Pack up the gnome: Travelocity shifts back-end to Expedia


The Travelocity brand has not been particularly strong for a while now, despite the marketing efforts of their travel gnome. The company – owned by travel giant Sabre – has been shedding divisions in recent months, including their Zuji brand in Asia, their business travel segment in the United States and Holiday Autos in the UK. Their latest move, however, might just be the most surprising: Travelocity’s main search features will be powered by Expedia starting in 2014. What once were two cut-throat competitors are now going to mostly be the same operation, marketing under different brand names but powered by the same technology behind the scenes.

imageThe net result of this move is that effectively the two companies are merged. Yes, Travelocity will retain their marketing arm so the gnome really isn’t going anywhere yet. And their executives claim that they will provide different sales and promotions to keep the pricing and offerings different. But that seems quite the dream state, really, rather disconnected from reality. Especially in the airfare market where the fares are generally the same across the board excluding OTA-imposed fees, it seems unlikely that this move will really keep competition strong. And, depending on certain conditions in the coming months, it may be possible for Expedia to acquire Travelocity assets in the future as part of this deal.

It is hard to see this as a positive for consumers. On the one hand, the larger buying power of the consolidated organization means a theoretically more powerful negotiating position for the company, meaning better discounts or lower rates. But there is no reason to believe that those savings will be passed along to the consumers, especially when there is less competition which would have otherwise necessitated such end-user benefits. This is not officially a merger, at least not yet. But it does raise a number of questions as to just how consumers will be able to comparison shop in the future with the loss of a major competitor in the space. To be fair, this is hardly the first time a major travel engine has used different brand names powered by the same systems to “compete” over customers. Hotels.com is just another skin of the Expedia platform, as is their European arm, Venere.com. Priceline and Orbitz (and their other brands) still remain as major competitors, but the major OTA market is definitely shrinking.

Much like regular travel agents, the OTA market involves low margins and lots of price-sensitive customers. There is very little in the way of loyalty and the customer service costs are not trivial. It is understandable that they’d want to consolidate their operations to cut costs. But that doesn’t necessarily translate into good news for customers. And, unlike the AA/US merger, the DoJ is not likely to get involved in this one.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

7 Comments

  1. Profits for the OTAs are primarily from hotel bookings where the sites sell hotel rooms generally at the same rate as the hotel brand websites, but keep a commission of 10% to 30% on the booking.

    Best Rate Guarantees with the hotel chains keep the rates from undercutting the brand websites. The UK has claimed this is price-fixing. The U.S. has not really taken on the issue as far as I have seen.

    Hotels like the traffic driving power of the OTAs, yet it is a love-hate relationship with the high payout to OTAs for the rooms they book for the hotels.

    1. Hotel bookings are where the best margins are but it is very much a tough market for the OTAs. They try to build loyalty through kick-backs and affiliate programs because they cannot do it with direct pricing, a market play which overall is tough to win with.

  2. I had one bad experience with orbitz and virgin america cancellation where both parties pointed the other way. So now, I use the OTAs to window shop for the best price/itinerary and usually making the final booking on the actual hotel or airline.

    1. That idea of using the OTAs for pricing and then buying direct – the online version of showrooming – is hardly new. The OTAs actually have sponsored research which says it is good for the hotels to have such actions because the oTAs raise awareness and that drives the bookings, either via OTA or direct, and that’s more profit for the hotels. I’m guessing they’ll claim similar for the airlines. There are times where the OTAs are the smart booking channel, especially when it can save you real money, but it does create issues with IRROPS and customer service, a huge cost sink for the OTAs and part of why Travelocity is making this move (to cut those costs).

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