In this assignment, I’ll discuss the strategic analysis of the package holiday company “Expedia”. Expedia, Inc. is an online travel company, empowering business and leisure travellers with the tools and information they need to efficiently research, plan, book and experience travel. They have created a global travel marketplace used by a broad range of leisure and corporate travellers, offline retail travel agents and travel service providers. They made available, on a stand-alone and package basis, travel products and services provided by numerous airlines, lodging properties, car rental companies, destination service providers, cruise lines and other travel product and service companies. They also offer travel and non-travel advertisers access to a potential source of incremental traffic and transactions through their various media and advertising offerings on both the TripAdvisor® Media Network and on their transaction-based websites.
The Expedia, Inc. portfolio of brands includes: Expedia.com®, hotels.com®, Hotwire®, EgenciaTM (formerly Expedia Corporate Travel), TripAdvisor®, Expedia Local Expert®, Classic Vacations® and eLongTM. Expedia, Inc.’s companies operate more than 70 global points of sale in more than 40 countries. Expedia also powers travel bookings for some of the world’s leading airlines and hotels, top consumer brands, high traffic websites, and thousands of active affiliates. (Source: http://www.expediainc.com/releasedetail.cfm?ReleaseID=478528)
What is Strategy?
According to Johnson G., Scholes K., and Whittington R., the definition of strategy is “the long-term direction of an organisation”
The Strategic Management Process:
There are five tasks to perform a strategic management process.
Developing a Strategic Vision and Mission
Crafting a Strategy
Implementing the Strategy
Evaluating Performance and Initiating Corrective Adjustments
Mission and Vision of Expedia:
There are different uses and types of mission statements. Some organizations use their mission statement as a publicity tool; others have internal use only that serve as a scope for leadership decisions, and other publish their mission statement in annual reports meant to be related by investors and potential clients. Effective mission statements include components such as values, vision and purpose.
Barry Diller, Expedia, Inc.’s Chairman and Senior Executive said about the mission and vision of Expedia that, “Despite the economic environment we all must cope with these days, Expedia is engaged in more forward looking initiatives than ever. The test for us will be not in maximizing profitability at the cost of improving our services, but instead in the ground we gain competitively over the next years, both in extending our leadership and making true gains in the customer experience. This will be what differentiates us from others and is the key mission of the company.” (Source: http://www.expediainc.com/releasedetail.cfm?ReleaseID=478528)
Goals of Expedia:
Despite the economic environment these days, Expedia is engaged in more forward looking initiatives than ever. Their main goal is not in maximizing profitability at the cost of improving their services, but instead in the ground they gain competitively over the next years, both in extending their leadership and true gains in the customer experience. Their ability to improve that experience in every way possible will be what differentiates them from others.
To provide the clear best in customer experience is their goal. They’ve got Hotwire winning JD Power’s award for Highest Customer Satisfaction for the 3rd year in a row, and Expedia.com again topping the annual ACSI customer satisfaction for major OTAs for the 7th year in a row.
They play a fundamental role in facilitating travel, whether for leisure, unmanaged business or managed business travellers. They are committed to providing travellers, travel suppliers and advertisers the world over with the best set of resources to serve their travel needs by leveraging Expedia’s critical assets, for example, their brand portfolio, their technology and commitment innovation, their global research and their breadth of product offering.
A discussion of the critical assets that they leverage in achieving their business strategy follows:
Portfolio of Travel Brands:
They seek to appeal to the broadest possible range of travellers, suppliers and advertisers through their collection of industry-leading brands. They target several different demographics, from the value-conscious traveller through their Hotwire brand to luxury travellers seeking a high-touch, customized vacation package through their Classic Vacations brand.
They believe their flagship Expedia brand appeals to the broadest range of travellers, with their extensive product offering ranging from single item bookings of discounted product to dynamic bundling of higher-end travel packages. Their hotels.com site and its international versions target travellers with premium hotel content about lodging properties, such as 360 degree tours and hotel reviews. In the United States, hotels.com generally appeals to travellers with shorter booking windows who prefer to drive to their destinations, and who make a significant portion of their travel bookings over the telephone.
Through Egencia, they made travel products and services available on a managed basis to corporate travellers in North America, Europe and the Asia Pacific region. Further, the TripAdvisor Media Network allows them to reach a broad range of travellers with travel opinions and user-generated content.
They believe their appeal to suppliers and advertisers is further enhanced by their geographic breadth and range of business models, allowing them to offer their products and services to the industry’s broadest range of travellers using their various agencies, merchant and advertising business models. They intend to continue supporting and investing in their brand portfolio, geographic footprint and business models for the benefit of their travellers, suppliers and advertisers.
Technology and Continuous Innovation:
Expedia has an established tradition of technology innovation, from Expedia.com’s inception as a division of Microsoft, to their introduction of more recent innovations such as Expedia.com’s TravelAds sponsored search product for hotel advertisers, Hotwires Air Price Protection, hotels.com’s slider tools for improving search results, hotels.com’s iPod and iPhone applications and the TripAdvisor Media Networks offering of travel applications for download on social media sites, including Facebook.com and MySpace.com.
They intend to continue innovating on behalf of their travellers, suppliers and advertisers with particular focus on improving the traveller experience, supplier integration and presentation, platform improvements, search engine marketing and search engine optimization.
Their Expedia, hotels.com and TripAdvisor Media Network brands operate both in North America and internationally. They also offer Chinese travellers an array of products and services through their majority ownership in eLong, and they offer hotels to European-based travellers through their wholly-owned subsidiary Venere, which they acquired in the third quarter of 2008.
In expanding their global reach, they leverage significant investments in technology, operations, brand building, supplier relationships and other initiatives that they have made since the launch of Expedia.com in 1996. They intend to continue leveraging this investment when launching additional points of sale in new countries, introducing new website features, adding supplier products and services, and offering proprietary and user-generated content for travellers.
Breadth of Product Offering:
They offer a comprehensive array of innovative travel products and services to their travellers. They plan to continue improving and growing these offerings, as well as expand them to their worldwide points of sale over time. Travellers can interact with them how and when they prefer, including via their 24/7 1-800 telesales service, which is an integral part of the Company’s appeal to travellers.
SWOT Analysis 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.
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.
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.
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.
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.
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.
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.
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.
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.
Porter’s Five Forces:
Online bookings produce negative trend to travel agencies. Nowadays people are buying tickets from online services, for example, for the airlines websites Ryan air and to travelling search engines Expedia etc.
Due to Porter’s five forces, we come to know about these agencies after online booking has been engaged by airline companies.
Power of suppliers:
The power transferred from the travel agencies to the suppliers (airlines companies) which now can reach the final users.
Power of buyers:
Now buyers are no more interested from whom they are going to buy as they tend to compare costs in order to find the best option.
Competition is high in this sector, at the present; almost all companies offer the possibility to book tickets online.
Barriers to entry:
Barriers to new entry are low; a characteristic of the Internet is that it breaks down regional barriers.
Availability of substitutes:
The threats generate by the availability of substitutes are high due to the large number of airlines companies which are doing the online booking.
Johnson G., Scholes K., and Whittington R. define strategic capability as “the ability to perform at the level required to survive and prosper. It is underpinned by the resources and competences of the organisation.
Resources can be divided into 2 types, Tangible and Intangible resources. Tangible resources are the physical assets of an organisation such as plant, labour and finance. Intangible resources are non-physical assets such as information, reputation and knowledge.
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