Travel search engine Kayak processed more than 214 million user queries for travel information in the first quarter of this year.

Published: 30 May 2011

Travel search engine Kayak processed more than 214 million user queries for travel information in the first quarter of this year.

This represented growth of 48 percent over the three months ended March 31, 2010, according to Kayak. This performance was shared in the new version of Kayak’s S-1, with updated financials.

The financial results, disclosed in the company’s latest IPO prospectus, shared that Kayak generated $53 million of revenues, representing growth of 43 percent over the three months ended March 31, 2010.

Kayak had a net loss of $6.9 million in the quarter, up from $854,000 in the year-ago period. The company took a $15 million charge for dropping its Sidestep.com URL.

The company’s mobile applications have been downloaded over seven million times since their introduction in March 2009. For the first three months, Kayak had over one million downloads, representing growth of 226 percent.

Kayak operates websites in 14 countries outside of the US, including Germany, the UK, France, Spain, Italy and India.

“We believe that the international opportunity for our services is sizable and we intend to invest in both head count and marketing in 2011 and 2012,” stated the company.

Dependence of ITA

For its part, Kayak highlighted that it licenses faring engine software from ITA Software under an agreement which expires on December31, 2013. This faring engine software directly provided approximately 56 percent of its overall airfare query results for the three months ended March 31, 2011. Additionally, 29 percent of its overall airfare query results during such period were obtained from other sources which, in turn, utilised the ITA faring engine software.

“We have invested significant time and resources to develop proprietary software and practices to optimise the output from ITA’s software for our websites and mobile applications. In addition, we believe that alternative faring engine solutions currently do not provide the level of comprehensiveness and accuracy that ITA’s software provides,” according to the company.

Airline travel queries accounted for approximately 86 percent of the queries performed on its websites and mobile applications for the three months ended March 31, 2011, and distribution revenues from airline queries represented approximately 25 percent of its revenues for the three months ended March 31, 2011.

The company expects the domestic airfare queries to represent a significant portion of its overall queries for the foreseeable future. Thus, a loss of access to ITA’s software or enhancements or improvements to the software, or an adverse change in its costs associated with use of the ITA software, could have a significant negative effect on the comprehensiveness and/or speed of its query results, and on its revenues and operating results.

It added that a loss, disruption or other negative impact on its airfare query results could also result in a significant decline in the use of, and financial performance of, its query services for non-air travel queries.

According to Experian Hitwise, in September 2010, approximately 30% of traffic to travel-related websites began with Google. The consent decree stated Google’s intent to offer an online travel search product. Google may also create other flight search tools and services that directly compete with the services Kayak offers.

As a result, this number could substantially increase, and people may be able to find comparable flight information on the internet without using Kayak’s services.

“Although the consent decree requires Google to renew our existing ITA agreement on the same terms, if ITA or Google limit our access to the ITA software or any improvements to the software, separately develop replacement software to which they claim we are not entitled or increase the price we pay for any improvements of replacement software and we are unable to replace ITA’s software with a comparable technology, we may be unable to operate our business effectively and our financial performance may suffer,” acknowledged the company.

Competition from general search engine companies

Large, established Internet search engines with substantial resources and expertise in developing online commerce and facilitating Internet traffic are creating, and are expected to create further, inroads into online travel, both in the US and internationally.

Citing an example, the company added: in addition to its acquisition of ITA, Google has stated that it intends to offer an online travel search product and is already actively testing a travel search engine that displays hotel information and rates to travellers.

Moreover, Microsoft acquired one of Kayak’s competitors, Farecast.com, in 2008 and re-launched it as Bing Travel, a travel search engine which not only allows users to search for airfare and hotel reservations but also purports to predict the best time to purchase.

Kayak said these initiatives appear to represent a clear intention by Google and Microsoft to appeal more directly to travel consumers and travel suppliers by providing more specific travel-related search results, which could lead to more travellers using services offered by Google or Bing instead of those offered on its websites and mobile applications.

Kayak further added: For example, if Google chooses to provide comprehensive travel search results such as flight and hotel pricing and availability, and further chooses to integrate such offerings with other Google services such as Google maps and weather information, then the number of users that visit its websites and its ability to attract advertising dollars could be negatively impacted.

Google or other leading search engines could choose to direct general searches on their respective websites to their own travel search service and/or materially improve search speed through hardware investments, which also could negatively impact the number of users that visit Kayak’s websites and its ability to attract advertising dollars.

“If Google or other leading search engines are successful in offering services that directly compete with ours, we could lose traffic to our websites and mobile applications, which could have a material adverse effect on our business, results of operations and financial condition,” according to Kayak.