Will the Travelocity-Expedia deal be good for travelers?

Depending on whom you talk to, Travelocity’s unexpected announcement last month that it has reached a strategic marketing agreement with longtime rival Expedia will either create a dominant new Internet travel agency, give consumers access to more hotel choices or raise prices.

All three things could happen, actually, but the conjecture surrounding the announcement reminded me of the fallout from the last big online travel deal. After Priceline’s $1.8 billion purchase of travel-search site Kayak.com in 2012, I received an e-mail from someone who identified himself as a reader named Ben Tester.

As part of that purchase, Priceline promised to run Kayak independently, which is important because Kayak purports to display unbiased prices from hundreds of online sources. But Tester charged that since the acquisition, Kayak had quietly started to list hotel results from another Priceline-owned site without including fees and taxes, making its prices look lower “and misleading consumers.”

I asked Priceline about the inconsistent rates. A representative acknowledged that the results were displaying differently but said that this was an error that had probably existed before the company bought Kayak.

“It was a matter of how Kayak’s system was interpreting and displaying the data feed, which has been fixed,” Priceline spokesman Brian Ek told me.

I asked Tester what he thought of the explanation and promised to write a story about it, but he didn’t respond to my message. His silence made me wonder whether he may have been someone working at another online travel agency and using a nom de plume.

Do consumers even care about any of this? Well, they should.

What’s happening behind the curtain in the online travel world matters. Expedia and Travelocity are the No. 1 and No. 3 online travel agencies, respectively. Priceline also owns Booking.com, a dominant hotel Web site. And of course, Google is eyeing the online travel world through a string of acquisitions such as ITA Software, Frommer’s and Zagat. Soon, we may all be buying our travel from the same place.

The agreement between Travelocity and Expedia, which isn’t expected to be implemented until next year, will see Expedia “powering” Travelocity’s technology and customer-service functions, according to Travelocity chief executive Carl Sparks.

Travelers will benefit in several ways. Travelocity will receive a needed upgrade that will allow travelers to book multi-destination packages. They’ll also have access to more hotel inventory and additional payment options.

It’s a good deal for Travelocity, too, because the agency will be able to outsource all but some promotional, branding and management functions to its competitor while still competing with it, says Sparks. “We get a better cost structure and can put that saved money into marketing promotions,” he says. “At the same time, we will be vigorously competing with Expedia.”

Henry Harteveldt, a travel industry analyst and strategist for Hudson Crossing, called the transaction a “virtual merger” but said that travelers shouldn’t notice much of a difference in the way they book their trips online. “The Travelocity-Expedia partnership should have minimal impact on consumer choice when it comes to researching and booking trips online,” he says.

That’s because online agencies such as Orbitz, Priceline and Bookit will continue to compete with Travelocity-Expedia in the online travel space. So even if Travelocity becomes a storefront for Expedia (which it says it won’t), competition will remain alive and well, at least for now.

Ask travelers what they think is going to happen, and the answer is more blunt. “It’s bound to raise prices,” says William Voss, a retired pharmacist from Oak Park, Ill.

Past experience — and logic — suggest that he may be right, too. In previous travel industry mergers, consolidation allowed the new company to start charging higher prices for products. Scroll back to any major travel industry merger or acquisition, and it’s hard to find even a single example of fares or rates falling post-transaction. But it also makes sense. If Expedia is now providing the inventory for a longtime rival, no matter how you frame it, Expedia gets more leverage. Why wouldn’t it take advantage of that by raising some of its rates?

No one knows what will happen until it actually happens. But you don’t have to wait to adjust your online booking strategy. Just a few years ago, searching the three major online travel agencies plus one of the “opaque” sites such as Priceline or Hotwire was enough to let you zero in on the best fare or rate. No longer. These little-understood, behind-the-scenes deals mean that you could be querying the same site multiple times.

Bottom line? If you’re looking for a low price, you’ll have to cast a wider net. Sites such as Mobissimo and Hipmunk can help you compare airfares, for example. Niche companies such as Room77.com, Stayful.com and Tablethotels.com offer an alternate way to plan and book a hotel room.

