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Expedia's Expansion - All The Roads Lead To India

Expedia’s path to expansion passes through India

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Mar 16, 2008

Earlier this month, Expedia, the online travel company, entered the Indian market with, the 17th Expedia Web site worldwide. Expedia also owns and TripAdvisor, which operate both in the United States and overseas, as well as Hotwire, which operates only in the United States. In addition, it owns a controlling interest in eLong, a Chinese online travel company.

Expedia’s expansion into India is part of an aggressive international growth strategy mapped out by its chief executive, Dara Khosrowshahi. He is an Iranian-born and Ivy League-educated protégé of Barry Diller, the head of IAC/InterActiveCorp. He has led Expedia since 2004, both before and after it was spun off from IAC.

He talked recently about Expedia’s push overseas and the challenges the company faces from the slowing economy in the United States. Here are excerpts from the conversation:

Q. Why is Expedia going into India now?

A. India is an enormously attractive marketplace for us. It’s over 1.1 billion people, nearly 17 percent of the world’s population. It’s an economy that has been enjoying pretty explosive growth over the last 5 to 10 years. As the economy grows, you’re going to have a giant middle class that’s going to want to travel not only inside of India, but is really going to want to explore the broader Asia-Pacific areas, and is going to eventually travel worldwide. We want to be there to serve them.

Q. How big is your international operation today?

A. We operate in 37 countries and in 20 different languages. In 2007, 32 percent of our revenues were from overseas; in 2006, 28 percent were.

Q. Where are your other new growth opportunities outside the United States?

A. Korea, Vietnam, etc., are particular markets we’re looking at. We’re treading a little more cautiously in Latin America. Our ability to conduct business with local consumers is restricted in Latin America. Credit card penetration is relatively low; debit card penetration seems to be accelerating there.

Q. What percentage of your sales this year will be generated outside the United States?

A. I don’t have a number for ’08, but the goal for the company is in the next five to seven years to get that number to 50 percent.

Q. What impact is the economic downturn having on your business in the United States?

A. Industry data we’ve seen suggests that U.S. hotel occupancies are down on a year-on-year basis, for both leisure and business travel, in the past two months. The leisure markets seem to be weaker than the business travel markets. So, for example, we are seeing relative weakness in Las Vegas versus New York, which is a very strong market. That’s a combination of leisure and business activity as well as the dollar — we see a huge influx of demand of European travelers coming into New York.

The air carriers have been really disciplined about keeping capacity growth limited, and, as a result, the air yields are very good. Because Easter is earlier this year than it was last year, really the tale for ’08 is going to be, how do air bookings come in after the Easter period.

One interesting kind of behavior we’re seeing is that consumers, mostly U.S. consumers, are definitely looking for deals more. The percentage of consumers who are buying hotel room inventory that’s on sale or only available on Expedia is increasing on a market-by-market basis. For example, in January ’07, 10 percent of hotel rooms we sold in Miami were sold on a promotional basis. This January, it was 17 percent. We see increases in New York; San Francisco; Washington, D.C. So it’s fairly broad.

Q. What are the pros and cons of the weakness of the dollar to your business?

A. The first pro is that the weakness of the dollar typically means that foreign currencies are getting stronger, and our international businesses are some of our strongest growing businesses. As those international currencies get even stronger, there’s kind of a turbo-boost to the growth that we see in our international bookings. As the dollar gets weaker and as the U.S. becomes a more attractive destination for international consumers, we think we have a great product for those international consumers.

The con is that U.S. travel abroad generally becomes a bit weaker, because international destinations do become more expensive for the U.S. consumer, and we have seen our growth in international destinations slow down versus what it was two to three years ago.

Q. Forrester Research last fall reported a 9 percent decline, from 2005, in the number of American travelers researching and buying leisure trips online, the first time it had seen this phenomenon. Do you see this trend?

A. Our U.S. business is in good shape and is looking to grow, a combination of more people and more people spending more with us.

Q. What other challenges does Expedia face now?

A. To be a global company but to be locally relevant as well. To apply one formula and to expect that one formula to work on a global basis, we don’t think is realistic. And it’s a real challenge to operate at the scale that we’re operating, but be as fast, as entrepreneurial as you need to be in a China or an India.

The overall travel marketplace is an $800 billion worldwide marketplace, and we have a ton of competition domestically and in every single local market we get into.

Our growth rates have accelerated going into ’08, and we’re going into a pretty uncertain time. How you manage a growth business in an uncertain climate is a pretty difficult balancing act. You want to invest, you want to expand, but you also want to be prudent.

Q. So what’s the best way to operate in an uncertain time?

A. It’s to have your pulse on the market every single day; be very, very flexible; and especially not to overextend your capital. We throw off a lot of cash flow, and we’re being pretty conservative as far as our balance sheet and how we use it.

Expedia’s path to expansion passes through India
Phil McCarten/Reuters

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