priceline.com would like to name itself the king of online travel. At priceline.com, buyers can "name their own price" for airline tickets, hotel rooms, rental cars, cruises, and vacation packages. Customers can also choose set-price options. With its patented business model, priceline.com generates most of its revenue from travel-related services. In the case of airline tickets and hotel reservations, priceline.com generates sales on the margin, keeping the difference between the price paid by the individual and what priceline.com shelled out for the ticket or hotel room. Founded in 1997, the company operates its business through the Booking.com, priceline.com, rentalcars.com, and Agoda brand names.
Adding to its operations, priceline has agreed to acquire its smaller rival Kayak Software for $1.8 billion in cash and stock. The deal, which is expected to close in early 2013, is the largest in priceline's history and could provide a new source of revenue (advertising) for the company. Kayak Software is an online travel comparison and booking site that makes most of its money from referrals and advertising.
Like many companies focused on travel, priceline.com saw fewer customers hit the road and take to the skies when the economy took a dive. But based on the company's business model, its profit margins rise when travel partners discount their rates. Post-recession, however, the threat of slimmer profit margins as travel picks up has the company banking on international markets for growth. The move has enabled priceline.com to build on its global offering and boost its main metric: the number of room nights booked. Most of this business comes from commissions earned from hotel reservations. The online travel retailer, which offers hotel room reservations at more than 210,000 hotels worldwide, attributes its international success to the hotel market, which isn't as consolidated as it is in the US, and to the company's strategy of targeting smaller, independent hotels and chains with set prices.
The strategy has worked so far. While priceline.com generated 40% of its 2011 revenue in the US, that's down significantly from 64% in 2009. priceline.com is seeing more success in its international business (primarily driven by its Booking.com unit), which represented about 78% of its 2011 gross bookings (the total dollar value typically including all taxes and fees of travel services purchased by customers) and some 88% of operating income. Its businesses in the Netherlands, the UK, and Asia have boosted its bottom line. Looking to invest further in its international effort, priceline.com purchased TravelJigsaw, an international car rental reservation service that it later renamed rentalcars.com.
In the cut-throat travel industry, the company keeps an eye on its rivals and its marketing strategy as more consumers book their own travel online. When priceline.com in 2007 eliminated processing fees for certain airline tickets and reduced processing fees for some merchant hotel room services, competitors Expedia, Travelocity, and Orbitz followed suit with similar deals in 2008 and 2009.
Not everyone who hooks up with priceline.com gets his or her ticket to ride, however. The company limits how it accepts offers. priceline.com considers an individual's named price for a plane ticket "reasonable" if it's no more than 30% lower than the lowest fare for the route. – less