On OTAs And M&As ... Plus Some GDSs, Too

Hudson Crossing's No. 1 prediction for 2009 is that "a major OTA brand will be sold." Download this and their other interesting expectations here.

"The space for Online Travel Agencies (OTAs) has become crowded and the current downturn in consumer spending on travel will force one major OTA into a change of ownership," Hudson Crossing wrote. [more] "The challenges that face OTAs are numerous and multifaceted. From the competitive view, OTAs are experiencing sustained pressure from suppliers who are increasingly competing for direct bookings with travelers while simultaneously compressing OTA margins. Independent hotels have discovered the effectiveness of search engine optimization and pay per click advertising, which is allowing them to efficiently reach consumers without an intermediary. In addition, price parity now exists for much of the inventory found with OTAs. Firms like Kayak are creating additional disruption by continuing to aggregate consumer booking demand, further distancing OTAs from their end consumer."

"One bright spot will be the opaque providers such as Priceline and Hotwire, who will comparatively benefit from increased hotel inventory and lower net pricing along with an increase in price sensitive buyers," the firm added.

Orbitz Worldwide chairman Jeff Clarke talked just last week about consolidation: "We as a board have had lots of discussions and we have noticed the significant consolidation that has already happened in the supplier base, and we expect more of that to happen. We expect additional airlines around the world to combine, additional relationships and alliances among hotels and so forth. And as you have seen, the different OTAs have acquired different properties. You saw Venere acquired by Expedia recently, obviously Priceline has had acquisitions and as you go back a little bit you'll see that Orbitz has, as well."

"So we continue to believe there will be consolidation in the industry," Clarke continued. "We think now there is a large, fragmented set of players and we will continue to keep our eyes open for appropriate fit-ins for Orbitz."

Expedia CFO Michael Adler during an Oct. 30 conference call also positioned his company as a buyer when the topic arose, although he said the market would require "some liquidity" before "changing our tone and being a little bit more aggressive on the capital front."

In November at a PhoCusWright conference, one attendee asked Sam Gilliland, chairman and CEO of Travelocity parent Sabre Holdings, whether Sabre was more valuable "as a whole or in parts." Perhaps exasperated by the frequency with which he receives the question, Gilliland said, "If I thought it was more valuable in parts, it would be in parts, so there you have it." Interestingly, though, Gilliland then went on to offer what some might argue is a rationale for separating Travelocity from the Sabre global distribution system. "One of the reasons that we went private was a concern that we weren't being evaluated appropriately in the marketplace. Many of the same reasons apply to what happened with Travelport and what happened with Amadeus. There are challenges around our business in getting the investment community to understand the business model. Just the look at the global distribution system part of the business model: That's not an easy thing for average investors to understand. If there's a point in time when we think there's a lot more value in having the portfolio split up, you'll see it split up."

Expedia and Orbitz are publicly traded, although private equity-owned Travelport has a large chunk of Orbitz shares. Sabre is fully private equity-owned, while Amadeus is owned by private equity interests and three European airlines.