Internal and External environment of Expedia

A study of internal and external environment of an organisation is very important. Internal environment is classified as strength and weakness while external environment is classified as opportunities and threats.

Strength:

Strong Brand:

Expedia is one of the leading travel service companies. The company has, in the last few years, added other strong brand names, including hotels.com, Hotwire, TripAdvisor, and eLong (in China), and these gave Expedia a powerful and broad franchise in the leisure business. Hotels.com is the 5th largest online travel agent on the globe and has its presence to 35 countries. Hotwire earned J.D. Power and Associates’ ‘Highest Customer Satisfaction for Independent Travel Web Sites’ in 2006. A strong brand enables the company to confidently differentiate its offerings in a fragmented market and compete effectively against regional players.

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Large scale of operation:

The company is large in size compared to its many competitors. Many of its competitors, such as Viad Corporation and Worldwide Xceed Group are smaller in size and face a competitive disadvantage in accessing financial, technical and human resources. Viad Corporation, for instance, recorded revenues of $856 million and had 3,620 employees in 2006 and Worldwide Xceed Group recorded revenue of $108.4 million and had 470 employees during the same period. Expedia, in contrast, recorded revenues of $2,237.6 million and had 6,600 employees in fiscal 2006.

Large scale of operations increases the company’s ability to compete effectively with large players.

Extensive distribution network:

Expedia has an extensive distribution network. Apart from the company’s own websites, Expedia branded websites also serve as the travel channel on MSN.com, Microsoft’s online services network. The company’s private label programs (Worldwide Travel Exchange (WWTE) and ian.com) make travel products and services available to travellers through third party company-branded websites. These programs, which are operated on a revenue sharing basis, form the company’s second distribution channel. Expedia’s third distribution channel sells travel services to customers through a toll-free telephone numbers designed to provide assistance with complex or high-priced offerings. The fourth distribution channel is through a network of third-party travel agents and travel agencies gleaned from the company’s acquisition of Classic Custom Vacations in 2002. The company’s fifth distribution channel is through its own travel agents, and primarily serves the corporate travel business. The company’s strong distribution network increases its reach, which gives it a competitive edge.

Weaknesses:

Over dependence on the US market:

Though the company has a strong and diversified presence within the US, it still derives maximum of its revenues from the US market which underlines it’s over dependence on the US. In fiscal 2006, US accounted for 72.2% of the total revenue of the company. This increases the risk of negative financial impact due to events that could affect the company’s business. This high dependence on a local market increases the company’s exposure to local factors, such as poor economic conditions, labor strikes, and changes in regulations that could affect its operations and profitability of the company.

Fluctuating cash from operations:

The company has not been able to generate consistent cash from its operations. The company has registered fluctuations in its cash from operation, registering a decline in every alternate year. Cash from operations of the company increased by 8.5% from $792.2 million in 2004 to $859.2 million in 2005. Again in 2006, it declined by 28.1% to reach $617.4 million. Fluctuating cash from operation could upset the company’s expansion plans.

Opportunities:

Agreements and partnerships:

The company has been making significant acquisitions during the last few years. For instance, in January 2007, Expedia partnered with Jin Jiang International Hotel Management Company (JJIHMC). Under the agreement, JJIHMC offered its entire inventory of hotels available to Expedia customers. Expedia also entered in to a long-term partnership with CruiseShipCenters International, a cruise vacation specialist in March 2007. The company also entered into a partnership with Alaska Airlines and Horizon Air in August 2007. Under the agreement all of the carriers’ published fares, schedules and inventory would be available through Expedia.com and Expedia.ca. In November 2007, the company entered into a multi-year agreement with IHG (InterContinental Hotels Group). Under this agreement consumers can book IHG hotels on Expedia sites globally.

These agreement and partnerships would enable the company to reinforce its market position in various segments as well as expand its geographical coverage.

International expansion:

Expedia is expanding internationally. The company operates through 70 websites in 50 countries. In 2006 its international points of sale accounted for 26% of the worldwide gross bookings and 28% of revenue, up considerably from 18% in 2004. In 2006 the company launched four new Expedia-branded points of sale in Scandinavia and Japan, the world’s second largest travel market. The company continued extending its global footprint in early 2007 with the launch of its 13th Expedia point of sale in Spain, and also launched the Expedia brand in India later that year. In November 2007, the company also launched its services in China. International expansion would enable the company to expand its market share and generate incremental revenues.

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Growing US online travel market:

Online travel agencies have benefited from globally rising internet use and increased confidence in booking travel online. Online travel accounts for about 40% of US e-commerce sales. It is estimated that total US online travel sales will grow to $122.4 billion by 2009 from $77.7 billion in 2006. A research from Forrester Research estimates that in 2007, nearly 40 million US households will book travel online, spending $86 billion on airline tickets, lodging, cars, intercity rail, cruises, and tour packages. This provides good opportunity for the service providers to leverage in the growing markets such as the US and Europe. Expedia can leverage its strong brand name in the growing markets to increase its revenues.

World travel and tourism:

The hospitality industry is strongly influenced by the travel and tourism trends. According to the World Travel & Tourism Council’s (WTTC) Tourism Satellite Account (TSA) research, world travel and tourism is expected to generate more than $7 trillion in 2007 and increase to over $13 trillion in the next decade. This growth would be more prominent in the Asia Pacific region buoyed by the emerging economies like China and India. China is expected to witness robust growth in tourism as it would be hosting the Olympic Games in 2008. Moreover, China is expected to become one of the leading tourist destinations by 2015. Expedia has its presence in China. The company recently launched its service in China through a strategic partnership with eLong, an online travel company in China. Expedia had also entered into agreement with Jin Jiang International Hotel Management Company (JJIHMC), one of the largest hotel owner and operator in China in January 2007. Thus, growing world travel and tourism, especially in Asia Pacific region, would enhance travel business and generate additional revenues for the company.

Threats:

Competition:

Expedia’s leading market position is under pressure from a number of sources. The travel industry is very large and highly fragmented. The travel planning services market is rapidly evolving and intensely competitive. Expedia.com competes with other online and offline travel planning service providers, including aggregator sites that offer inventory from multiple suppliers and supplier sites that offer their own inventory. The company competes with airline, car rental and hotel suppliers that sell their own inventory directly to consumers through the telephone and websites, as well as consortiums of suppliers such as airline sites Orbitz and the hotel site TravelWeb. With the addition of the Classic Vacations business, its competitors include other wholesaler packagers. Also, with its entry into corporate travel, competitors now include American Express and Navigant International. It also competes with offline travel agencies and direct suppliers’ websites. High level of competition in the market place could erode the market share of the company.

Security fears:

Travelers could refrain from booking trips online because of mistrust of the ability of travel companies to keep their financial and personal details secure. Due to these fears about security, more consumers are using the internet for researching than actually booking their travel online. Security fears hamper the adoption of the online medium as a means of planning and booking holidays. For Expedia, which conducts a vast majority of its business online, these perceived fears could considerably affect its revenues and margins. Any loss of data by any online firm, it need not be Expedia, could significantly undermine the public’s trust in online transactions.

Economic slowdown in US:

Economic slowdown in the US could adversely affect the company’s business. According to the Organization for Economic Cooperation and Development (OECD), the GDP growth of the US is expected to slowdown from approximately 3.6% in 2006 to 3.1% in 2007. The profitability of the company’s businesses is affected by local economic conditions such as the liquidity of the financial markets, the level and volatility of interest rates and equity prices, investor sentiment, inflation, and the availability and cost of credit. Economic slowdown in the US could adversely affect the company’s financial position.