Priceline (NASDAQ:PCLN) recently announced a private-label partnership with Jetstar Airways, one of the leading low cost carriers in Asia-Pacific via Agoda - Priceline's very popular hotel-booking subsidiary in Asia. This follows the on-going trend of online travel agencies offering hotel bookings on airlines' websites, and now Priceline will provide bookings at thousands of hotel properties at Jetstar Airways' 17 destinations within Asia. The 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 ).
How much could it impact Priceline's stock?
Partnering with Jetstar Airways could increase Priceline's market share of hotel stays leading to around 2% upside to our current $506 Trefis price estimate for Priceline's stock .
Here's how we think of the potential impact:
- More hotel stays for Priceline through the Jetstar Airways partnership
- Jetstar Airways flew 14.6 million passengers in 2010.
- Assuming that even if a conservative 1 in every 10 passengers booked a hotel stay at Priceline, this translates into 1.4 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 2.1 million hotel room night bookings at Priceline in a year (1.4 million visitors / 2 visitors per room X 3 nights per stay). Over the remaining 6 months (July-Dec) in 2011, this could contribute 1.05 million (2.1 million/2) hotel-nights booked at Priceline.
- We assume the hotel-nights booked at Priceline through Jetstar partnership to grow in line with the passenger traffic at Jetstar, at ~9% ((Centre for Asia-Pacific Aviation)) historical growth rate. This leads to 2.5 million additional bookings in 2012, rising to almost 3.8 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 Jetstar Airways could result in Priceline's market share rising from 2.35% in 2011 to 3.06%, resulting in over 2% potential upside to our current $506 Trefis price estimate of Priceline's stock.
However if Priceline could secure more of these partnerships and the 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.
You can see a detailed analysis of our $506 Trefis price estimate of Priceline's stock here .