Depending on whom you talk to, Travelocity’s unexpected announcement last month that it has reached a strategic marketing agreement with long time 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.
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The Affiliate Deal of the Decade
Travelocity’s New Deal with Long-Time Rival Expedia Marks the End of an Era
It was the fall of 1999, the heyday of online travel 1.0, among many other heydays.
Sabre, the parent of Travelocity, had announced the acquisition of Preview Travel, then the third-largest online travel agency (OTA). The combined entity would be an online travel powerhouse, pushing Travelocity well past number two Expedia, with whom it had been in a rough-and-tumble knife fight for the top spot.
“This is going to be a very, very impressive business in terms of its reach,” said then Sabre Chairman Donald J. Carty, quoted in an October 1999 article in the Wall Street Journal.
And so it was. The acquisition catapulted Travelocity to a leading position, with 35% of the OTA market in the U.S. in 2000, when total OTA gross bookings reached $6.6 billion. But the experience of being top dog was a fleeting one. Sabre’s subsidiary was quickly outflanked.
Within just two years, Expedia had shot ahead with its market-making merchant model for hotels, powered in part by the acquisitions of two online lodging aggregators, Travelscape and VacationSpot. Expedia’s new hotel platform gave it an edge that left its competitors as well as hoteliers in a daze amid the recession of 2001 and 2002. By 2004, one year after the additions of Hotels.com and Hotwire, Expedia was the U.S. market leader by a longshot, with nearly half the market.
BELLEVUE, Wash. AND SOUTHLAKE, Texas – August 22, 2013 – Expedia, Inc. (NASDAQ: EXPE) and Travelocity today announced entry into an exclusive, long-term strategic marketing agreement, whereby Expedia will power the technology platforms for Travelocity’s existing websites in the US and Canada, while providing Travelocity access to Expedia, Inc.’s supply and customer services. Upon the implementation of the agreement, Travelocity will focus its efforts on promoting its brand and marketing the broad offering of travel services and supply made available through this agreement. Travelocity will remain wholly-owned by Sabre Holdings Corporation, and independent of Expedia, Inc. Travelocity-owned lastminute.com in Europe and the Travelocity Partner Network are not included in this marketing arrangement. – See more at: http://www.sabre.com/newsroom/expedia-inc-and-travelocity-announce-strategic-marketing-agreement/#sthash.OPAjRhRO.dpuf
There’s only one place where ignoring the organization and logistics involved with travel really pays off. That’s in travel ads where people don’t want to think about renting a car or booking a tour, but want to imagine themselves steeped in culture in front of vistas they’ve only seen in their dreams.
Consequently, this week’s ad roundup looks at the romantic side of travel. It looks past business meetings to see face-to-face human connection, turns arguably irresponsible last-minute trips into a celebration of spontaneity, and highlights how ancient trails can become a modern-day action movie.
TV travel advertising in the U.S. has suddenly become more crowded and competitive, and as Expedia Inc. brands struggled to break through the clutter in the second quarter, the company’s hotel business suffered, and its Hotwire unit took a particularly hard hit.
Amidst some downbeat financials, that was the competitive climate that officials said Expedia operated in during the quarter.
The impact of Expedia’s multifaceted woes? Room night growth decelerated from 28% year-over year in the first quarter to 19% in the second quarter, and revenue growth likewise slowed from 24% in the first quarter to 16% in the second.
And, Expedia Inc.’s net income declined 27% to $90.5 million in the second quarter of 2013, compared with the same period a year earlier