Credit: Shutterstock photoPriceline ( PCLN ) recently announced a private-label partnership with Cathay Holidays Limited, the travel agency arm of Cathay Pacific Airways, wherein Priceline will provide hotel bookings through Agoda.com, the company's popular hotel-booking subsidiary in Asia. This development follows the on-going trend of online travel agencies like Expedia ( EXPE ), Orbitz ( OWW ) and Travelocity offering hotel bookings on airlines' websites.
Priceline will now provide bookings at thousands of hotel properties in over 114 cities globally where Cathay Pacific Airways has coverage. This announcement comes soon after Expedia ( EXPE ), Priceline's biggest competitor, entered into a joint venture with AirAsia, the leading budget carrier in Asia (See Expedia Partners With AirAsia ) and into a similar private-label partnership with South African Airways (See After AirAsia, Expedia Now Partners With South African Airways ). 
We have a $506 price estimate for Priceline , which is just below the current market price.
What could be the impact on Priceline's stock?
Below is how we think of the potential impact on the stock.
- More hotel stays for Priceline through the Cathay Pacific Airways partnership
- Cathay Pacific Airways flew 26.8 million passengers in 2010. Assuming the passenger traffic grows at the historical rate of close to 9%, it translates into roughly 29.2 million passengers in 2011.
- Assuming 1 in every 10 passengers booked a hotel stay at Priceline, this translates into 2.9 million more hotel stays
- More hotel nights booked through Priceline
- We estimate that on average there will be 2 persons per hotel room and 3 nights per stay leading to additional 4.35 million hotel room night bookings at Priceline in a year (2.9 million visitors / 2 visitors per room X 3 nights per stay). Over the remaining 6 months (July-Dec) in 2011, this could contribute 2.2 million (4.35 million/2) hotel-nights booked at Priceline.
- We assume the hotel-nights booked at Priceline through Cathay Pacific Airways partnership to grow in line with the passenger traffic at Cathay Pacific, at ~9% historical growth rate. This leads to 4.7 million additional bookings in 2012, rising to almost 7.3 million additional bookings by the end of our forecast period.
We currently estimate Priceline's share of hotel-rooms booked to grow from 2.33% in 2011 to 3% by the end of our forecast. Priceline's partnership with Cathay Pacific Airways could result in Priceline's market share rising from 2.38% in 2011 to 3.12% in 2017, resulting in almost 3.5% potential upside to our current $506 Trefis price estimate of Priceline's stock.
However, if Priceline could secure more of these partnerships, and if its market share for occupied hotel nights were to rise to around 3.5% by the end of our forecast, it could lead to roughly 14-15% upside. You can drag the graph below to see the impact on Priceline's stock price estimate.
See a detailed analysis of our $506 Trefis price estimate of Priceline'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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
