Priceline-Cathay Pacific Link Pays Dividends

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- Priceline(PCLN) recently announced a private-label partnership with Cathay Holidays Limited, the travel agency arm of Cathay Pacific Airways.

Under the arrangement, Priceline will provide hotel bookings through Agoda.com, the company's popular hotel-booking subsidiary in Asia. This development follows the on-going trend of online travel agencies like Expedia(EXPE), Orbitz(OWW) and Travelocity that are offering hotel bookings on the Websites of airlines.

Priceline will now provide bookings at thousands of hotel properties in over 114 cities globally where Cathay Pacific Airways has coverage. This announcement comes soon after Expedia, 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.

We have a $506 price estimate for Priceline , which is just below the current market price.

Here what we think of the potential impact on the stock.

First, there will be more hotel stays for Priceline through the Cathay Pacific Airways partnership. Cathay Pacific Airways flew 26.8 million passengers in 2010. Assuming the passenger traffic grows at the historical rate of close to 9%, it translates into roughly 29.2 million passengers in 2011.

Assuming 1 in every 10 passengers booked a hotel stay at Priceline, this translates into 2.9 million more hotel stays.

Second there will more hotel nights booked through Priceline. We estimate that on average there will be two persons per hotel room and three nights per stay leading to additional 4.35 million hotel room night bookings at Priceline in a year (2.9 million visitors / 2 visitors per room times 3 nights per stay). Over the remaining six months in 2011, this could contribute 2.2 million (4.35 million/2) hotel-nights booked at Priceline.

We assume the hotel-nights booked at Priceline through Cathay Pacific Airways partnership to grow in line with the passenger traffic at Cathay Pacific, at about a 9% historical growth rate. This leads to 4.7 million additional bookings in 2012, rising to almost 7.3 million additional bookings by the end of our forecast period.

We currently estimate Priceline's share of hotel rooms booked to grow from 2.33% in 2011 to 3% by the end of our forecast. Priceline's partnership with Cathay Pacific Airways could result in Priceline's market share rising from 2.38% in 2011 to 3.12% in 2017, resulting in almost 3.5% potential upside to our current $506 Trefis price estimate of Priceline's stock.