Wednesday, August 5, 2009

As the Online Travel Companies Turn

When eliminated booking fees on airline tickets in March, I half-expected to see Orbitz Worldwide readying a bankruptcy filing.

That's because Orbitz got a huge chunk of its profits from those air-booking fees, and I knew there would be great pressure on Orbitz to match Expedia's move, which Orbitz did in April.

But, alas, analysts and pundits sometimes tend erroneously to view companies statically, as if they don't have the capacity to change.

After releasing its second quarter results this morning, Orbitz Worldwide had a heady day on Wall Street, with its stock price rising some 23 percent to $4.60.

Orbitz bested analysts' estimates. It cut and optimized its marketing spend, continued with other cost reductions, focused on organic, unpaid marketing through search engine optimization, and saw domestic air transactions rise 23 percentage points quarter-over-quarter.

Orbitz is not out of the woods, by any means. It still has a huge amount of debt and its ongoing challenge is to convert its rhetoric about growing its hotel business into concrete gains.

But, Orbitz indeed is a company in transition.

And, just as Orbitz seems to be handling its loss of booking-fee revenue, the online travel companies (OTCs) one day may be forced to cope with a hotel merchant model that is just too much of a hassle to retain because of the tax issue.

But, we would be wrong to think that adverse court rulings on the hotel tax question would spell the demise of the OTCs.

They are not static creatures and they have the capacity to adapt.

New business models for selling hotel rooms are possible and indeed are emerging.

Don't think for a moment that the OTCs are down for the count.

1 comment:

Jared said...

Hi Dennis,

Love the blog - great stuff. Orbitz is the first OTA I can think of to focus on the cost side of the business (and REALLY focus on the cost side of their business). Just looking at the revenue side, they're a basket case - no service fees, a less-than-underwhelming hotel product, dying demand, etc...but (like the airlines, oddly enough), they broke from the pack by focusing on costs. Sure, it remains to be seen whether that can sustain them long enough. But most of us like the travel industry because the marketing piece is fun - but the profits for the next year are going to come (at least in large part) by managing costs. You have to eat your spinach to get your dessert, I guess.