Through TheFLY's Eyes: Online Travel

from Theflyonthewall.com












Tough Year for Online Travel, But The Worst Might Be Behind It

As stock markets around the world get whacked, it is important for portfolio managers to stay focused on where the growth will come from in the future. One area to stay focused on is the online travel business.

The global travel market is approximately $900 billion, of which 5% to 10% is booked online. The gross bookings growth of the major online travel agencies has been 30% annually during the past three years. However, the market has hit a speed bump as a strong global economy has led to suppliers selling their own inventory rather than using this more efficient distribution platform. The online industry has reacted by beginning a broad restructuring process.

In response to tight inventory and a few too many online travel businesses, the industry has begun a restructuring process. Interactive Corp. (IACI) spun off Expedia (EXPE) last year and Cendant (CD) has put its Orbitz and other online travel assets up for sale. In addition, Sabre's (TSG) management is well aware that the industry's position needs to improve.

With smart management at Expedia, Cendant and Sabre, and as the online travel industry continues to improve its cost performance, profits should follow in 2007. The selloff in this sector is providing a good opportunity to get into a high growth business at a reasonable valuation.

Expedia and Sabre are both good ways to play this industry's turnaround.