Orbitz Under the Microscope

Online travel is getting political, as opponents try to vilify Orbitz. But
despite a travel lobby group applauding a Congressional objection to what it
says props up the online travel venture with taxpayer money, the venture
continues to grow in an extremely challenging travel market.

On the heels of Congress passing legislation to provide financial assistance
to the troubled U.S. airline industry, the Interactive Travel Services
Association said in a statement that the move will “put Orbitz on notice
that Congress is scrutinizing its business activities to ensure taxpayers
are not footing the bill for this collusive and controversial joint
venture.”

“Orbitz was cleared by the DOJ and DOT. It’s past all those clearances, so
we don’t make much of this,” says Lorraine Sileo, analyst with PhoCusWright, an online travel consultancy.


“ITSA supports targeted emergency financial assistance for U.S. airlines.
However, it is inappropriate for the government to indirectly subsidize a
venture that competes with private, unsubsidized companies; is under active
investigation by Department of Justice and state antitrust authorities; and
remains a source of ongoing concern at the Department of Transportation.
This latest action demonstrates that Congress shares ITSA’s concern that not
one penny of taxpayer assistance should be funneled to this venture,” ITSA’s
Executive Director, Antonella Pianalto, said in a statement.


ITSA’s press release says: “recent filings with the Securities and Exchange
Commission confirm that Orbitz continues to lose millions of dollars,
despite influxes of cash provided by its airline owners. American,
Continental, Delta, Northwest and United, which combine to control over
seventy percent of the U.S. passenger market, own, control the board of
directors, and have at regular intervals funded Orbitz.”


But Sileo says Orbitz is “still growing” and that after booking more than
$800 million in revenues for part of 2001, it backed that up with $2.5
billion in 2002. She said Orbitz is not immune to the downturn in the
overall tourism industry, but PhoCusWright’s latest online travel forecast
said that the industry for Web-based travel bookings would grow by 35
percent.


“Fifteen percent of all travel bookings are made on leisure travel sites, so
there still is substantial growth potential, but the overall travel market
is obviously experiencing some serious difficulties,” Sileo said.

According to the ITSA’s press release, “Northwest Airlines’ 2002 10K filing,
Northwest recognized $3 million of losses, which represents its share of
Orbitz losses. With Northwest Airlines owning 15.6 percent of the company, Orbitz’
total losses for its airline owners in 2002 would appear to approach $20
million.”

Orbitz had plans for IPO in 2002, but with the severe downturn in the
initial public offering, that plan was quietly shelved.

“Technically, they are in a quiet period, but there are no imminent plans
for the IPO, perhaps it will happen, if the whole travel industry improves,”
Sileo said.

In a related development, late Thursday, Sabre Holdings Corp. , the owner of online travel site Travelocity said that first-quarter
revenue from Travelocity was $80 million, up by 8.6 percent from $74 million
in the first quarter of 2002.

Sabre did say that if bookings in the second quarter were off by about 20
percent due to a continued slump in travel brought about by global
uncertainties, its second-quarter revenue would decline by 8 percent to 13
percent, from the year-before quarter.

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