We’re nowhere near the red-alert territory we’ve crossed into with airline mergers, in which the federal government needs to step in to ensure that competition is kept alive. But this might be a good time for everyone to start paying attention.

Will the Travelocity-Expedia deal be good for travelers?

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or contact him at chris@elliott.org. Got a question or comment? You can post it on the new forum.

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  • Carver Clark Farrow

    I may be showing my ignorance in that I only book directly with the travel provider. OTAs and the like are merely distribution channels of a product that is also sold directly to the consumer. So how do the affect the price except on those products which they upsell or act as consolidators?

    The general objection to mergers in noncompetitive markets is that it perverts the supply and demand dynamics, e.g. the new entity can unilaterally reduce the supply thus prices rise. Economics 101. But this merger will have no effect on the number of available flights, hotel rooms, or rental cars.

  • BillCCC

    I have to say that I do not know. When booking travel I will go to most of the sites to compare prices but I have almost always booked directly with the hotel chain etc,

  • MarkKelling

    I don’t use any of the companies named to book travel. I do use most of them to give me an idea of where I might bet the best deal and then book directly with the hotel, airline, etc. I don’t believe that having multiple sites using the same data feed to show you their deals is a good thing. Sure it saves the companies money by not having to pay for the multiple feeds individually, but whats to keep the owner of the feed from filtering out the best deals keeping them for itself?

  • Nigel Appleby

    I use OTA’s for research and then book through a bicks and mortar TA, who have either matched or, frequently, beaten the price. As they will be selling the same products, ie flights, cruises, package holidays, hotels etc as others there will still be competition.

  • SoBeSparky

    Pardon my splitting hairs, but the poll question is phrased such that if the merger is projected to have no effect or a negative effect, then a “no” answer is appropriate.

    I think the effect, if any, will be minimal. What results is a larger computer data base for on-line travel agencies. Perhaps this gives the companies a marginal marketing advantage, but i cannot see any consumer benefits. These on-line travel agencies are notorious for spotty, at best, customer service, especially when things go wrong.

    Like other commentators, I book directly with the source. I do not need an impersonal intermediary to allow Murphy’s Law to take place.

  • Charlie Funk

    The merged entity controls 61% of the OTA market. There is no formal takeover so no governmental oversight. That level of concentration in any industry has tended to be unhealthy in the past. I see nothing to suggest this will be different.

  • jim6555

    These OTA sites often act as consolidators and compete for business based on price. Eliminating competition means that prices will go up since there will be less incentive to give deep discounts to win business. I have yet to see a merger that has been good for consumers.

  • bodega3

    After experiencing first hand with calls to our agency when these companies have failed customers during major travel crisis situations, I don’t think they have ever been good for travelers. Add to that the way their clients are treated with the least desirable accommodations in a category and being walked, does it really matter if this merger works or not?

  • polexia_rogue

    “Travelocity will receive a needed upgrade that will allow travelers to book multi-destination packages. They’ll also have access to more hotel inventory and additional payment options.”

    that might be kind of cool, if it means why i think it means, and if the instate a payment plan option (they would get a TON of business of you did not have to pay the full amount right away.)

    but until then, like most people here, i book directly from the airline and hotel’s websites. this is so, if something goes wrong i can deal with 1 company instead of travelocity/expedia call canter staff telling me “well.. the issue might be on the airline’s end… but it might not be– call the airline and check, then call us back.”

    also, i hope (with the merger) expedia stops the whole “if you find a lower price we will send you a magical check for the difference!” — you just have to pass through the fires of hell to get it….

  • Grant Ritchie

    “Travelers will benefit in several ways.” Is it just me or did the temperature in the room drop by ten degrees?

  • Carver Clark Farrow

    Another reason why I am not particularly concerned about this merger is that I think it will ultimately be irrelevant. I would assume that the barriers to entry into the OTA market is extremely low. IF that’s true, then it becomes nearly impossible for a single entity to engage in monopolistic behavior.

