Rivals in Online Travel Industry Strike Long-Term Agreement
Travelocity is teaming up with longtime rival Expedia Inc. to power the core of its business: finding hotels and airfares.
The two companies said Thursday that they are entering a long-term agreement under which Expedia will handle most of Travelocity's operations, from running searches to answering customers' questions to processing bookings. In turn, Travelocity will largely become a brand aimed at attracting customers to its website rather than a true travel agency.
"These are two companies that have been mortal enemies for probably 15 years coming together," Expedia Chief Executive Dara Khosrowshahi said.
Travelocity Chief Executive Carl Sparks said that as the online-travel industry has become more competitive in recent years, Travelocity has fallen behind its rivals on search capabilities. The deal with Expedia gives Travelocity access to a more powerful search tool while allowing it to shift resources to marketing and promotions to build more brand loyalty. "We get access to a world-class platform," Mr. Sparks said. And instead of operations, "we can focus on marketing and promotions," he added.
Online travel agencies make much of their revenue from booking fees they charge airlines, hotels and rental-car companies. Under the agreement, Expedia will now handle most of Travelocity's bookings and collect the related fees from airlines and hotels, and then pay a commission back to Travelocity. Travelocity is a unit of closely held Sabre Holdings Corp. Last week, Sabre's CEO Sam Gilliland stepped down and the company promoted its president Tom Klein to the top job.
Expedia will benefit from "one of the best known travel brands in the U.S. and Canada," Mr. Khosrowshahi said, boosting the volume of customers using its platform, while Travelocity can gain from its competitor's broader array of hotel and airfare offers, which include inventory from roughly 400 airlines and more than 200,000 hotels.
The unusual agreement illustrates the challenges of an increasingly crowded online-travel industry. The legacy players—Expedia, Travelocity, Priceline.com Inc. and Orbitz Worldwide Inc.—known as online travel agencies, have been joined in recent years by websites like Kayak and Hipmunk that also scan the online travel agencies in their searches for travel deals. Google Inc. and Microsoft Corp. have also entered the market with flight- and hotel-search tools.
The online travel agencies search airline and hotel data to look for the best rates and earn commissions by booking lodging and transportation on travelers' behalf, a fiercely competitive business that often hinges on the size of a website's network. A bigger pool of hotels and airlines often gives online travel agents more leverage when negotiating rates and fares.
Online travel agents also vie for customers' attention, a challenge that hurt Expedia earlier this summer after aggressive advertising by Priceline.com drew away much of its business. Expedia's profit fell 32% during the second quarter even as its marketing costs jumped 33%.
Shares of Expedia rose 1.7%, or 77 cents, to close at $46.47 Thursday on the Nasdaq Stock Market.
A version of this article appeared August 22, 2013, on page B5 in the U.S. edition of The Wall Street Journal, with the headline: Travelocity Teams Up With Expedia to Power Searches.
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