Few people could blame Orbitz Chief Executive Jeff Katz for feeling picked on.
Almost as soon as his online travel company was formed in 2000, the Department of Justice decided to look at whether Orbitz’s ownership by five airlines was anti-competitive.
Only months after Chicago-based Orbitz made its Internet debut in the summer of 2001, Sept. 11 devastated airline bookings.
Then just three weeks ago, after a three-year investigation, the Justice Department concluded “the Orbitz joint venture has not reduced competition or harmed airline consumers.”
“We feel battle-hardened,” says Katz, an engineer with graduate degrees from Stanford and MIT who spent 17 years at American Airlines before becoming CEO of Swissair for three years. When he jumped to Orbitz, the plan was to take the company public.
Last year, Orbitz filed for a $125 million initial public offering, but it was shelved because of the antitrust inquiry.
“We’ve always had the view that Orbitz should be a public company,” Katz said. “If you look ahead, companies are getting bigger, leveraging acquisitions. To do that, you need resources.”
Katz can’t discuss the timing of an offering because Orbitz remains in a regulatory “quiet period” related to the IPO application.
But few on Wall Street would be surprised if the offering occurred in the fourth quarter or early next year. Orbitz turned profitable in the fourth quarter of 2002, which should make selling stock in the discredited dot-com area a lot easier. More recent financial data is not available because Orbitz remains privately held.
A successful offering would be a boon to its airline owners–fierce but financially struggling rivals United Airlines, American Airlines, Continental Airlines, Delta Air Lines and Northwest Airlines.
Proceeds from the stock sale would go into Orbitz’s coffers for general corporate purposes. But the airlines almost certainly would see the value of their Orbitz stakes grow and would be able to sell stock in secondary offerings.
It also would be a coup for Chicago, which has a second-city complex about being left behind by the rapid growth in e-commerce.
Katz, who lives in Los Angeles, at one point considered relocating the company to the West Coast but decided not to because subordinates were overwhelmingly negative about such a move. Orbitz employs more than 280 in its offices at 200 S. Wacker Drive, near the Sears Tower, up from 14 in July 2000.
Cash from the IPO would come in handy. Orbitz is battling two larger rivals: Expedia, the online travel site started by Microsoft and now owned by Barry Diller’s InterActiveCorp., and Travelocity, owned by Sabre Holdings, the world’s largest computer reservation system.
InterActiveCorp. has an array of top online travel and leisure brands besides Expedia, including Hotels.com and Ticketmaster, that Orbitz can’t match. A traveler to New York who buys an airline ticket can be offered a bargain hotel room as well as tickets to a Broadway show.
“Barry Diller is creating a holding company that is an impressive flotilla of well-coordinated battleships,” said Henry Harteveldt, principal analyst with Forrester Research in San Francisco. “Orbitz is a destroyer out on its own.”
Orbitz got into the merchant hotel business only in March, negotiating deep discounts on blocks of hotel rooms and then reselling them to customers.
Analysts say Orbitz also needs to bundle airfare, car rentals and hotel rooms or cruises at better rates than customers could get by buying them separately.
Travel packages are coming soon, promises Katz. And Orbitz is doing more cross-selling to decrease its reliance on airline tickets, estimated to represent about 70 percent of its business.
“There is no question that, long-term, Orbitz has what it takes to succeed. But does that mean they have 100 percent chance of success? No,” Harteveldt said. “Any single management or strategic stumble could throw them off course.”
Changing Internet travel
Orbitz has come a long way in three years. Last year, it booked an estimated $2.5 billion in travel, more than triple the 2001 tally, according to PhoCusWright Inc., a travel research firm in Sherman, Conn. Still, that is a far cry from Expedia’s $5.29 billion in 2002 bookings and Travelocity’s $3.5 billion.
But Orbitz’s growth rate of 213 percent has left the others in the dust, compared with 82 percent for Expedia and a 12 percent for Travelocity.
Orbitz also has changed the way the online travel game is played, Internet and travel experts agree.
The idea behind Orbitz was simple and consumer friendly: Orbitz’s Web site would provide a vast array of options without favoring any one airline or hotel chain, enabling travelers to select the price they wanted to pay and the company they wanted to do business with.
Orbitz’s so-called “unbiased” approach was intended to provide more choice than Expedia and Travelocity, which frequently offer results from only one or two airlines on their initial search page.
Expedia and Travelocity long have been suspected of playing favorites with airlines that pay for top billing, but each denies that practice.
“Airlines cannot and do not pay for placement in Travelocity’s flight listings,” according to its Web site.
“We always sort our search results by price,” said Barney Harford, Expedia vice president for air, car and private label. “The only way for an airline to get to the top of our display is to have the lowest fares.”
(None of the online sites carry Southwest Airlines’ fares because the discount carrier chooses to sell only through its own site.)
But Orbitz has its own cheap fares–so-called Web-only fares that airlines make available online to fill seats at the last minute. Because Orbitz charges the airlines lower fees, the carriers were willing to post their Web-only fares on its site.
Orbitz’s recently redesigned site wins kudos from consumers because it is easy to use. But Harteveldt argues, “There is no such thing as brand loyalty. Travelers are saying, `I’ll go for the site that has the best deal for me.'”
Some savvy shoppers say they find a rock-bottom fare at Orbitz and then book the flight at the airline’s Web site to avoid paying Orbitz’s $6 per-ticket fee.
Building loyalty
Such fickleness doesn’t worry Katz, who believes he can build brand loyalty through a “customer care” program–a high-touch approach in a cold, high-tech business.
Here’s how it works: In Orbitz’s customer-care center, a former military flight controller watches thunderstorms roll across a map of the U.S. Christopher Hills taps into a flight control system, allowing him to see at a glance jets being rerouted at Atlanta’s busy airport to avoid the towering clouds.
Even if airlines haven’t posted delays, Hills can send automated messages to customers heading toward Atlanta warning them of expected delays. The “care alert” also may suggest bringing something to read or offer details about an airport restaurant worth sampling.
And when flights are canceled, the care-center staff mans the phones the old-fashioned way, calling travelers and rebooking flights.
About 30 percent of Orbitz’s shoppers have provided their cell phone numbers in addition to e-mail addresses. In a normal day, 200 flights may be canceled by carriers, and Orbitz’s staff may call between 200 and 300 people a day.
A light in the gloom
Orbitz’s service was in the spotlight last week when the largest power blackout in U.S. history halted many of the nation’s busiest airports. On Thursday and Friday, Orbitz personnel called close to 600 people each day and sent 150,000 automated messages.
Dick Metzler, a retail logistics salesman from San Francisco who had arrived at the Newark airport minutes before the power went out, received one of those calls while standing in the terminal. Frustrated because his cell phone calls weren’t going through, suddenly his phone rang, and Tracy Peck from Orbitz was asking what he wanted to do.
A flight out the next day and a hotel he could walk to, he replied. “The whole airport was gridlocked. Otherwise, I would have stood there in the dark with a few thousand of my best friends.”
No problem. Peck found him a room at the airport Marriott and rebooked him on flights the next day. She even got him bulkhead aisle seats on both legs of his journey.
Metzler was obliged. “I was envisioning sleeping on the floor of the Newark Airport. The thing that was impressive to me was the pro-active problem-solving. Nobody does that.”
