The Big Wave Blog

Last week 3 domestic US airlines hit the tarmac hard. Aloha , ATA   and Skybus  all suspended their operations leaving hundreds stranded and abruptly ending a lot of jobs.

Aloha is leaving 1900 employees without work, ATA over 2200, Skybus over 450. The impact on their families will be tremendous.

Airline business has remained an enigma for investors and consumers alike. Solutions are hard to come by but the problems are getting compounded every day. Each one of these airlines blamed everything from price of oil and losing contracts (ATA) , to “unfair” competition in the case of Aloha.

Surprisingly (not) there is more bad news in store for the domestic US airlines. The open skies agreement went into effect March 2008. The impact from this is going to be tremendous as International Players are no longer restricted to flying into US hubs like JFK (New York) or ORD (Chicago). They will be able to fly domestic routes that were sheltered from competition. If they thought things are tough, now they have cash rich global airlines to compete with.

The Big Wave Blog was launched in Hawaii and we are sad to see two of the main feeder airlines into the islands going out of business. This translates into higher prices due to lack of competition. Our pain is minimal compared to the pain the airline employees and their families, customers, vendors; suppliers will have to go through.

Famous British entrepreneur Sir Richard Branson of Virgin Airlines (and more recently the buzzworthy new US venture Virgin America)  said something about Airline Business that still rings true. Someone asked him how to become a millionaire he had famously answered

“Start with a billion and buy an airline”

So true!

The stock market was buzzing yesterday about a possible bid by Google for Expedia Inc. Expedia’s stock rose 9% in afternoon trading. However, no one credible has confirmed this takeover bid, and now it seems more like an April Fools Day special.

Here is my opinion on why this deal is pure speculation and doesn’t make a lot of sense.

Why Buy Expedia?

Google typically goes into purchase mode based on 2 core needs:

1. Traffic & Popularity (YouTube, 2006)
2. Market Domination (DoubleClick, 2007)

More Traffic?

Google doesn’t need more traffic. They already sit on over 58.7% of web traffic and are not starving for search market share. Expedia brings in very decent numbers, but nothing to tempt the Googlers.

More Revenue?

No…I don’t think so. Expedia had an excellent 2007. Their gross profit for 2007 was $2.10 billion, an increase of 21% over 2006. However, AdWords powers the Google machine very well. Google grew 44% or $2.7 billion in 2007. Google’s gross profit was $16.5 billion.

More Travel?

True, Expedia is the one of the top global online travel websites, with excellent usability and a very solid support structure. They have beaten some very well established hotel brands at marketing and distribution through their technology and clear vision. But what Expedia is not is a meta search engine, and that is that is where Google should be looking to shop. Kayak.com makes more sense for Google than Expedia.

Google’s much-hyped “Google Travel” hiring in Seattle in 2006 did not really materialize into a jump into the travel vertical. I guess there were YouTube and DoubleClick to be acquired, and they never really got around to travel.

Only Google Knows

At the end of the day, despite my opinions, Google is free to make a reasonable offer to any business. Expedia is a strong and poweful buy in the online travel field. What Google does not have to worry about is the dark cloud that Microsoft brings to every buyout offer it makes (ex: people crying about its “evil” bid for Yahoo).

In the end, it is all speculation. As Cicero said: “Time destroys the speculation of men, but it confirms nature.”