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Travelocity Throws In The Towel, Partners With Expedia

8/23/13 | POSTED BY hudsoncrossing |

Like someone who finds themselves newly divorced and in need of getting into shape ahead of re-entering the "dating pool," Sabre Holdings, a leading travel technology, distribution, and marketing company, has been taking steps to improve its businesses ahead of a possible IPO.  Sabre has recently sold several of its business units, including Zuji (an Asian-focused online travel agency), Holiday Autos, and Travelocity Business.

Sabre's selling spree took an unusual turn on August 22, when it was announced that Expedia Inc., parent of leading online travel agency (OTA), would enter into a comprehensive “strategic partnership” with Sabre's OTA Travelocity. In this unique outsourcing arrangement, Travelocity will cede several of its "capital intensive" functions, including development, content sourcing, and customer service functions, to Expedia. Expedia, in turn, will pay Travelocity a performance-based fee for the sales Travelocity makes. This deal, which is currently anticipated to start in 2014, affects only Travelocity's US and Canadian businesses.

Put another way, Travelocity surrendered to Expedia and entered into a virtual merger with its larger rival.

Hudson Crossing spoke with Tom Klein, Sabre’s CEO and President, and Carl Sparks, President and CEO of Travelocity Global (and a and Expedia "alumni") the afternoon of the 22nd. The executives stated that the decision to gut Travelocity was a function of the OTA’s poor ROI – the executives described the outsourced functions as "capital intensive" – while allowing Travelocity to play to its marketing-based strengths, such as SEM, branding, and email marketing. They  emphasized that, while Expedia would indeed be responsible for areas like supplier content, Travelocity would pursue its own consumer promotions and other consumer-facing marketing activities.

One of the pioneering OTAs, Travelocity regularly announced innovations to its user experience well into the 21st Century’s first decade. Travelocity was one of the first online travel companies to offer an interest-based trip planning tool with its vacation package “Experience Finder.” Travelocity become known for traveler advocacy, implementing a program in 2007 to proactively alert travelers when a material event at a hotel, such as construction, might negatively affect a traveler’s experience.

Sadly, innovation has been absent from the recent Travelocity user experience – a point made in a 2012 Travel Weekly interview when Mr.  Sparks' joined Travelocity as its new President and CEO. In our conversation on the 22nd, Messers. Klein and Sparks as much as admitted Travelocity hadn't received the development TLC it should have when they said the OTA  “could have chased platform parity” – investing to narrow Travelocity's feature and functionality gaps (such as multi-destination packaging and supporting a pay-on-checkout hotel model) – to keep up with its competitors. To do so, however, would have been expensive, and no doubt would have meant keeping a more-than-desired amount of "body fat" on Sabre's body as it works to slim down ahead of that possible IPO.

Hudson Crossing does not believe this news was well-received in travel suppliers' offices. Expedia's further consolidation of "power" will no doubt increase supplier concern, especially among hotels, that they lack adequate negotiating leverage with any of the Expedia business units. No doubt this announcement will increase not only their resolve, but possibly also the eCommerce budgets, among suppliers who want to take steps to better compete against the OTAs for the brand-agnostic traveler.

Hudson Crossing has also learned from a source within Travelocity that there will be layoffs as a result of this transaction. The timing, scale,, and scope of the layoffs remains unknown.

Hudson Crossing strongly suspects that the deal Travelocity announced on the 22nd was a compromise compared to what the OTA likely wanted to do. Though both Messers. Klein and Sparks refused to answer Hudson Crossing’s questions regarding whether they pursued selling the entire Travelocity business unit to another entity, Hudson Crossing has learned that at least one other travel company considered buying Travelocity. We believe one reason why Expedia opted not to buy Travelocity outright  was concern that, in the wake of the US Department of Justice’s antitrust lawsuit contesting the American Airlines-US Airways merger, such a deal would be denied. Instead, we have this "arm's length" marriage.

Travelocity's fate should serve as a lesson for all travel marketers, especially the "intermediaries" such as OTAs and metasearch sites. Having a great brand image -- which Travelocity certainly has -- means little  without a compelling user experience to support it. A company cannot feed surface elements of a brand -- logo, advertising, email -- while it starves its product, technology, and UX/UI, arguably the elements where 'the rubber meets the road."  With low brand loyalty among online travelers and a lack of any meaningful barriers to shopping across sites, all travel intermediaries must provide compelling points of differences. It's not easy to rely on price -- a competitor can easily match. Developing a compelling, distinctive user experience built on solid customer insights that support useful customer targeting and personalization,  supported by unique content and creative tools that make trip planning tangibly more helpful than your competitors, is essential for a brand to be successful in today's mature digital online marketplace.