Online travel companies are facing increasing competition from suppliers and search engines, which could pressure long-term earnings growth, according to a Merrill Lynch report.

Published: 27 Apr 2006

Online travel companies are facing increasing competition from suppliers and search engines, which could pressure long-term earnings growth, according to a Merrill Lynch report.

As per the information available, the firm maintained a “neutral” outlook on the online travel industry and “neutral” ratings on Expedia and Sabre Holdings.

“Our preliminary assessment is that Cendant’s first-quarter online travel results are a positive indicator for first-quarter industry bookings,” analyst Justin Post reportedly said. “We believe a significant majority of Cendant’s first-quarter bookings were U.S.-based and that Cendant will capture share versus our 25 percent first-quarter U.S. online travel industry bookings share estimate.”

On its part, Cendant, sharing its first quarter financial results, had commented on its TDS division (which posted US$645m in revenue): “Revenue increased due to growth in our online travel agency and other consumer travel businesses and in our GDS business. On an organic basis, our online travel
businesses grew worldwide gross bookings by 27 percent and achieved higher EBITDA
margins.”

According to Post, Cendant’s year-over-year net revenue rate for its online and offline travel agencies improved 47 basis points year-over-year to 7.94 percent, likely due to acquisition of Gulliver’s and the inclusion of more merchant hotel inventory on Cendant’s online travel Web properties. It was further projected that Travelocity’s net revenue rate will increase to 10.3 percent in the first quarter, while Expedia’s rate will decline to 11.4 percent.