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Expedia to expand through fresh destinations

By Roger Blitz
December 17, 2007 16:39 IST
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There is little sign of calmer times at the end of a turbulent year in the $900bn travel market.

Just as Thomas Cook and Tui Travel emerge with upbeat trading statements after months of complex merger deliberations, in flies Expedia, their US nemesis, to announce that it plans an assault on their home turf.

Expedia, spun off from Microsoft in 1999, then again from IAC in 2005, enjoys enviable revenues and margins from US online business. Under Barry Diller, its chairman, and Dara Khosrowshahi, chief executive, gross bookings for the 5,000-strong Seattle empire will this year be $19bn and margins were touching 15 per cent in the third quarter.

On one of his now regular trips to Europe, Mr Khosrowshahi says investments are bearing fruit, execution is better than ever and European growth is increasing on a quarterly basis. Meanwhile, Trip Adviser, the media arm, is selling more advertising on transactional sites.

But the US market, which has provided two-thirds of revenues, is maturing. "We can't depend on new internet usage to drive the business [in the US]. We have to depend on increasing our wallet share with consumers who are probably already spending online and getting them to choose us as opposed to alternatives," he says.

Europe, by contrast, offers a huge host of new internet users. "Europe is where their growth is going to be," says Aaron Kessler, analyst with Piper Jaffray.

Mr Khosrowshahi is not shy of casting mild aspersions on the rivals who block his path in Europe. He highlights Expedia's nimbleness as a pure online, asset-light company, which unlike his competitors does not own inventories such as aircraft or hotels, and is unencumbered by the baggage of high street travel shops.

Yes, his rivals have steadily built up their own online operations, but "there is no one who's built a global presence the way that we have". Expedia, he adds, is trying to keep ahead of the pack in the use of technology by exploiting the popularity of social networking sites such as Facebook and by personalising search engine results.

Mr Khosrowshahi brushes off the threat of travel suppliers such as airlines and hotels bypassing agents with their own online services.

"At all times you [have] had suppliers with direct and indirect sales. There is no reason for that to change. Direct players are catching up, but both online travel agencies and supplier direct sites will grow."

Europe is not the only target market in view. "There is a very consistent shift of the business going internationally," he says. While he can expect to be flying in and out of India to develop Expedia there next year, the Chinese market excites him the most. E-Long, the number two travel agent in China, is 52 per cent-owned by Expedia.

"China is, more and more, becoming mobile," he says. "It [will be] a market with real scale five years from now and has 20 years of growth ahead of it. I have no reason to believe China won't develop travel behaviour similar to the US. It will take a long time but it's a wave the likes of which we have never seen before."

In spite of climate change fears and terrorist threats, the travel market is resilient, he firmly believes, and travel is a core activity. Consumers may change their travel behaviour, but "they still get out there".

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