A Boomlet in the Travel Sector

Investment firm Goldman Sachs, citing a favorable airline and lodging industry environment, said today it is raising its performance estimates for online travel companies Expedia and Travelocity.
GS said it is maintaining its positive outlook on Norwalk, Conn.-based Priceline (estimates for the name-your-own-price e-commerce company were raised on June 6 and GS gave it a market outperform rating on May 1.)
Analysts said factors affecting the online travel business include increased availability of inventory to online travel companies as a result of declining aggregate business demand; stable demand from consumers seeking value leisure fares; and limited price discounting in airline direct purchases.
GS said in an advisory to clients: “We are increasing Expedia`s EPS to 14 cents from 8 cents, increasing Travelocity`s EPS 6 cents from 4 cents and maintaining Priceline`s 3 cent EPS estimate which we previously year to date given earnings visibility.”
For Expedia, GS raised second quarter estimates to $138 million in revenue, up from $127.4 million. For Travelocity, GS raised second quarter estimates to $82 million in revenue, up from $79.4 million. GS earlier raised its estimate of Priceline`s second quarter revenues to $315 million from $305 million.
Expedia shares closed yesterday at $41.05; Traveocity closed at $29.95 and Priceline closed at $7.44.
“We believe these companies are benefiting from the unique conditions for airlines and hotels as the steep decline in business travel demand is resulting in greater supply for the online travel companies which, combined with continued solid leisure demand from consumers, should result in strong revenues,” GS said.
But what about Orbitz, the new travel site backed by five major airlines? GS said that “while we do not think June results will be impacted by the Orbitz launch on June 4 or slower consumer demand, which we have not seen yet, we continue to be watchful of the impact of both of these potential overhangs.”
Just yesterday a report from Boston-based competitive intelligence service Compete Inc. said that Orbitz has done a nice job of attracting lookers in its first week or so of operations, but must convert more of the curious into paying customers.
Clearly a rising tide may help all the online travel sites, including Orbitz.
“We believe that the airlines and hotels are now increasingly dependent on the online distribution channel and that as a result, the online travel companies benefit from better supply,” GS told clients. “The fact that the airline industry in aggregate continues to face financial difficulties this quarter will lead, we believe, to their increased dependence on distribution through third parties in the near-term”
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