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More Consolidation with Expedia’s Purchase of Orbitz

Today’s big news in the online travel agency (OTA) world: Expedia and Orbitz have agreed on terms for the sale of the latter to the former. The transaction would value Orbitz at around $1.6 billion, and is subject to approval by regulators and Orbitz’s shareholders.

On a conference call to discuss the acquisition, Dara Khosrowshahi, Expedia, Inc.’s chief, said the addition of Orbitz to the Expedia portfolio would result in $75 million in incremental revenues during the first year, driven by “synergies and increased efficiencies.” He also alluded to the “war for global talent,” and the technical and marketing horsepower that the Orbitz team would add to the company’s workforce.

Less discussed was the effect that consolidation in the OTA area would have on competition, and ultimately on prices at the consumer level. Of the four largest OTAs—Expedia, Travelocity, Orbitz, Priceline—Expedia has already acquired Travelocity. With the purchase of Orbitz, Expedia-owned companies will reign supreme in the space. It’s hard to imagine that the net effect will be anything other than decreased competition. And that welcome prospect, of course, must have played a part in Expedia’s decision to make the purchase.

Khosrowshahi pointed out, rightly, that OTAs are not alone in the travel-distribution business. The airlines, hotels, rental-car companies, Google, TripAdvisor, and others are all vying to be travel consumers’ first choice when it comes to researching and booking travel.

But it’s also true that for many travelers, OTAs have become the be-all and end-all in purchasing travel. With Expedia’s latest acquisition, any assumptions consumers may have harbored about competition keeping OTA prices in check are looking increasingly tenuous. More than ever, it’s caveat emptor.

Reader Reality Check

How do you expect the Orbitz purchase to affect choice and pricing?

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