Online Travel Industry Growing Nicely

The World Travel & Tourism Council (WTTC) estimated the global travel and tourism industry to have generated $1.87 trillion in direct global revenues in 2009, registering a drop of 3.5% over the previous year. The council expects overall travel industry revenue to grow at 3.6% to $3.39 trillion by 2019. Business is already improving: in January, Orbitz noted that business class fares for tickets booked on its site had grown 4% over the year. Much of the travel growth is coming from international segments.

Last year, all travel companies had to deal with steep reduction in bookings and rates. Expedia’s hotel.com saw hotel rates fall 14% over the year for the quarter ended December. Yet, despite budget cuts exercised by retail and business consumers, players like Priceline and Expedia managed to display stellar performance.

For Priceline (NASDAQ:PCLN), this was the fifteenth consecutive quarter that the company beat the market’s expectations. Revenues of $542 million grew 33% over the year and exceeded the market’s expected $530 million. EPS of $1.99 grew 54% over the previous year and beat the Street’s target of $1.68.

For the full year, Priceline revenues grew 24% to $2.34 billion with net income per share of $8.52 growing 43% over the year.

According to comScore, visitor traffic on the Priceline site grew 28% over the year in December to 8.8 million unique visitors. However, growth has slowed compared to previous months. Onsite traffic had grown 50% in August and 52% in September of last year. Priceline’s Booking.com hotel reservation site also saw traffic soar by as much as 83% in November and 72% in December in Europe.

Priceline’s international bookings grew 75% to $222.9 million in the quarter. Its geographic expansion initiatives, increased inventory, and the overall consumer shift to online booking models is driving business. To further expand its global reach, Priceline is looking at acquiring small regional players within emerging markets. Its earlier acquisition of Agoda has helped it to expand in Southeast Asia.

Priceline projects Q1 revenues to grow 23%-27% over the year and generate $1.54-$1.64 in EPS. Analysts were expecting EPS of $1.41 with revenue growth of 27% over the year.

The stock continues to touch new highs and is trading at $241.34 with a market capitalization to $11 billion. Earlier this week, it reached a five-year high of $245.

Priceline’s competitor, Expedia (NASDAQ:EXPE), also recorded an impressive Q4. Revenues grew from $620.8 million a year ago to $697.5 million, beating the Street’s expected $690.0 million target. EPS for the quarter stood at $0.30 compared to the market’s forecasted $0.29. The company ended the year with revenues of $2.95 billion compared to the $2.93 earned a year ago. EPS for the year was $1.03 compared with a loss of $0.80 a share last year.

Expedia attributed its performance for the quarter to the uptick in bookings, especially international bookings, and improved traffic on its TripAdvisor site. Domestic bookings grew 19% in the quarter and international bookings 38%. TripAdvisor’s growth accelerated to 29% on sustained traffic and improved click rates.

Weakened foreign currencies are also helping to increase travel spending. The weaker pound has resulted in a record number of travelers going from the Middle East to London, and domestic UK travel sales are also up on many sites. Expedia claims to be benefiting from this volume growth. Its international segment grew significantly, with international revenues contributing a record 41% for the quarter. The company is continuing to expand its international inventory and is launching its twentieth site, which will be in Mexico. Hotels.com ended the quarter with over 70 worldwide sites.

Expedia’s travel planner, Agencia, added nine additional countries through local partnerships. With corporate purse strings loosening and the relatively stronger corporate travel presence that Expedia has over its competitors, it is likely to see improved numbers in the coming year.

To grow its domestic presence, the company is continuing to add site features such as the recently launched tool on expedia.com and hotels.com that lets disabled travelers search for and request lodgings in the United States that offer specific accessibility features. Additionally, they are also developing applications such as the TripAssist for the iPhone and iPod traffic. They should be looking at launching applications for the other hand held devices as well.

Management announced a dividend payout of $0.07 per share for the quarter. But analysts weren’t too thrilled with it as they expected Expedia to use this money to reinvest in the business.

The stock is trading at $23.11 with a market capitalization of $6.7 billion after having reached a one-year high of $27.51 in December.

Meanwhile, Orbitz (NASDAQ: OWW) continued to disappoint the market. Q4 revenues fell 3% to $175 million despite 17% growth in gross bookings. The company ended the quarter with a net loss of $0.21 per share. The market was looking for revenues of $158 million and a loss of a penny per share.

For the year, Orbtiz reported a 15% decline in revenues to $738 million and a loss of $4.01 per share compared with a loss of $3.58 a year ago.

And the losses are expected to continue to the coming quarter. Orbitz is projecting revenues to fall 2%-6% over the year to $176.7 million to $184.2 million with a 0%-10% reduction in EBITDA. Analysts were expecting revenues of $182.3 million.

Ortbitz is continuing to try to attract users with its Low Price Guarantee model. Last quarter it expanded the Low Price Guarantee for hotels by offering customers a refund if they were to find their hotel room on any site at a lower rate. Customers are also being given a $50 discount on a future booking.

To expand its inventory, Orbitz entered into a global agreement with Four Seasons to display Four Seasons hotel inventory on its Web sites. With that, Orbitz now boasts of nearly 100,000 bookable hotels with over 40,000 hotels in Europe, the Middle East, and Africa and 16,000 hotels in Asia Pacific.

The company recently launched Orbitz for Agents, which offers travel agents the opportunity to earn commission on hotel reservations and travel bookings made on behalf of their customers.

The stock is trading at $6.75 with a market capitalization of $565 million after having touched a one-year high of $8.11 late last year.

As the economy recovers onsite traffic will grow, but so will customer acquisition costs. Ad rates have bottomed out and are set to rise. Competition will be tough as players such as Kayak.com divert traffic not only to these players but also to direct airline and hotel deals. Kayak.com also had tremendous growth last year, with revenues expected to have grown 76% to cross $150 million for the year. It remains one of the most interesting companies out there in the online travel space; for more on Kayak, see this interview with CEO Steve Hafner and my Forbes piece, The Gap In Google’s Defenses.