTran partnership to grow in line with the passenger traffic at AirTran, at the moderate 3% (( AirTran Airways )) historical growth rate. This leads to 3.8 million additional bookings in 2012, rising to almost 4.4 million by 2017, the end of our forecast period.

We currently estimate Expedia's share of hotel-rooms booked to grow from 2.07% in 2011 to 2.37% through our forecast period. Expedia's partnership with AirTran Airways could result in Expedia's market share rising from 2.11% in 2011 to 2.44%, resulting in small upside to our estimate.

However, if Expedia could secure more of these partnerships and the market share for occupied hotel nights rose to around 3% by the end of our forecast period, this would result in 12-15% upside. You can drag the graph below to see the impact on Expedia's stock price estimate.

Expedia Affiliate Network, Expedia's division dedicated to such private-label partnerships, works with several such partners across the globe and is aggressively pushing its direct-to-business model. However, Orbitz provides private-label solutions to Delta Airlines, KLM, LAN Airlines and Alaska Air and recently nabbed a contract with Eurostar from Expedia. So competition for this business is definitely heating up. See Expedia Loses Eurostar to Orbitz.

See our full analysis for Expedia

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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