Expedia has reached an agreement to provide all content and technology for smaller online travel agency (OTA) Travelocity in a move that essentially consolidates the OTA market and may help guard Expedia against increased competition from Priceline.
Expedia and Travelocity, which is owned by Sabre Holdings, have created a long-term marketing agreement that is scheduled to take effect next year.
“Volume generated through the agreement will add further scale to Expedia’s global supply and customer service capabilities,” Expedia CEO Dara Khosrowshahi said on Aug. 22 when announcing the agreement.
The partnership gives Expedia control of more than half the estimated $40 billion in U.S. travel bookings through OTAs. Last year, it controlled about 45% of the U.S. market while Travelocity accounted for about 16%, according to PhoCusWright.
With Sabre rumored to be considering a public offering, the agreement is also a concession that the company is better off focusing on its GDS rather than committing further resources to Travelocity, founded in 1996.
“This is a virtual merger,” said Hudson Crossing travel industry analyst Henry Harteveldt. “Sabre’s basically hoisting a white flag and surrendering to Expedia.”
Harteveldt said the only thing preventing Sabre from selling Travelocity to Expedia outright was fear of the kind of federal regulatory opposition that recently challenged the American Airlines-US Airways merger agreement.
Either way, the agreement provides some much-needed momentum for Expedia. Last month, Expedia reported Q2 net income that was down 32% from a year earlier, as expenses spiked on its acquisition of German metasearch company Trivago in March.
And while Expedia’s second-quarter revenue rose 16%, it missed analysts’ estimates.
Follow Danny King on Twitter @dktravelweekly.
This report was updated on Thursday evening to add analysis of the agreement.