Orbitz Worldwide, Inc. Q4 2008 Earnings Call Transcript

| About: Orbitz Worldwide, (OWW)

Orbitz Worldwide, Inc. (NYSE:OWW)

Q4 2008 Earnings Call Transcript

February 24, 2009 10:00 am ET

Executives

Frank Petito – SVP, Corporate Development

Barney Harford – President & CEO

Marsha Williams – SVP & CFO

Analysts

Jennifer Watson – Goldman Sachs

Vance Edelson – Morgan Stanley

Bridget Weishaar – JPMorgan

Scott Hamann – KeyBanc Capital Markets

James Sanford – Citigroup

George Askew – Stifel Nicolaus

Mike Olson – Piper Jaffray

Ron Jersey [ph] – Barclays Capital

Steve Weinstein – Pacific Crest

Mark Mahaney – Citigroup

Operator

Welcome, and thank you for standing by. I just like to remind all participants that your lines have been placed in a listen-only mode until the question-and-answer session of today's conference. Today's call is also being recorded. If you have any objections you may disconnect at this time.

I would like to turn the meeting over to your host Mr. Frank Petito. Sir, you may begin.

Frank Petito

Thank you, Calvin. Good morning, everyone and thank you for joining us on the Orbitz Worldwide fourth quarter and year end earnings call. I'm pleased to be joined on this call by Barney Harford, our President and CEO and Marsha Williams, our CFO.

As many of you have seen we filed a press release after yesterday's market close which detailed our fourth quarter and year end results. If you have not received this press release it's available on the IR portion of our Web site.

Also, some of the statements made during this call may constitute forward-looking statements that involve known and unknown risks, uncertainties, and other factors including those described in the risk factors in our SEC filings which are available on the SEC's Web site or our Investor Relations Web site.

These risks and uncertainties may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any of these forward-looking statements.

Finally, during the call, we will be referencing certain non-GAAP financial measures as defined by the SEC rules, where required, we have provided in our press release or on our Web site a reconciliation of those measures to the GAAP financial measures we consider to be the most comparable.

At this time, I would like to turn the call over to Barney Hartford, our President and CEO.

Barney Harford

Thanks, Frank. And thanks, everyone for joining us on the call. It has been seven weeks since I joined Orbitz Worldwide. I spend the time digging into the details of our operating businesses, learning about our technology platform and getting to know the people of the Company at all levels.

While I am still developing my strategic view of the Company it is already clear that Orbitz Worldwide has strong brands, a global footprint and a team made up of smart and dedicated individuals. It is also extremely clear to me that we operate in a highly competitive sector where we are not the biggest player.

During the fourth quarter global economic softness significantly impacted our performance and created uncertainty for the entire travel industry. Our domestic gross bookings were down 7%. Our international gross bookings were down 2% on a constant currency basis and down 18% taking into account foreign exchange headwinds.

In response to the softness, we took proactive and immediate steps in both November and January to reduce costs and as a result we believe Orbitz Worldwide is better positioned to manage through these challenging times.

As we work through a difficult economic and travel environment we are focused on building a company that creates value for our customers and for our supplier partners.

As for the macro conditions, I would like to say that we see change on the horizon but there are no indications of that. So far this quarter we are seeing continuations of the trends from the fourth quarter 2008, including capacity reductions at the airlines and higher vacancy rates at hotels. This is, however an operating environment that demonstrates clearly the value that online travel companies can offer to both suppliers and consumers.

In the face of sustained demand weakness, the ability to tap into the $11 billion of travel demand represented by the Orbitz Worldwide brands is more valuable than ever and our supplier teams are actively engaged in working with our supplier partners to give them creative opportunities to bring values to our customers that will stimulate incremental demand.

In this context let me spend a moment on our dynamic packaging business to highlight how the pricing opacity that it offers can deliver meaningful savings to consumers while at the same time helping suppliers stimulate demand. The opaque nature of bundled pricing in the dynamic packaging path allows hotels, airlines, and car rental companies to identify inventory (inaudible) otherwise going to go unsold and offers rates and fares on the inventory that is significantly below what they would publish on a standalone basis.

We offer that inventory in our packaging path using our packaging savings messaging to highlight the savings to consumers. Consumers save money versus buying a component separately and may well be able to take a trip they otherwise would not have been able to take. At the same time, we're able to remain in control of the selection of flight, hotel and car components that best meet their needs.