    I can purchase travel directly with the travel provider, use a travel agent, or an OTA. To the extent that this merger affects competition (a dubious claim), it is limited to the OTA world, leaving the travel provider and travel agents untouched.

  • Charles

    I buy from whoever is cheaper up to the level of trust (there are sites like olotels.com out there that can be really cheap, but I’m not sure I trust them). In general, the OTA’s are going to be the same price as the travel provider directly with some exceptions:

    1) Packages can be significantly cheaper than buying the parts separately.
    2) Travelocity regularly sends me 15% off coupon codes (I have one active now). That puts them cheaper in most cases. I am concerned that those will dry up after this deal.

    BTW, I’ve used Expedia and Travelocity a lot and never had any problems at all.

  • Barry Moss

    I dont think this will have much impact at all. I never book through an OTA because I can get just as good a price through the hotel or airline site. I never find the packages useful, particularly since I don’t take beach vacations which seems to be the main thing being promoted. Plus I’m often using loyalty points to cover part of my trip, so I’m booking everything individually.
    I’d only consider an OTA if I had to get a flight involving segments from different airlines and this was the only way to get the entire trip on one ticket.

  • Trudi

    Competition is healthy…for business owners. There used to be a healthy promotion of competition between businesses now we bank with 5 banks, watch entertainment offered from a 5 different corporations, and travel using a handful of optional travel companies. The only people who will benefit are investors. I’ve used Travelocity and Expedia in the past but I don’t really trust them all that much. Additionally, I prefer to travel off the beaten path so these kinds of services don’t offer me much anyhow.

  • TonyA_says

    Travelocity does not have a booking.com / agoda (owned by Priceline) or a hotels.com / hotwire (owned by Expedia). So I guess it needs to partner with #2, Expedia, so they can both fight #1, Priceline. for dominance in the hotel market.

    Let them kill each other :)

  • California_Dave

    I think we all need to be reminded that OTA’s do not manufacture a product -they are simply “reselling” someone else’s product and take a piece of the action. The only inventory they have and the price they can sell it is strictly up to the hotel, car or airline. A supplier, in most cases, can shut down the supply to them within seconds, so I’m not worried about competition.

  • Kevin Mathews

    I voted “No” for that exact reason. It’s not that I think this will be bad for travelers, I just believe that it’ll have minimal impact. Given that they don’t actually operate any of the services, it shouldn’t have an effect on the Supply/Demand.
    The only negative impact I could foresee with the merger is if they start getting “too big for their britches” and start making demands from the service providers that are unreasonable and the service providers tell them to F Off… Because like it or not, the airlines and others within the travel industry “need” these kind of sites to help fill their seats and rooms. There are enough people that shop through these sites that it would have a negative impact on the providers if they stopped allowing these sites to carry their inventory…
    Which in turn could lead to a rate increase for those that book directly in order to offset the lost revenue from the rooms sold through the discounters… But this is all in the hypothetical…

  • Carver Clark Farrow

    Or it might lead to a price decrease as the travel providers no longer have to split revenue with the OTA.

    If every OTA disappeared, the major travel providers would rejoice. They realize that OTAs cost them money and have been trying for years to direct traffic back to their own portals through a variety of carrots and sticks.

  • Joel Wechsler

    I stopped believing in Santa Claus long ago so I’m sure this merger is not being undertaken with any consumer benefit in mind. Having said that, it’s probably irrelevant for the reasons stated be previous commenters, although if there is any change it will probably be negative.

  • Lindabator

    Actually, hotels have already started to balk at the OTAs inventory amounts – the larger THEY get, the less likely the hotels can negotiate better prices for their corporate clients, packages etc, and they are starting to feel the sting. (Was an article in the trades a couple weeks ago)

  • TMMao

    Without this virtual merger, Travelocity would not have survived for long. From personal experience, I know that their bookings have dropped considerably over the past couple of years while most other OTAs have increased.