Shopaholic behaviour by one of the world’s biggest online travel agents is an indication that global domination is the endgame. Sally White reports

“The world is on sale for Americans!’

So Expedia’s chief finance officer Mark Okerstrom told investors last month, and that certainly seems the case for him. Expedia has been having a wonderful time shopping in the $1.3trillion mall which is the total global travel market, cashed up with its own billion or so and some chunky bank loans. Expedia likes brands and has become a bit of a shopaholic for them.

As yet investors don’t see this as extravagance, especially as Expedia is opening up new lines for them. Having spotted a very nice South American number, it’s helping making it available to all. This is market leader Decolar, which operates the Portuguese decolar.com and Spanish despegar.com brands.  

Expedia has partnered with Decolar since 2002 through its Affiliate Network, but a few weeks ago announced that it had made a $270m minority equity investment (of under 20%). The next move was an announcement from Roberto Souviron, CEO and co-founder of Despegar.com, Inc. He revealed plans to launch an IPO, probably on NASDAQ, potentially at the beginning of 2016.

Of course, that is good for Expedia as in current rapid-growth travel markets the value of the IPO and hence its stake will no doubt soar. The Expedia link brings very solid backing, which will please investors wanting to tap the difficult to access but fast-expanding South American travel market. It will also feed share-price-enhancing rumours of a full-scale Expedia take-over! No more details are available as yet.

In commercial terms the plus points are that, Expedia will be able to access Decolar's hotel supply in Latin America. Decolar's customers will get a broader selection of hotels and better deals.

Estimates of the size of the Decolar business put it at around $4 billion in gross bookings, 50% from hotels – it has 35,000 Latin American hotels under direct contract. The other 50% is flights. About a third of Decolar’s hotel business is said to be outbound travel outside of Latin America. Decolar also recently launched a car rental product which allows small rental companies to upload their inventory.  

South America is highly fragmented politically, economically, commercially and socially, with vastly differing rules and regulations – not an easy one in which to gain economies of scale. The six biggest travel markets are Argentina, Brazil, Chile, Colombia, Mexico and Peru and these together pulled over $85 billion in gross bookings last year, growing at around 6% annually. Online penetration is low, put at around 20%, though is forecast to grow fast.

Obviously, the South American market its attractively huge and very well-known to travellers from North America, who are now empowered by the soaring dollar to go out and spend. Mexico is well-established holiday territory, but there are 1.5m rooms on offer across the whole continent.

Despite its social problems, Mexico is still a big attraction as is Colombia. For outgoing business, Mexico’s and Colombia’s economies have been improving but Brazil’s has faded. Brazil has been the world’s sixth largest spender on international travel, with $25bn on international trips in 2013 and online travel expected to hit $10bn next year.  

Take a breath

Expedia’s management has said it is not going to stop shopping this year. This comes after it spent $703m on Australia’s Wotif Group last November, $280m buying Travelocity in January and proposed a $1.6 billion deal to acquire Orbitz in February. Expedia hopes to grow its business abroad so that its revenue split is 30-40% US (as against around 50% currently) and the rest international.

Working out where is not easy – Expedia is spoilt for choice. “..there’s just tonnes of opportunity, Middle East, Southeast Asia, Eastern Europe and the rest of Latin America,” Okerstrom said at a Piper Jaffray Technology, Media and Telecommunications Conference in New York.

And how does the money stack up? While the rapidity of these global deals has brought some sharp intakes of breath around the stock market, the share price rise seems to show that there’s no real problem. The trend is firmly upwards and it has been making new highs. Analysts see scope for a further 10-15% rise in the share price in the short term.

What’s going for Expedia is its free cash flow – how much it earns minus less capital spending. With its global reach, the hit from tough competition in China can be offset by better margins elsewhere. Its core margin has been improving. So, it had accumulated plenty of cash at the year-end and the banks are queuing up to lend.

Travel, as Okerstrom said, is “a market where global scale counts and we are fortunate to have global scale so there’s lots of opportunity to be had”.