In the current environment, we are seeing a significant increase in the number of package discounts being offered by our supplier partners compared to this time last year. In recent weeks consumers buying travel on our Web sites have been saving on average over $300 versus purchasing the individual package components separately.

These factors led to a 16% year-over-year increase in our U.S. dynamic packaging transactions in the fourth quarter. That strength is continued into 2009, and in January, our packaging businesses continue to grow at double-digit pace year-over-year on a transaction basis.

Now let me turn to some of the areas I have identified as priorities for the organization in 2009. Firstly, on technology, we need to get back delivering innovation to the core Orbitz and CheapTickets brands.

Over the coming few months we will be focusing on a mix of quick winds and longer term strategic investments on the technology side that we hope will make things easier, faster and better for our customers. Our technology teams have been focused for a while on the Austin migration in Europe and is good to get behind that.

Secondly, in the area of demand, I believe that we have under indexed our competition in the areas of Search Engine Optimization or SEO and in CRM. Both of these are areas where I believe we can improve performance and as a result increase the amount of nonpaid transactions we can generate. We have already made changes to the organization to create environment around these initiatives.

We are also evaluating the cost and ORI targets of certain of our online marketing channels and exploring opportunities to further refine our tracking and optimization capabilities. We expect to de-emphasize channels where we are not earning attractive returns and will be looking to read or expand towards more productive channels.

As for the positioning of Orbitz.com we are pleased with the performance of price assurance, which we believe is resonated well with consumers. Going forward we need to extend the position of the Orbitz brand beyond air and into the hotel and packaging areas.

Finally, we will continue to work on two of our core strategies building out our hotel business and strengthening our international footprint. On the hotel side, it is clear that we face significant competitive pressure. I will be heading to Australia next week to meet with a team at HotelClub, our Hotel-Only brand. I expect to update you on this business during future course.

As for ebookers, I recently returned from visiting ebookers in Europe, where we are pleased to have completed our European platform migration. However, as we mentioned last quarter given the difficult economic situation in Europe in particular we don't expect ebookers to meet its goal of being profitable in 2009.

I will now turn the call over to Marsha, who will review the financial and operating performance for the quarter.

Marsha Williams

Thanks, Barney, and good morning. As you read in our press release our adjusted EBITDA was $35 million for the fourth quarter of 2008, which is down from the $37 million we reported in the fourth quarter of last year. October and November were soft for us and for travel in general. December was a bit stronger here in the U.S., but was soft in Europe where currency headwinds also reduced our reported revenue.

In response to these trends we took a conservative view of our bookings and revenue plans for 2009. As a result of that view we decided to be proactive with both headcount reductions and expense cuts as we entered 2009. Clearly we can't out predict the economy but we can control our cost and we moved aggressively in both November and January to do so.

As a result, we have cut the run rate of our annual cash spending which includes both operating expenses and capital expenses by $40 million to $45 million in 2009. These reductions were primarily in the area of headcount, both full time employees and contractors and other operating expenses.

We group our operating costs into three categories variable, semi-variable and fixed. Variable costs include our online marketing and customer service cost, credit card processing fees and other costs that are directly tied to transaction volumes. Variable expenses represent about 45% of our total operating costs. Semi-variable expenses include those costs where we have some discretion in our spending levels, such as offline marketing and data center costs. Semi-variable cost make up about 25% of our total operating costs.

So in total, our variable and semi-variable expenses total about 70% of our operating costs. When we cut operating costs in November and January, we reduced fixed and semi-variable costs. As we head in to 2009, our fixed cost comprised about 30% of our total operating expenses.

As we think about 2009, I wanted to ensure that people understand both our cash cycle and our credit agreement covenant. We received a significant amount of cash in the first three months to four months of every year when our customers book their spring and summer travel. So our cash builds during the spring and this year is no exception. At the end of last week we had approximately $80 million in cash and no borrowings under our revolving line of credit. Our cash peaked last April at approximately $150 million and I would expect our cash levels to peak again this year later this spring.

As the year progresses our cash flow will decline gradually. We normally see a seasonal decline in our cash in the late fall as new bookings slow and we settle the merchant hotel payables in the summer travel season. Cash levels are at their lowest point in December each year and start to build again in January.

This cash cycle is driven by both seasonal booking and travel pattern as well as our merchant hotel business. As our bookings softened in the fourth quarter of 2008, our cash flow from operations declined in large part because our hotel gross bookings declined more on a sequential quarter basis in the fall of 2008 than they had in the fall of 2007.

