Why the DOJ approved the Expedia/Orbitz deal
17 SEPTEMBER 2015 8:58 AM
Despite outcry from hoteliers who fear a cut to competition, the Department of Justice gave the OK for a merger between Expedia and Orbitz. Here’s why.
REPORT FROM THE U.S.—Despite outspoken opposition from the hotel industry, the U.S. Department of Justice will not challenge Expedia’s $1.6-billion acquisition of rival online travel agency Orbitz Worldwide, including all of Orbitz’s brands.
The deal, first announced in February 2015, sparked outcry from hoteliers, who feared the merger would create a duopoly in the OTA space. Together, Expedia/Orbitz and its chief competitor The Priceline Group control 95% of U.S. online travel agency bookings.
The American Hotel & Lodging Association led the charge, triggering a probe by the DOJ’s Antitrust Division. But a six-month investigation, in which the division’s lawyers and economists reviewed tens of thousands of documents, analyzed transactional data and interviewed more than 60 industry participants, “concluded that the acquisition is unlikely to harm competition and consumers,” the DOJ said in a statement.
The DOJ cited three reasons for its conclusion:
1. The merger is unlikely to result in new charges being imposed directly on consumers for using Expedia or Orbitz.
2. “Second, we found that Orbitz is only a small source of bookings for most of these companies and thus has had no impact in recent years on the commissions Expedia charges,” according to the statement. “Many independent hotel operators, for example, do not contract with Orbitz, and those hotels that do often obtain very few bookings from its site.”
3. Third, the DOJ observed that the distribution landscape is “rapidly evolving,” citing the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.
TripAdvisor in particular played a crucial role in the conclusion, according to a report from the Capitol Forum. During interviews with hoteliers, representatives from the DOJ’s Antitrust Division focused on the online review site and its competitive significance rather than other potential entrants such as Google and Amazon.
“Looking at the facts and applying our Horizontal Merger Guidelines, we concluded that Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers,” the DOJ said.
The AH&LA would beg to disagree.
“We are disappointed with today’s announcement by the Department of Justice to approve the proposed acquisition of Orbitz by Expedia. Simply put, this decision will hurt consumers and small business owners, and remove choice from the marketplace,” the association said in a statement.
“By approving this deal, only two players control the online marketplace: Priceline and the behemoth Expedia, now owning Orbitz, Travelocity, Hotels.com, Hotwire, Cheap Tickets, and Trivago. Together, these two players control over 95% of the online travel agency bookings in the United States. We continue to believe that increased consolidation is bad for consumers and bad for business.
“As we’ve said all along, this transaction will result in significant negative consequences for consumers and also the large number of our members who are small businesses and independent hotels. It could lead to increased distribution costs for independent hotel owners who risk seeing booking commissions rise by double digits,” the AH&LA added.
Hotel News Now reached out to Expedia and Orbitz for comment to address the concern about increases in commissions.
Orbitz did not respond. Expedia provided the following statement:
“Expedia, Inc. is pleased to confirm that the US Department of Justice closed its investigation of Expedia’s proposed acquisition of Orbitz. We appreciate the hard work of many teams, including those at Orbitz and the DOJ. We look forward to officially welcoming Orbitz Worldwide, Inc., and will make a formal announcement upon closing the transaction. We have nothing further to share at this time.”
The consolidation conundrum
Consolidation in the OTA space is nothing new. The past decade has seen Expedia and Priceline scoop up several of their competitors to effectively create a duopoly in the U.S.
Priceline led the charge in July 2005 when it acquired European heavy hitter Booking.com for approximately $133 million. It followed that splash in the M&A market by buying Singapore-based Agoda in November 2007.
Priceline followed that up with the $1.8-billion acquisition of meta search site Kayak in November 2012.
Expedia was forced to play catch up. In July 2014 the group acquired Australian leader Wotif for $658 million. Approximately six months later Expedia bought Travelocity for $280 million in cash.
The group had been rumored to be circling Orbitz in late 2014. When Expedia CEO Dara Khosrowshahi was asked about it then, he tried to downplay the possibility.
“They are doing as well as they can, but they are simply subscale,” he said of Orbitz. “They’ll have a hard time against us and some of the other players out there. I don’t think we could make a deal happen because of antitrust. I would assume nothing happens, but you never know.”
The deal is expected to close in the coming months.
Correction, 17 September 2015: An earlier verison of the infographic misspelled Agoda.com.