Expedia has reported that Q3 earnings have risen 23% amid higher bookings and increases in hotel and car rental revenue. The company grew revenue 2.4% over the third quarter of 2008 as a result of a 9% increase in global gross bookings.

The economic downturn has hurt online travel-booking companies like Expedia. Booking fees have been dropped to capture more business from airline sites, eliminating a valuable revenue source. Some have provided price guarantees, with Travelocity announcing a new one only this week, and they have also been offering more flight-and-hotel packages, attempting to boost their share of the agency market. The strategy appears to be paying off but there are question marks over whether they can be maintained.

As expected, international bookings and revenue continued to outpace US domestic growth due to the large amount of expansion opportunities in foreign markets that Expedia and the other online travel agencies have been investing in. Expedia also lowered its operating costs in the quarter. As a result, the company’s operating margin expanded 230 basis points to 26%.

Expedia reported a profit of $117 million, or 40 cents a share, up from $94.8 million, or 33 cents a share, a year earlier. Excluding items such as restructuring costs and foreign-exchange losses, earnings climbed to 48 cents from 39 cents. Revenue increased 2% to $852.4 million.

Microsoft started Expedia in 1995, and later it was spun-off as a multi-billion dollar company. In 2002, IAC/InterActiveCorp., led by Barry Diller bought a controlling stake in Expedia. IAC purchased the remaining stake in 2003. In 2005, IAC and Expedia separated into two publicly traded companies.

Expedia owns and operates a diversified portfolio of brands, including Expedia.com, Hotels.com, Hotwire.com, TripAdvisor, Egencia, Classic Vacations, and a range of other U.S.-based and international businesses. With more than $17 billion in annual gross travel bookings, the company is one of the largest online travel agencies in the world.

In a statement, president and chief executive officer, Dara Khosrowshahi said, “Travelers are clearly responding to our improving value proposition, as we broaden our fee cuts and increase the depth and breadth of our global supply. While we’re pleased with our financial and operating results in the third quarter, we are busy planning for a 2010 that will prove every bit as competitive and challenging as 2009.”