As you may recall, the financial covenants in our credit agreements step down in March and September of 2009. Based on the current competitive environment and our 2009 operating plans, we believe that we will remain in compliance with these covenants. The other items to keep in mind is the adjusted EBITDA as defined by the loan agreement is a trailing 12-month number and includes more adjustments than our reported adjusted EBITDA.

Turning to the fourth quarter of 2008, revenues declined 9% as compared with the fourth quarter of 2007. Revenues from our domestic businesses which are significantly larger than our international businesses were flat in the fourth quarter 2008 as compared with the same quarter of 2007. Lower domestic volume for all products except dynamic packaging and crews was offset by higher advertising, travel insurance, and service fee revenue for the quarter.

Internationally, net revenues declined 39% or 23% on a constant currency basis from the fourth quarter of 2007. Our European transaction volume was soft for all of our international brands and we also experienced lower air margins in the quarter and ebookers driven primarily by a combination of competitive pressures and the timing of air over ride.

Global bookings at HotelClub were soft in the quarter due primarily to weakness in Europe, however, bookings growth in Asia Pacific did accelerate from our growth rates in the third quarter on a constant currency basis.

Turning to the rest of the income statement, you will see that our fourth quarter 2008 SG&A expense declined by $21 million or 30% as compared with the fourth quarter of 2007. Two-thirds of this decline or $14 million was due to a reduction in the present value of a tax sharing liability we carry on the balance sheet.

In 2003, when the airlines sold us in a taxable transaction, that transaction resulted in Orbitz having future tax deduction equal to the amount of the gain recognized by the airlines. These deductions reduce our taxable income which in turn reduces the amount of taxes we pay. To the extent that we pay lower taxes, we are required to share a portion of those cash savings with the airlines on a quarterly basis. We carry the discounted present value of that tax sharing liability to the airlines on our balance sheet.

In 2008, there was a change in state tax laws which essentially reduced our effective state income tax rate. As a result, the present value of the liability to the airlines declined by approximately $14 million in the fourth quarter of 2008.

Although this is a non-cash item in the fourth quarter of 2008, it will reduce our expected future cash payments to the airlines over the term of this agreement. Because this is a large unusual non-cash item, we have adjusted for our in our calculation of adjusted EBITDA. The remaining declines in SG&A expenses are due to lower bonus and stock compensation expense as well as higher capitalized development cost.

Net interest expense in the fourth quarter was $16 million. Interest expense includes cash interest of $12 million, primarily on our term loan and non-cash interest of approximately $4 million primarily due to interest for decrease on tax sharing liability with the airlines.

At year-end 2008, a $100 million floating to fixed rate interest rate swap that we entered into at the time of the IPO expired and was not replaced. As a result, we currently have $400 million of our term loan at a fixed rate of 7.2% while the remaining $192.5 million of our term loan currently floats at a rate of 3.95%. The weighted average rate on this term debt is 6.14%. We feel we have a prudent mix of fixed and floating debt with a manageable exposure to rate changes.

Continuing on the balance sheet at December 31, 2008, cash and cash equivalents, net of borrowings under the line of credit were $10 million compared with $24 million for the year ended December 31, 2007. The year-over-year decline in cash was primarily driven by higher capital expenditures and higher tax sharing payments to the airlines. This decline was partially offset by an increase in operating cash flow of $7 million for the full year ended December 31, 2008.

For the fourth quarter of 2008, we had an operating cash outflow of $45 million. This cash outflow was primarily due to the seasonal nature of the merchant hotel business as payments to hotels typically exceed cash inflows from new reservations in the fourth quarter.

A decline in international merchant hotel bookings and lower average daily hotel rates due to in part to softening economic conditions also contributed to the cash outflow in the quarter. As we enter 2009 we expect that our capital expenditures will decline from 2008 levels and will be in the range of $40 million to $45 million.

That concludes my remarks. We will now open the call for questions and then Barney will have some closing comments. Operator, if you could please open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Jennifer Watson with Goldman Sachs. You may ask your question.

Jennifer Watson – Goldman Sachs

Great, thank you. Barney, could you shed a little light on what you plan to do in order to make Orbitz more competitive with the hotel product and gain some market share there? Obviously it's been an initiative for the Company for several years now.

Barney Harford

Sure. I think at this stage it is still relatively early days for the in terms of coming up with clear strategic plans around the hotel sector. There is a number of things that we are definitely working on, but until I spent time with the hotel club team, down in Sydney, which a significant driver of our hotel business I don't think I'm going to be in a position to share those in a great amount of details. Some of these are broad teams that I would talk to you however, relates to focus on using analytics aggressively to automate and ensure that we are consistently providing the consumers with competitive prices.

