Expedia Inc. (EXPE) and AirAsia, a leading Malaysian budget carrier, are in talks to form a joint venture (JV) to offer a complete range of flight, hotel accommodation and holiday packages throughout the Asia-Pacific region.
The formation of a new company would be beneficial to both Expedia and AirAsia, since it would combine the local knowledge of AirAsia and Expedia’s technology to provide an integrated travel experience.
The JV will have the exclusive right for online distribution of tickets of AirAsia flights and will be available on AirAsia.com, AirAsiaGo.com and Expedia.
To commemorate this partnership, hotel discounts up to 80% are being offered by www.AirAsiaGo.com in 10 Asian cities for three days starting from today.
Expedia is soon to launch its Malaysian and Thai websites (www.expedia.com.my and www.expedia.co.th) later this year. It will have a two-week special sale period offering up to a 60% discount for South-East Asian destinations.
The travel market in Asia has been growing over the past few years due to low-cost airlines, credit card availability, an expanding middle class and outsourcing activities, especially in fast-growing economies, such as China and India.
Preliminary figures from the Pacific Asia Travel Association (PATA) revealed that the Asia-Pacific region saw an 11% increase in arrivals in 2010, while 2011 growth rates are expected to double that of the average growth rates across the world. Countries other than China and India, which posted record growth rates in 2010, include Vietnam, Singapore and the Philippines.
While South-East Asian countries are expected to witness maximum growth in the next few years, other Asian countries will also benefit. Industry analyst PhoCusWright expects the total travel market in the Asia-Pacific to reach $212 billion this year, up 5% from 2010 (although the recent crisis in Japan could temper these expectations). Expedia, with this joint venture, has positioned itself to benefit from the $212 billion opportunity.
Expedia already offers a number of services in Japan, including a 24/7 telephone service in Japanese and a “Dynamic Tour” (online search services to 70,000 hotels across 30,000 cities, combination flight/hotel bookings through which fetches significantly discounted rates).
The crisis in Japan comes as a big blow for Expedia. The company’s efforts in Japan were just beginning to pay off and a company official recently stated in a Japanese daily that revenue from Japan had grown 50% from 2009. Expedia had big plans for Japan, especially on the mobile platform, but it looks like some of these plans will now be put on hold.
Given the conditions in Japan and its impact on Expedia, we expect increased pressure on the company’s earnings. Additionally, legal concerns related to occupancy taxes and Google Inc’s (GOOG) entry into the travel market are added concerns. The company has a Zacks #4 Rank, implying a short-term Sell rating. Our long-term recommendation, however, remains Neutral, as the online travel market is booming, in our opinion.
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