Traveling together: Expedia to buy rival Orbitz

NEW YORK — Expedia said Thursday that it will buy online booking rival Orbitz Worldwide for roughly $1.6 billion, cementing its place as the No. 1 digital travel provider while potentially disrupting the hotel and airline industries.

With the acquisition, the largest online travel agency in the U.S., will be incorporating the sector's third-largest player.

Together, Expedia and Orbitz had 29.4 million unique visitors in the U.S. in December, according to comScore.

"We are attracted to the Orbitz Worldwide business because of its strong brands and impressive team,'' Expedia president and CEO Dara Khosrowshahi said in a statement. "This acquisition will allow us to deliver best-in-class experiences to an even wider set of travelers all over the world."

Expedia, whose portfolio includes Hotwire.com, and Trivago, also recently acquired Travelocity, paying $280 million for the site last month.

Those purchases are heating up the race between Expedia and its number two rival, Priceline, which has been on its own buying spree, and veered beyond the travel space when it acquired restaurant reservations site OpenTable for $2.6 billion in June of 2014.

"It's now Expedia vs. Priceline, head to head,'' says Robert Cole, a travel industry analyst and consultant.

Though airlines and hotels get only a fraction of their bookings through outside, online portals,the consolidation of some of the biggest companies under the Expedia umbrella may unsettle the market, says Henry Harteveldt, a travel industry analyst.

"Suppliers are not happy about this . .. because it reduces the leverage they have,'' Harteveldt says, adding that airlines and hotels may try to hone their relationships with other players "to try to blunt the power of the Expedia Inc. juggernaut.''

Airlines get 10% to 15% of their bookings through online travel agencies, but they don't have to haggle with those portals as much since they generally don't pay them commissions.

Hotels may be the travel sector with the most concern. Online travel agencies are responsible for roughly 19% of their sales, Harteveldt says. And hotels pay fees, on average of 15%, to online sites for bookings that are steered their way, Cole says.

"The downside is unfortunately for the hotel groups because when you get these middlemen who have strength and ability to channel business from one competitor to another, that can get expensive,'' he says.

For instance, a hotel's place on a site's search list could be partly determined by how big a fee it is paying the online portal. "Part of it is, is it a good deal for the consumer?,'' Cole says of how the listings might be calculated, "and part of it is, are you being generous to us as a partner?''

Katherine Lugar, president and CEO of the American Hotel and Lodging Association, said in a statement that "this most recent merger raises questions, and appears to be counter to the goal of creating more consumer choice. We will be watching this development closely as the process moves forward."

Still, the travel industry and the sites that help sell their offerings, have a symbiotic relationship. Hotels aren't wholly dependent on outside travel sites to fill their rooms, and Cole says online travel agencies want to offer the lowest possible prices to encourage consumers to take trips.

Orbitz, which sold many flights but lagged behind some of its peers in the more lucrative hotel booking space, will now be able to offer Expedia's larger inventory of hotels, a boon to Orbitz users, Cole says.

"It's going to be good for consumers of those websites,'' he said, referring to Orbitz as well as Travelocity. "There's going to be more hotels and I think, merchandising capabilities.''

But Harteveldt says that even if the various sites had similar offerings, consolidation among competitors doesn't bode well for buyers.

"It's hard to say how much true competition is out there,'' he says, "but no matter what, this takes away one potential competitor.''

EXPE shares were up 14.50% to $89.57 a share in end of day trading, while OWW shares rose 21.83% to $11.72 a share.