Secondly, using technology again to ensure that we are sorting the hotels that we're offering consumers in a way that best reflects the competitiveness of rates that we have in offer and the specific personalized requirements of those individual consumers. And then thirdly, focusing our acquisition efforts on areas and hotels where the competitive intensity is lower. That’s the high level. I would soon expect to share more information with you on the future calls as that strategy gets refined.

Jennifer Watson – Goldman Sachs

Thank you.

Operator

Our next question comes from Vance Edelson. You may ask your question. He's with Morgan Stanley.

Vance Edelson – Morgan Stanley

On the technology side how much of what you plan to accomplish would you say is truly innovative and new versus playing catch up or replicating what your competitors might already have? How would you characterize that mix? Thanks.

Barney Harford

Interesting question. I think in general technology sector I think the first company to come up with something is not necessarily a company that is the company that most effectively monetize that or makes into success of business and there is a litany of examples that I could research, but don't have it on the tip of my tongue. So I think while many of the things that we may be doing may not be the first time that they have ever been done in the e-commerce sector, I think certainly a range of things that we can do that can move the needle significantly for this business.

That having been said, I think we have got some examples not purely technology, but technology and service related, the things we have been stuffed which really are, do represent industry first. And I point to the price assurance introduction in 2008 is an example of that, and I think we believe that that is resonating well with consumers and that’s providing a good reason for consumers to continue to book with us versus one of our competitors in a market where there is a significant amount of competition.

Vance Edelson – Morgan Stanley

Okay. Thanks. And On the FX side you view some hedging in the past, this quarter you took a bit of an FX hit. What are the plans for hedging going forward. Do you think you will actively do that?

Marsha Williams

Yes. We do have a very active FX program. I don't know that I would necessarily say that we took a hit, it's simply a translation differential. So if we got our foreign operations in different currencies when we translate those back to the U.S., there is a obviously an impact just by virtue of change in interest rate – excuse me change in exchange rate, but we do have an active hedging program that actually very successful this quarter. But with the strengthening of the dollar when you run through the translation of our foreign operations you automatically see a decline in revenues.

Vance Edelson – Morgan Stanley

Okay. Great. And could you just elaborate a little bit on – you explained how the nature of the cost cutting between variable and nonvariable buckets how do you think it impacts your ability to grow once the cycle improves what do you think the emphasis will be at that point you end up? Hiring people back and so forth, how does that?

Marsha Williams

Well, I think what we've tried to do is really right size the organization for the macroeconomic climate that we see today, that having been said, we have gone through a number of the projects that we have on the docket to make sure that as we are prioritizing those projects, we are putting them into the buckets that we believe will drive the businesses that we are really focused on.

So – for example, as Barney said we will be spending some time on our hotel business this year and we've tried to ensure that as we made changes people who were working on the critical projects that we have really haven't been affected. So I am not sure that I would say we will necessarily go back and rehire. We've spent a fair amount of time working on simply trying to streamline some of our operations and we think some of that streamlining will continue to deliver efficiency and that efficiency will get – will be reflected in our financial statements as the economy turns around.

I just pick up on that. One of the key metrics I have been saying the organization has been won around the importance of simplification and clarification. We are wanting to move from an environment where we have a lot of people with opinions who have given the opinions to (inaudible) to empowering the smart people we've got and the organization to go make decisions and move forward themselves. So we – I don’t think we would – as the cycle turn we necessarily be hiring the same areas we would be identifying the key areas for investment and (inaudible) getting the benefits simply to see the return created.

Vance Edelson – Morgan Stanley

Okay, great.

Operator

Our next question comes from Imran Khan with JPMorgan. You may ask your question.

Bridget Weishaar – JPMorgan

Hi, this is Bridget Weishaar in for Imran. Two quick questions. First of all, now that international markets are in the new global platform could you discuss any plans you might have to roll it in new markets and what successes you have seen with this? And secondly, are any of you air contracts up for renegotiation and do you expect to get the same terms as before? Thanks.

Barney Harford

Thanks. So regarding the new platform in international expansion we don't have any immediate plans to use the ebookers business to expand internationally. I think to the extent we are looking at international expansion I think it will be more likely to be through the HotelClub business, at this stage, this is still – we are still in the process of a strategic review of that business. I think over the coming 12 months to 18 months we do plan to overtime integrate the U.S. businesses onto the new platform but we will be doing that in a staged process on a path by path basis.

