Expedia to buy Orbitz for $1.6 billion

The company is buying market share to sustain profit

Cheaper air travel is making the world seem smaller -- and that's increasingly the case for the online booking market too, with Expedia planning to swallow up rival Orbitz Worldwide barely a month after buying the smaller Travelocity.

Expedia operates online booking services for flights, car rentals and hotels, including the Hotels.com brand, while Orbitz offers similar services under its own brand and at Ebookers.com and Hotelclub.com.

For Expedia, the acquisition is primarily about growing its customer base: The companies offer similar services in overlapping markets. Orbitz also operates "white label" travel booking services for airlines and bank loyalty programs through its Orbitz Partner Network.

Orbitz directors have advised stockholders to accept Expedia's offer of US$12 per share, which values the company at around $1.6 billion.

In late January, Expedia exercised a long-standing option to buy Travelocity, another online booking service, for around $280 million. Expedia already provided the underlying booking engine for that company's North American websites.

Last week, Expedia reported a decline in operating income and net profit, even as the growth in booking volumes accelerated. Its margins are declining and it needs to grow the business to maintain profit growth.

Peter Sayer covers general technology breaking news for IDG News Service, with a special interest in open source software and related European intellectual property legislation. Send comments and news tips to Peter at peter_sayer@idg.com.

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