Tuesday, July 28, 2009

Is Orbitz Poised for a Priceline-like Comeback?

I reported yesterday how Barney Harford, the Orbitz CEO six months or so into his tenure, is stirring things up at 500 W. Madison St., Chicago, in trying to come to grips with building the Orbitz hotel business.

I spoke to a handful of analysts about Orbitz's prospects and they agreed that a rebound would take a protracted effort.

The Orbitz situation, in its broad outlines, sort of reminds me of Priceline's struggles when its stock was trading at $1.31 on Dec. 29, 2000. Orbitz Worldwide stock, trending upward, sits at $2.41 before this morning's open, a lowly figure when compared with Priceline's stock at $122.72.

I speculated a few weeks ago, that some sort of Orbitz-Kayak combination could be in the offing because Orbitz, with all of the consumer traffic that it draws, needs to leverage its potential in the advertising/media business.

One of the parties called my idea "ludicrous."

Alas, my ideas have been called worse.

But, there indeed was something to my speculation because Orbitz recently relaunched Trip.com, a facilitated-search vehicle, to take advantage of all those lookers who don't book.

In researching this post about Orbitz, I also learned that there was speculation late last year and early this year that Orbitz separately had talks with Priceline and American Express about merger agreements.

A Priceline combination with Orbitz might have helped Priceline expand into European and Asian markets that it has yet to penetrate.

However, I'm told that an Orbitz consolidation with American Express, which didn't lead to a contract signing, was much closer to fruition than the Orbitz discussions with Priceline.

Amex has yet to distinguish itself in the online travel arena -- far from it, actually. Perhaps its rumored talks with Orbitz were a bid to jump-start that effort.

However, the feeling I'm getting now from speaking with a handful of analysts is that nothing is imminent on the Orbitz consolidation front, including other scenarios such as an Expedia-Orbitz merger, a Travelocity-Orbitz marriage or a Kayak-Orbitz joining of forces, although all of these players undoubtedly have pondered these strategic combinations.

Tom Botts, a partner in Hudson Crossing, says there would be too much conflict in an Orbitz-Kayak merger because Orbitz "has staked out a position as a friend to many," including its relationships with Bing Travel, FareCompare and Kayak, among others.

Botts believes Orbitz will pursue a go-it-alone strategy for now.

Along the same lines, Soleil Securities analyst Jake Fuller believes an Orbitz-Kayak combo is not on the table, noting that Orbitz buying Kayak "wouldn't work."

With the Orbitz balance sheet loaded down with $652 million in debt and a market cap of $200 million, Kayak would need to access hard-to-obtain external capital if it were to ponder an Orbitz acquisition, Fuller said.

It's also unknown, Fuller said, whether the Blackstone Group, which controls Travelport and Orbitz, are in a selling frame of mind.

Another industry veteran, who declined to be identified, suggested that an Orbitz-Kayak merger would be a winner in terms of its potential in travel search and the media business, but some sort of paradigm shift would have to occur to make it financially feasible.

"Something would have to happen," this analyst said, mentioning that perhaps Blackstone would forgive some of Orbitz's debt for the right kind of deal.

Forrester Research travel analyst Henry Harteveldt says he doesn't see Orbitz combining with another online travel company like Priceline, Expedia or Travelocity because of antitrust reasons, but he could envision OTCs picking off parts of Orbitz Worldwide, such as ebookers or HotelClub, if OWW conducted a fire sales of its pieces.

"I think the Orbitz franchise is solid," Harteveldt says. "The challenge for them is to rethink their user experience. The shopping experience hasn't changed much since they launched."

Another analyst, who commented anonymously, said Orbitz must focus on generating enough free cash flow to pay down its debt much quicker than it has been doing.

He doesn't believe Orbitz, under Harford, whom he termed "the smartest guy in the room," will become insolvent, but could face a protracted struggle with its "product not becoming very big."

The up-side, this analyst said, is that Orbitz could rebound, if some of its hotel initiatives take hold, in two to three years.

Several analysts said it was too soon to tell whether Orbitz can make the kind of comeback that Priceline began to pull off some seven or eight years ago.

All were awaiting some hint of Orbitz's prospects from the release of its second quarter financial results Aug. 5, and wanted to assess OWW's results for the rest of 2009 before taking a position on OWW's fate.

Said Botts of Hudson Crossing: "I don't know enough yet to say if it is the phoenix rising."


Anonymous said...

They have stripped down Ebookers and Hotelclub to save costs and functions are being migrated offshore or to Chicago. No staff are being replaced and moral is low and there does not seem to be much creativity from within OWW at the moment.

Anonymous said...

What about CheapTickets and the former site Lodging.com? Where are they and what do these assets bring to the table? There's not mention of their GDS business and the verticals that can be impacted. Orbitz/Travelport seem to have the pieces to be successful, but do they have the right people and the right plan?