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Priceline, Orbitz wary of airline M&A

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Feb 13, 2008

LOS ANGELES (Reuters) - Online travel agents could feel the pinch from airline consolidation, as deals combining the largest U.S. carriers would shift the balance of power in the ticket-selling business.

"I understand why the airlines are consolidating and why they think it will be the best thing for that business," Jeffery Boyd, chief executive of Priceline.com (PCLN.O: Quote, Profile, Research), said at the Reuters Travel and Leisure Summit in Los Angeles on Monday.

"There is a potential negative for any distribution system .... If you have consolidation, that's not good for distributors in general."

Steve Barnhart, CEO of Orbitz Worldwide Inc (OWW.N: Quote, Profile, Research), echoed these comments. "I don't see that there's an upside case to us from that type of supplier consolidation," he said at the Reuters Summit. "But there doesn't have to be a downside."

Delta Air Lines Inc is reported to be in merger talks with Northwest Airlines Corp, which industry watchers say could trigger a deal between UAL Corp's United Airlines and Continental Airlines Inc.

That would create two massive U.S. airlines with more control over their sales channels and translate into less choice for consumers and tougher conditions for online travel agents.

In recent years, airlines have attempted to increase the number of bookings on their own Web sites.

PRICELINE'S POSITIONING

Priceline, which competes with Orbitz and Expedia Inc, created a niche with its "name your own price" auction model of discounting airfares and hotel rates, but now also offers straightforward online booking services.

The "name your own price" service helps hotel operators and airlines sell excess rooms and seats without resorting to broader sales.

Because travel purveyors may have more inventory to move during a slowdown, Priceline is "uniquely positioned" to do well as more customers will go online "really looking for a bargain", Boyd said.

He said Priceline would be more impacted than competitors if there were a slowdown in Europe, due to the relative size and growth of its business there.

But he said so far there "haven't been the same consistent signs in Europe" of a slowdown as there has been in the United States.

Online travel agencies are competing aggressively to expand in European and Asian markets, where fewer travel bookings are made online. Boyd declined to provide specific bookings figures ahead of Priceline's fourth-quarter earnings report on Thursday.

Priceline saw its third-quarter bookings through European operations increase almost 98 percent, compared with 54 percent growth in its bookings overall. Priceline shares closed up $1.01 at $102.80 on Nasdaq on Monday.

reuters.com

Priceline, Orbitz wary of airline M&A
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