Priceline's Deal with Asia's Jetstar Airways Gives It Room to Rise

Trefis
Updated
Priceline
Priceline

Priceline (PCLN) recently announced a private-label partnership with Jetstar Airways, one of the leading low-cost carriers in Asia-Pacific, via Agoda -- Priceline's popular hotel-booking subsidiary in Asia. This deal follows the ongoing trend of online travel agencies offering hotel bookings on airlines' websites: Now, Priceline will provide bookings at thousands of hotel properties at Jetstar Airways' 17 destinations within Asia.

The announcement came soon after Expedia, (EXPE) Priceline's biggest competitor, entered into a joint venture with AirAsia, the leading budget carrier in Asia, and into a similar private-label partnership with South African Airways.

How the Deal Could Affect on Priceline's Stock

Partnering with Jetstar Airways -- a Qantas (QUBSF) subsidiary -- could increase Priceline's market share of hotel stays, leading to around a 2% upside to our current $506 Trefis price estimate for Priceline's stock.

Here's how we think of the potential impact:

  • More hotel stays for Priceline through the Jetstar Airways partnership

    • Jetstar Airways flew 14.6 million passengers in 2010.

    • Assuming that 1 in every 10 passengers booked a hotel stay at Priceline -- a conservative estimate -- this translates into 1.4 million more hotel stays

  • More hotel nights booked through Priceline

    • We estimate that on average, there will be 2 persons per hotel room and 3 nights per stay, leading to an additional 2.1 million hotel room night bookings at Priceline in a year (1.4 million visitors / 2 visitors per room x 3 nights per stay). Over the remaining six months of 2011, this could contribute 1.05 million (2.1 million/2) hotel-nights booked at Priceline.

    • We assume the hotel nights booked at Priceline through the Jetstar partnership will grow in line with the passenger traffic at Jetstar, at about a 9% historical growth rate. This should lead to 2.5 million additional bookings in 2012, rising to almost 3.8 million additional bookings by the end of our forecast period.

We currently estimate Priceline's share of hotel rooms booked will from 2.33% in 2011 to 3% by the end of our forecast. Priceline's partnership with Jetstar Airways could result in Priceline's market share rising from 2.35% in 2011 to 3.06%, resulting in the previously mentioned 2% potential upside to $506 Trefis price estimate for Priceline's stock.

However, if Priceline could secure more of these partnerships and its market share for occupied hotel nights were to rise to around 3.5% by the end of our forecast, it could lead to a roughly 14% to 15% upside. You can drag the graph below to see the impact on Priceline's stock price estimate.


You can see a detailed analysis of our $506 Trefis price estimate of Priceline's stock here.

Trefis is an online investment research platform targeted towards individual and professional investors. Trefis also includes a community of users that can create and share their models and analysis on trefis.com.

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

Advertisement