Another day, another acquisition in the online travel agency. Riding a recent wave of consolidation, Priceline Group is apparently set to pay $20 million to acquire travel booking site Rocketmiles, according to a report in the Wall Street Journal.
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Priceline Group has grown to be a titan of the online travel segment through its acquisitions; would Rocketmiles be a well-considered one, or a careless impulse buy amid a general shopping frenzy?
Small buy for a big guy
As far as Priceline Group acquisitions go, this potential deal is relatively tiny. It pales next to the company's $1.8 billion purchase of flight booking site Kayak.com in 2012, not to mention the $2.6 billion it spent to grab OpenTable last year ... and that isn't even a travel site.
The Khan to Priceline Group's Captain Kirk (no, I can't resist the William Shatner analogies) is Expedia , which committed $1.6 billion in a deal to buy fellow online travel conglomerate Orbitz Worldwide mere days before the Priceline Group/Rocketmiles would-be deal was reported. And this came on the heels of another Expedia acquisition, the $280 million purchase of Travelocity.
The Orbitz buy will make online travel essentially a market led by Priceline Group and Expedia, with everyone else following quite a distance behind.
The lineups of the two big teams are formidable. In addition to Kayak.com, OpenTable, and its eponymous site, Priceline Group also controls Booking.com, Asia hotel reservations portal agoda, and rentalcars.com. Expedia is anchored by its namesake site, and includes Hotels.com, hotwire, CarRentals.com (not to be confused with its rival's rentalcars.com), and discount hotel booking engine trivago.
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Miles for rooms
So in this game of giants and billion-dollar deals, why is Priceline Group even bothering with a niche company that's worth pocket change compared to some of its other assets?
Becuase Rocketmiles can help it satisfy a deep and abiding need. The site is yet another hotel room reservations portal, but with a key difference -- it offers miles on a wide variety of airlines as standard bonuses for booking through its engine. These carriers include not only American incumbents such as Southwest and United, but also international operators like British Airways, Air France, and even Ethiopian Airlines.
At the moment, Priceline Group has a lackluster loyalty program. Replacing it with a vastly better one would give it an edge over Expedia, with its somewhat complex, yet not particularly compelling, Expedia+ Rewards.
Having a quality program would help level the odds against some increasingly tough competition -- ironically, the hotel chains and airlines that supply the inventory for the agencies. Both types of suppliers have gotten much better at enticing travelers to book directly on their sites, circumventing the Priceline Groups and Expedias of the world.
Baking Rocketmiles' offerings into its system would almost certainly make Priceline Group's sites much "stickier." Bonus miles are the perfect incentive for travelers, after all, and Rocketmail's system has plenty of airlines flying to various corners of the planet to choose from.
Attracting miles-hungry customers and bringing them back for future bookings could provide a significant lift to Priceline Group's results. They're already flying high; the company's "agency" revenues -- i.e., commissions as the booking agent, as opposed to the auctioneer (or "merchant") of its own inventory of wholesale rooms -- saw a nice 33% year-over-year increase in the company's just-reported fiscal 2014, to $5.8 billion.
That was nearly 70% of the firm's total revenue figure for the year (the remainder was the take from merchant activities). That total could swell notably if the Rocketmail system were well integrated into the flagship site. Priceline Group is an aggressive marketer (who hasn't seen one of the Shatner TV ads by now?), and it would not be shy or vague in touting these special benefits for customers.
Priceline Group got where it is today by leveraging comparatively inexpensive acquisitions (its big money maker, Booking.com, was bought for only around $133 million in 2005). Rocketmiles has obvious potential to be one of those buys; a relatively cheap pickup that helps bring in plane loads of money.
The article Priceline Group's Tiny Acquisition Could Make a Huge Difference originally appeared on Fool.com.
Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Priceline Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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