When the economic crisis first hit our radar screens last autumn, predictions for the future of travel were bleak. Airlines started cutting capacity, car rental companies began corporate bargaining and hotels began girding for the worst. And Priceline began licking its chops.
Here is the basic travel arithmetic that adds up to big bucks for Priceline:
• Saving money is back in vogue.
• Too many seats are available for potential travelers.
• The airlines can’t drop prices too much or sell bargains openly through online agencies because of their “guaranteed lowest fare” efforts.
This all means that real bargains need to be “opaque” or hidden from the public when they are making their purchase. That is exactly what Priceline.com does better than any other agency.
Priceline does it for airlines, rental cars and for hotels. Every one of those portions of the travel industry has excess inventory they want to be using or selling. Priceline fills that bill.
A quick look at its stock price for the past year is illustrative. Expedia racked up a loss of $2.8 billion compared with a profit of $65.4 million in the year-prior period. At the same time Priceline faced with the same economy but with a money-saving image reported earnings of $33.3 million compared with $32.9 million, or 68 cents per share, in the year-prior period.
Recently, Expedia’s stock price has been dropping; Priceline.com’s stock price has soared. The shift in fortunes has everything to do with being in the right place at the right time and taking advantage of it.
The online travel agency (OTA) most connected with saving money just happens to be Priceline.com. The last couple of years they worked to shed that image, but finally began to figure out a way to capitalize on their bargain-hunting beginnings and aura. Capt. Kirk began a new career as “the negotiator.” The economy tanked. And Priceline’s share of the market began to grow while Expedia, Travelocity and Orbitz struggled.
Other bargain OTAs like Cheapoair.com, Cheaptickets.com and Cheapair.com have been treading water as far as I can tell but they don’t have the Wall Street visibility that Priceline commands and certainly haven’t seen their value soar like Priceline has.
Priceline’s future looks pretty bright while the stars are aligned for them. I don’t see any major changes that will allow prices to rise much in the near future. I don’t see the airlines breaking their “guaranteed lowest airfare” advertising. I don’t see travelers stopping their search for bargains.
What might be an economic crisis for banks and Wall Street big wigs has turned out to be a real opportunity for Priceline and their investors. Most importantly, what is good for Priceline today in the short run is good for travelers across the globe as bargains abound.
Priceline just happens to have an image as “the place” to go for airline, rental car and hotel bargains. Plus, Priceline can give you what others can’t or won’t.
