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United and Expedia Group’s distribution agreement expires at the end of September. In the run-up to that deadline, the two companies have been battling it out in court — and in the court of investor and analyst opinion — during their respective earnings calls.
In one such discussion with financial analysts Thursday, Expedia Group CEO Mark Okerstrom said he “would find it completely bewildering if United decided not to engage in that discussion,” meaning talks to see how each party could be mutually beneficial to one another.
United didn’t immediately respond to a request for comment about Okerstrom’s remarks.
“I think we’re about five months out from contract expiration,” Okerstrom said. “We’ve always been very excited about having this type of discussion with United. But listen, at the end of the day, this is a platform. It has market-level economics. And to the extent that United, for whatever reason, decides to go [in] a different direction, no one of our carriers represents more than 1 percent of our revenue.”
Despite the relatively modest revenue hit that Expedia might be subject to if it were no longer offering United flights on its sites, one has to wonder whether consumers, knowing that Expedia doesn’t have airfares from one of the world’s largest airlines, might go elsewhere for trip planning.
FIGURatively Scratching His Head
Okerstrom sounded fairly incredulous about the prospect of United not wanting to reach a deal.
“But at the end of the day, they’ve got to make their choice, and we will just move on,” he said. “And I think United’s competitors would be very happy with the outcome. But I think it will be value distractive to both of us, and that’s not the place where we particularly want to end up. And I suspect that they really, in their heart of hearts, probably don’t want to end up there, either.”
From United’s perspective, it might argue that the time is right for a new era in airline-online travel agency relationships. Big hotel chains are attracting plenty of direct bookings so United likewise may be well-equipped to go in that direction.
During United’s first quarter earnings discussion on April 17, Chief Commercial Officer Andrew Nocella put it this way: “This is time to change. Companies need to evolve and innovate, and we here at United changed a lot. We have invested in our own website and our app and continue to develop much more cost-effective and transparent and optimal sales abilities to distribute our content.”
Now the question is whether this is United posturing to gain competitive advantage in contract talks or whether a new era in airline distribution begins October 1.
Photo Credit: Expedia Group CEO Mark Okerstrom said he thinks that at the end of the day United Airlines would want to come to terms over a new contract. Justin Bachman / Bloomberg
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