For Expedia Inc (NASDAQ:EXPE), the company’s journey for international expansion hit a road block yesterday. The company’s proposed acquisition of Australian travel site Wotif brought up red flags yesterday and raised the concerns of local antitrust regulators.

In the initial assessment on Thursday yesterday, the Australian Competition and Consumer Commission said that the United States online travel agent’s offer for Wotif.com Holding Ltd, which is based in Sydney, could raise the commission rates that are charged to those who provide the accommodations. The final decision of the regulator is due to be submitted in October.

The Australian travel site’s shares dropped up to 7 percent in Sydney due to the concerns that the regulator would put a stop to the Expedia deal, which is valued at 703.1 million AUD, which is roughly US$657.1 million. The Australian Competition and Consumer Commission often refuses to sign off on deals that it had expressed concerns about earlier. By the end of the trading day, Wotif’s shares had dropped by 4.3 percent of AUD$3.12 which is far less than Expedia’s bid that valued the company at AUD$3.30 per share.

Market questions have shown that Wotif is a significant source of bookings for Australian accommodation providers and charges customers a lower commission rate than Expedia does. Rod Sims, the chairman of the Australian Competition and Consumer Commission, said in a statement that Expedia and Wotif are two of the biggest online travel agents in Australia, the other being Priceline Group Inc (NASDAQ:PCLN).

July was when Expedia first announced its initial bid for Wotif, hoping to gain profits on an increase in the market for local tourism as incredibly low interest rates were helping the country back on its feet after a decade of the effects from the mining boom. Australia’s strong dollar currency had also been encouraging travel overseas, while the ever increasing wealth of the middle class in Asia provided fresh sources of foreign tourists, especially from China.

The online travel agents based in the United States, such as Expedia and Priceline, which is the owner of Booking.com and Agoda, are trying to grow overseas and make their revenue streams more diverse as greater competition puts pressure on their revenue growth back in the United States.

Expedia and other travel websites have been offering customers discounts and loyalty programs as they struggle to compete with Kayak.com and other referral sites, which perform a search on multiple sites and unconventional lodging options, such as spare rooms in apartments or homes.

In May, Expedia agreed to purchase Auto Escape Group, which is an online car rental company based in Europe, from Montefiore Investment, which is a private equity fund. Last year, the United States travel company paid a total of $632 million for Trivago, a travel site based in Germany.

Meanwhile, Priceline signed an agreement in May to buy OpenTable Inc, a restaurant booking service site, for roughly $2.6 billion.

It seems that the regulators in Australia, however, are taking a more cautious approach.

Although the presence of smaller rivals in Australia, like Hooroo, show that the travel market is becoming more and more competitive, the Australian Competition and Consumer Commission stated yesterday on Thursday that it had contacted a select number of companies, and they said that the high advertising costs for the space posed substantial barriers to entry.

According to Mr. Sims, a significant issue for the Australian Competition and Consumer Commission is whether the industry’s dynamic nature will help develop new business models and reign in Expedia’s competitive moves after the acquisition.

Wotif released a statement that said that the Australian Competition and Consumer Commission’s concerns were released after an initial round of feedback for the industry, and stated that the company would work closely with regulators to resolve any concerns.

Spokespeople from Expedia did not immediately respond to release a comment.

 

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