Possible Airline Consolidation Could Hurt Online Travel Agencies, Some Analysts Say
NEW YORK (AP) -- The possibility of consolidation in the airline industry may sound good for some airlines, but analysts say the online travel agencies that sell their tickets could be in for a bumpy ride.
Rising costs have moved the airline industry toward consolidation -- Delta Air Lines Inc. and Northwest Airlines Corp. are considering combining their businesses, and reports indicate United Airlines parent UAL Corp. and Continental Airlines Inc. are talking about doing likewise.
Joining forces could lower airlines´ overhead costs, cut down on competition, enable them to eliminate overlapping flight routes and lead them to charge more for tickets.
Opinions are mixed, but analysts say consolidation could hurt companies like Orbitz Worldwide Inc., Expedia Inc. and Priceline.com Inc. in a variety of ways, possibly lowering demand for their services.
Pacific Crest Securities analyst Steve Weinstein said consolidation would be a negative for the agencies, since they provide a good view of all the travel options available to consumers.
"If there are less options, there´s less need to go there," he said, referring to the agencies´ sites.
The companies could be affected by consolidation if traffic starts going more to the airlines´ sites, Piper Jaffray analyst Aaron Kessler said, though he thinks there would have to be a lot of consolidation before the agencies were hurt.
Susquehanna Financial Group analyst Marianne Wolk doesn´t think traffic would be lost to airline Web sites, but said consolidation could result in an increase in ticket prices.
"For the online travel agencies, any situation that could potentially lead to higher prices might lead to lower demand, and because they get paid per ticket and not based on the price of the fare, it would hurt them," she said.
Already, the take per ticket that these companies get from airlines has declined over the past few years, analysts noted.
And while Orbitz, Expedia and Priceline could all be impacted by airline consolidation, some analysts see Orbitz in particular as more susceptible since it has more U.S. business than the other two.
Orbitz, which has not yet reported its fourth-quarter results, said in November that gross domestic bookings accounted for 86.2 percent of its third-quarter total.
Gross domestic bookings made up 43.6 percent of Priceline´s 2007 fourth-quarter total bookings, and gross North America bookings made up 68.2 percent of Expedia´s.
But even though Orbitz´s business is dominated by the U.S., "their international piece is growing and it is where they´re trying to put their investment," Weinstein said.
Wolk said that the international travel market is "particularly attractive" to the agencies because only about 25 percent of it is currently booked online.
The agencies are also trying to sell more packages, she said, which combine things like airfare, hotel rooms and other travel services such as event tickets.