Expedia + AirAsia: Glorified White Label, or the Real Deal?

Let's be honest: Expedia may be the world's largest online travel agency (OTA) in terms of gross bookings, but in many markets around the world, it is a decidedly tier-two player.

PhoCusWright Expedia has long attempted to build a significant presence in Asia Pacific (APAC) and has not been overly successful. While the company recently intimated that its gross bookings for the region hover around US$1 billion, its brands play second (or third, fourth, etc.) fiddle to local leaders in Australia, China, India and Japan. The Expedia-AirAsia joint venture (JV) announced on March 29 is among the bolder moves by any global OTA to expand in APAC.

Under the agreement, a new company will operate Expedia's existing country-websites of India, Japan, Southeast and other East Asian markets, along with Malaysian-based low-cost carrier (LCC) AirAsia's online travel services of AirAsiaGo and GoRooms. Expedia will continue direct control of its properties in Australia and New Zealand, and will get exclusive online third-party distribution rights for AirAsia and its subsidiaries across its websites globally and in APAC, with some exceptions.


Go East, Young Man
Growth, growth, growth is the universal mantra of public companies, and Asia beckons. OTAs are facing slower growth in the U.S. as their core domestic market pulls out of the recession, and Expedia, while gaining in Europe through Venere, continues to be eclipsed by's remarkable growth. Expedia is under pressure to expand internationally, and the online travel opportunity in Asia Pacific largely remains untapped. The region is home to a large, fast-growing travel market with low but accelerating e-commerce and online travel penetration.

This new joint venture with AirAsia follows several recent initiatives by Expedia in APAC. In June 2010 the OTA increased its stake in eLong. Come February 2011, it rolled out an elaborate "Big Daddy of Online Travel" marketing campaign in India, and soon after announced new market-specific site launches in Southeast Asia (now falling under the JV). Expedia's corporate arm recently acquired Travelforce, an Australian travel management company.

Expedia's Low-Cost Coup
So since when do super star LCCs cozy up to OTAs? Traditionally, LCCs in Europe and the U.S. have shied away from – if not outright shunned – selling via online intermediaries. Not so in APAC. Traditional travel agencies and local OTAs have a much stronger foothold across the region, and third-party distribution of LCC fares is more common, with notable exceptions.

LCCs are growing rapidly and transforming air travel and distribution in APAC as a result. They accounted for just 10% of total airline passenger revenues in Asia Pacific in 2010 but more than a quarter of online air sales.* AirAsia is the star of the region's LCC show. It is the largest LCC in Asia outside of Australia, and while its passenger revenues and enplanements are relatively small when compared to major LCCs elsewhere such as EasyJet, Ryanair and Southwest, the carrier's growth is surely the envy of most LCCs and network airlines worldwide. Even more attractive, AirAsia is sitting on top of growth goldmines: relatively virgin online travel markets such as Malaysia, Indonesia and Thailand, where it is leading with low fares and innovative online marketing.

The partnership with one of Asia's leading LCCs is a big win for Expedia. It could be the much-needed impetus the OTA has been seeking to expand within the region. Securing exclusive online third-party distribution rights with AirAsia – especially for markets where the LCC is growing abundantly – gives Expedia a strong hand indeed, and certainly puts other OTAs on the defensive.

But Expedia is not the only beneficiary here. For AirAsia, the joint venture expands its distribution across Expedia's global sites and into the European and U.S. travel markets, where Expedia is strong. Expedia may be tier-two in much of APAC, but globally it is solidly number one. AirAsia's online travel services of AirAsiaGo and GoRooms have been largely restricted to the LCC's operating network in the region. Expedia's global content will enable these services to grow beyond the airline and into new markets.

Not Every Deal Can Fly
But there certainly is no guarantee of success. Leading local OTAs from Australia, India and Japan all have growth ambitions in Southeast Asia, so this new JV will have competition. And the true test of the joint venture will be in more established online travel markets such as India and Japan, where local OTAs already have a strong lead.

This JV brings together two great brands, but it does not necessarily mean they will work great together. Expedia's global OTA leadership is not questioned, but it has a mixed record in international expansion. AirAsia certainly knows its market, but it is an airline, not an OTA. It may have strong positioning in APAC, but it is presently bustling with network expansion, upcoming public offerings, plus the launch of a new airline in the Philippines.

The opportunity in APAC is enormous, and online travel in many markets there is in its infancy. But as these two leaders of online travel come together, both will have their work cut out to drive the success of what could potentially be a game-changing move in the APAC online travel market.

* Market sizing and forecasts of the Asia Pacific travel and online travel markets by country and travel segment (air, hotel, car rental and rail) will be available later in April in PhoCusWright's Asia Pacific Online Travel Overview Fourth Edition, April 2011.

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