Travelocity Gives Up, Outsources Itself to Expedia

If you like to use online travel agents for booking, your options just got narrower. Travelocity, known pretty much for its gnome these days and not much else, has decided to become just a brand without much behind it. It’s outsourcing its back-end to rival Expedia in the US and Canada.

You might be scratching your head on this one. Why would Travelocity just give up? Well, it’s part of a larger issue going on at parent company Sabre. Sabre just Travelocity Gnome Expediakicked out its CEO and appears to be focused on an IPO. That means cutting or fixing the businesses that aren’t earning their keep. And Travelocity is one of those.

Of course, much of this is likely Sabre’s own doing. It hasn’t invested much in Travelocity for quite some time while other sites like Expedia and Priceline have done the exact opposite. In airline circles, Travelocity was best known for its awesome Dream Maps that let you see fares from a single city to many destinations. That disappeared several years ago. And Travelocity just continues to flounder.

How do you fix that? Well, you can start pouring cash into building a better site for consumers, but that costs money and the outcome is uncertain since others already have a large head start. If you’re trying to pretty up a company to get to an IPO, the last thing you want to do is spend a ton of money like that.

Instead, Travelocity can just gut itself. The company has effectively admitted that Expedia can do a better job, so it’s just going to show the same results. Of course, the results don’t have to be exactly the same. Travelocity becomes a marketing engine. They might choose to sort differently than Expedia, or maybe they’ll filter out options in different ways. On the hotel side, Travelocity may choose a different mark-up than Expedia does. But you should never see a hotel available on one site and not the other, because the inventory is coming from the same place.

Worst case, Travelocity ends up like Cheap Tickets. That used to be an independent website with a niche that worked well. But once Cheap Tickets was bought buy Orbitz’s parent, it became simply a clone of Orbitz with a slightly different color scheme. This move may not go nearly as far since Travelocity will remain a separate company, but if you can’t differentiate yourself with better results, then you really hurt your value proposition.

If this is the case, why wouldn’t Sabre just sell Travelocity entirely instead of putting together this goofy arrangement? I can think of two reasons, the first which seems more likely. First, Sabre wants to keep Travelocity’s revenue stream in the portfolio. In 2011, Travelocity generated $825 million in revenue but it was unprofitable. (All of Sabre generated $3 billion total.) If you can gut the costs by outsourcing the back-end, you can hopefully turn a profit. And then you have nearly an extra billion bucks in revenue to make you look more awesome for your IPO.

Another theory was put forward by Henry Harteveldt at Hudson Crossing. He says:

We believe one reason why Expedia opted not to buy Travelocity outright was concern that, in the wake of the US Department of Justice’s antitrust lawsuit contesting the American Airlines-US Airways merger, such a deal would be denied. Instead, we have this “arm’s length” marriage.

Ah yes, the whole “DOJ is on the warpath” argument. I suppose that’s possible as well, but I still think the former makes the most sense. Still, Sabre wants to get to IPO as quickly as it can so clearly there’s no interest in any long drawn out fight with anything.

If you’re a Travelocity user, I’ll be curious to hear if you notice any big differences once this all goes into effect, sometime in 2014.


23 Responses to Travelocity Gives Up, Outsources Itself to Expedia

  1. SEAN says:

    Well as the old saying goes – be it so humble, there’s no place like gnome.

  2. DRGMOBILE says:

    Orbitz is just sooooooo much better with its matrix.

  3. I would never use Travelocity because those gnome ads make me want to throw up. They are just so stupid, they put me off on the company. I think if their ads are crap then their product must be crap also.

  4. I wonder if this has anything to do with keeping the brand for corporate sales? Is this just an outsourcing of the consumer facing site?

  5. “We believe one reason why Expedia opted not to buy Travelocity outright was concern that, in the wake of the US Department of Justice?s antitrust lawsuit contesting the American Airlines-US Airways merger, such a deal would be denied. Instead, we have this ?arm?s length? marriage”

    Given the monopolies established by Microsoft, Google, Amazon, and Ticket Master I don’t think the DOJ really cares (or understands) consolidation in online purchasing and market share. Otherwise those companies would have gone the way of Standard Oil years ago.

  6. So how’s that going to affect their sponsoring The Amazing Race?

  7. Mike says:

    Is this the official end of EAAsy Sabre? Sad.

  8. Jim says:

    I believe Yahoo Travel uses Travelocity for back-end processing. Does that mean that Expedia will now be showing those results as well?

    • CF says:

      Jim – Expedia would now power those searches, I believe. But it’s not a matter of whether Expedia would show results from that site. It’s the other way around.

  9. Troy says:

    Just to be clear, Sabre didn’t “just kick out” the CEO. He retired after working there for many years. He’s well-respected and had been planning his succession for a while.

    • CF says:

      Troy – That’s what they say, but I don’t buy it. Sam was scheduled to do a live CEO chat with the media on August 14. It was abruptly canceled and then he was out the next day. That does not sound like an orderly, planned succession.

  10. David M says:

    CF, you’ve got the Orbitz-CheapTickets acquisition backwards. It was actually CheapTickets’ parent company that bought Orbitz. I don’t remember the sequence of events, whether the Orbitz acquisition before or after Cendant split itself apart.

    Interesting trivia, back before the merger happened, CheapTickets and Trip.com shared the same backend. At some point the trip.com domain was apparently sold to someone else.

    • CF says:

      David M – Argh, you’re right. Cendant purchased CheapTickets in 2001 and Orbitz in 2004. Since the Orbitz product is really what remained, I always think of this backwards.

  11. Dwight Schrute says:

    Didn’t Sabre buy Dunder Mifflin?

  12. Jim M says:

    Awesome. . .

  13. AC says:

    It will be interesting to see how much that brand is worth when Travelocity’s $50M/year marketing budget gets slashed. They have been chasing booking.com for SEO rank for years and never made the right investments in technology to get SEO right. The brand is only as good as the last cheesy commercial.

  14. SM says:

    Travelocity threw away one of the best e-mail marketing platforms in the industry to outsource to one of the CEO’s friends. 2 years later the e-mail outsourcing project is still not done.

  15. Jaol says:

    Yahoo uses TPN, the white label arm of Travelocity.
    TPN was not part of the Expedia deal. In order for TPN to work going forward, it will have to source merchant content from somewhere other than Travelocity. It could be EXP or other/multiple sources

  16. Craig says:

    CF, your prediction about Travelocity becoming a clone of Expedia is spot on. From the second page onward they are essentially identical except for the logo. I don’t know about others experiences, but for the last several days I’ve had a lot of trouble getting either to actually quote ticket prices. Problem the same on two different computers.

  17. Daniel says:

    Would have been nice to let their members know ….. I hate Expedia because they had the habit of forgetting some taxes on a quote that included all taxes and fees. I now need to find a site that will find great fares with flexible dates like Travelocity used to do and that will allow me to enter my car rental promo code when I search for the best deal. Any suggestion?

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