In the summer of 1978, Dara Khosrowshahi, then 9 years old, left his home in Tehran with his family for their regular vacation in the south of France. With turmoil and revolution rocking Iran, his family did not return to Tehran, and wound up settling in Tarrytown, N.Y.
Dara Khosrowshahi, who is becoming chief executive of Expedia, hopes to foster customer loyalty and add new content, like hotel reviews.
"I like to think I've been on vacation ever since," Mr. Khosrowshahi said.
Now, Mr. Khosrowshahi is going to be involved in a lot of people's vacations. This afternoon, Expedia, the largest online travel agency, is expected to be spun off from its parent, IAC/InterActiveCorp, with Mr. Khosrowshahi becoming its chief executive.
Mr. Khosrowshahi, now 34, spent the last seven years working for Barry Diller, IAC's chief executive, mainly as a deal maker and financial officer. He started running Expedia in December.
IAC is trying to bolster its lagging stock price by separating its large travel business from its other units, which include the HSN shopping network, Ticketmaster and the Ask Jeeves search engine. The newly independent Expedia, which will include the Expedia Web site, Hotels.com, Hotwire.com and TripAdvisor.com, is at a crossroads. Over the last few years, it has gained market share in the online travel industry, which is still taking business from traditional travel agents. But as the economy improves and travel picks up, airlines and hotels are constantly pressing to cut the fees they pay to Expedia. And in the second quarter of this year, Expedia lost market share to Sabre Holdings, Travelocity and Priceline as it cut advertising expenses to maintain profitability.
"There is no question that the game is a lot harder," said Henry H. Harteveldt, an analyst with Forrester Research. "But Expedia moves more product than any other online agency. They are simply better at marketing and better online."
Mr. Khosrowshahi is moving quickly to put his own stamp on the company. Last month he reorganized the management, bringing in outsiders as chief financial officer and vice president for technology.
"We have a mix of new management and people who have been there for a long time," he explained. Mr. Khosrowshahi will move to Seattle, where Expedia is based, with his wife and two young children.
One of Mr. Khosrowshahi's goals in the reorganization was to repair cracks in what had been one of Expedia's greatest strengths, its "merchant model" of selling hotel rooms. Instead of simply taking a commission on hotel rooms sold, Expedia contracts to buy a big block of rooms from a hotel at a deep discount and sells those rooms at a markup.
In slow times, hotels were very happy to have guaranteed business, but as times got better and the online travel business got larger, the hotel chains realized that they were effectively paying a much higher cut of the room rate than with traditional commissions.
Moreover, as other sites moved to copy this approach, the big hotel chains started to rebel, in part because the travel agents were undercutting the prices charged on the chains' own Web sites.
Expedia, in particular, developed a reputation for arrogance, and a few chains, notably InterContinental Hotels, withdrew their properties from the site.
Since then, Mr. Khosrowshahi has created a new department devoted to smoothing relationships with hotel companies and other suppliers. And he has changed some policies. For example, Expedia now will agree not to undercut the Web prices offered by the hotel chains. InterContinental hasn't returned, but Mr. Khosrowshahi said, "I'm optimistic we can figure out a way to do business with them."
Hotels and airlines are also encouraging customers to use their Web sites rather than sites like Expedia, and industry analysts say that more people are doing so. For airline tickets, for example, Expedia charges a $5 fee to consumers that the airlines don't charge on their sites.
"The hardest thing for us is to build is lasting consumer loyalty," Mr. Khosrowshahi said. "The average consumer shops at three sites; we want to be two of those three sites."
He said that Expedia would try to differentiate itself through more useful features and additional content, like hotel reviews.
"There are enough consumers who are willing to pay for the service we provide," he said.
Still, with Expedia's growth slowing in the United States, Mr. Khosrowshahi said that many of the company's future opportunities lay outside of the United States.
"We are totally passionate about being global," he said, attributing that in part to his experience immigrating to the United States. Before taking over Expedia, now the nation's third-biggest travel agency, Mr. Khosrowshahi had never worked in the travel industry. But he was very involved in getting Mr. Diller's company into online travel, perhaps the most successful of its many Web-based enterprises.
Mr. Khosrowshahi received an engineering degree from Brown University, but chose a banking job after college. He was a junior banker at Allen & Company, the media investment bank, when he met Mr. Diller. At the time, Mr. Diller was the head of the QVC shopping channel, and Allen & Company was advising him on his attempt to take over Paramount.
In 1998, Mr. Khosrowshahi joined Mr. Diller's company, then called USA Networks, as the head of strategic planning. One of his first projects there was to buy a company called 1-800-hotels, which is now called Hotels.com. In 2001, he was involved in buying the controlling stake in Expedia, which Microsoft created in 1995. In 2003, the company bought Hotwire, a deep-discount travel site, and in 2004 it bought TripAdvisor.com, a site with extensive travel reviews.
At IAC and its predecessors, Mr. Khosrowshahi built a reputation as an affable executive who could both challenge and get along with the mercurial Mr. Diller.
"Dara combines a couple of things Barry has," said Jonathan F. Miller, now the chief executive of America Online, who was a top aide to Mr. Diller until 2002. "He has a real intellectual curiosity about things, combined with real rigor and critical thinking."
Mr. Khosrowshahi says that he and Mr. Diller are comfortable debating issues. For example, they are constantly disagreeing over how much cash IAC needs to keep in its corporate coffers. Mr. Diller had accumulated $4.7 billion in the bank as of the end of June.
"I felt we were overcapitalized," Mr. Khosrowshahi said. He will now be forced to live with that view. Expedia is leaving IAC with only $100 million in the bank, but no debt.
Mr. Diller will remain executive chairman of Expedia and will be deeply involved in running the company. Mr. Khosrowshahi says he and Mr. Diller talk every day. Mr. Diller also owns 6 percent of Expedia's shares and, through various arrangements, controls 61 percent of the shareholder votes.
