Tuesday, April 25, 2006

Rumors of Consolidation Of The Online Business

Rumors are circulating that the consolidation of the online travel business is about to begin. The consolidation of the online travel business could prove to be one of the best investment themes for the next five to ten years. The industry has gotten hit pretty hard during the last year as there seems to be too many competitors.

In addition, the industry, at this stage of its life cycle, appears to be counter-cyclical. The online travel business seems to get more inventory when the economy is weak and there is an oversupply of hotel rooms and airplane seats. When things are good, the hotel companies and airlines like to book the customers themselves.

This weakness in the online business may prove the best time for the industry to consolidate. Interactive Corp. laid the foundation for a consolidation by spinning off Expedia and most likely would play the lead role. Henry Silverman, head of Cendant, is breaking his company up which owns online travel distribution businesses with well-known names Orbitz and Cheaptickets in the consumer space, in addition to Galileo which is a leader in the business online travel market.

Expedia, during its existence, has shown great financial metrics with high operating leverage. Combining two industry leaders could create a profit generating machine. The $900 billion world travel business will grow nicely as the global economy booms. Expedia has been growing its online business twenty percent per year. A consolidated online industry will give it more power and more profit potential for shareholders.

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