Online Travel - Long or Short
Looking to understand the bull/bear case for the online travel sector.
Welcome any views from anyone looking @ the space and online search who feels conviction to be either a buyer or seller of these cos. Thx.
Background Pros/Cons:
At the crux of the thesis is one event, the Google ITA deal. Combining a dominant flight search engine company ITA with the dominant online search co positions GOOG to effectively dominate the online travel search space. Google can distribute in a number of ways, e.g. through Mobile channel/Nexus. ITA flight data software is used by many US airlines and a number of leading online travel sites, including Hotwire, TripAdvisor, Orbitz. Online travel cos banded together ("FairSearch.org coalition") urging the Justice Department to block the Google-ITA deal (anti-competitive,etc).
Barriers to entry in this space seem low. What is stopping other large-cap online search giants from entering this market, in some way, other than online travel incumbents seeking legal relief. As the case above suggests its unclear if there is anything competitive/strategic these cos can do to defend their biz. Pricing and/or share can get hit pretty uniquely under a myriad of possible scenarios.
In addition, local/state govs have been targeting online travel cos to get back lost tax revs. -online travel cos buy blocks of hotel rooms from hotel owners @ wholesale rates, mark up price per room, market and sell to online customers.
-online travel cos pay sales tax/ local tourism taxes based on wholesale price, not rate charged customers, which the local gov is taking issue with (legislative economists est costs local govs ~$29MM/year in lost tourism tax revs and state ~$40MM sales taxes).
Also, I just don't understand if there's any adjacent revenue stream these companies can tap into. Tourism/travel aggregators drive a pretty discretionary revenue model where customer loyalty is hard to come by and it is hard to envision potential diversification strategies.
The bull case is primarily a consolidation play, where any of the leading players in this market can be targeted M&A plays for online search firms to further aggregate traffic and related potential revenue streams. At the end of the day online travel cos have built huge network equity thru partnerships w airlines, hotels, entertainment options - this massive network allows sourcing and building uniquely priced packages for consumers. This entire supply chain is too difficult to recreate from scratch.