Regarding the question on air contracts, we don't getting into the specifics on individual air contracts. We are in ongoing relationships and discussions with, with a number of carriers at any given time but there is no specific issues to bring out here in general. That’s not something we disclose on an ongoing basis

Bridget Weishaar – JPMorgan

Thank you.

Operator

Our next question comes from Scott Hamann with KeyBanc Capital Markets. You may ask your question.

Scott Hamann – KeyBanc Capital Markets

Great. Just in terms of traffic and conversion rates, can you provide a little color on what you have seen since price assurance has been in just some of the trends within those categories.

Marsha Williams

One of the things that we have seen is that we believe that people have been booking a little bit further out. That was certainly true when we initially launched price assurance. We continue to be very happy with the program. We continue to send out thousands of checks every month to our customers. And I can tell you that our customers have certainly those who get checks have been thrilled with the results of that. Now having said that, in the fourth quarter, we did see when the economy really started to soften up a little bit we did tend to see a little bit of a shorter purchase window particularly headed in towards Christmas, looks as if people made their Christmas booking plans a little bit closer in this year than they had in prior years. But prior to the real softening in the fourth quarter we were definitely seeing a lengthening in the booking window.

Scott Hamann – KeyBanc Capital Markets

Okay. And then on advertising revenue, would you be able to quantify what size that is relative to the rest of your revenue and potentially how much that has been growing sequentially year-over-year in the fourth quarter?

Marsha Williams

We certainly seen pretty nice healthy growth year-over-year. We haven't disclosed that. We will be looking at Barney and Frank and I will be looking at some of our disclosures as we head into 2009, and that certainly something we are going to take under consideration. But I can tell you it's been growing nicely and it continues to be an important source of revenue for us. Certainly an important source of growth for us.

Scott Hamann – KeyBanc Capital Markets

Okay. Thank you.

Operator

Our next question comes from Mark Mahaney with Citigroup. You may ask you question.

James Sanford – Citigroup

Hi, this is James Sanford for Mark Mahaney. Just a dovetail on the last question, in the non air flight of your business, it looks like the take rate at a two year high at this point, I just wanted to see is that primarily due to advertising or is it really response of the dynamic packaging that's driven that number?

Marsha Williams

It's really a combination of advertising dynamic packaging and we did have a strong quarter in the cruise business as well. So those three that really drove that.

James Sanford – Citigroup

And you mentioned overrides timing that didn't hit this quarter. Is there an expectation that overrides would kick in, in Q1?

Marsha Williams

Yes, that was really just a timing issue in one of our ebookers countries and in fact we saw some of those overrides reverse in January. So that was purely a timing issue.

James Sanford – Citigroup

Great. Thank you.

Operator

Our next question comes from George Askew with Stifel Nicolaus. You may ask your question.

George Askew – Stifel Nicolaus

Great, thank you. Good morning. What impact is the new MSN relationship have on bookings in the quarter?

Marsha Williams

It certainly did help us certainly in the third quarter I would say in the fourth quarter the impact was somewhat less but we never really disclosed exactly the overall impact. So don't necessarily want to get into that at this point.

George Askew – Stifel Nicolaus

Okay. And then on the price assurance obviously it's a contra revenue accounts. Can you give us a sense of what the impact on revenue was from price assurance?

Marsha Williams

Well, we haven't, for a lot of competitive reasons we really haven't disclosed exactly the impact. It does, it is a reduction of revenue. So it is a contra revenue item and it has reduced our revenue on a year-over-year basis. But again for competitive reasons we haven't disclosed that.

George Askew – Stifel Nicolaus

Okay. And then lastly, over the last, I guess three quarters or four quarters, the Company has reduced your focus on search marketing. Barney, do you feel like that something that you may want to ramp up looking ahead in the next few quarters with some of the new initiatives or are you comfortable with the lower level of search marketing?

Barney Harford

I think from my perspective I'm pretty familiar with the search engine and marketing space. I am a strong believer in using measurable marketing in ways that drive real bottom line contribution. I think that I have been working closely with the teams to understand the various difference PBC strategies we have in place I said earlier on. We are going to be refining those strategies, we are going to be implementing even more sophisticated tracking technologies and we are going to be working to improve the consistency with which we approach these aspects on a global basis.

So I'm a strong believer in targeted and effectively optimized PBC strategies across search engine marketing but across other media properties. I do think that there are some areas in which we are spending where we have the ROI targets are not currently being met and that those were the ones that we are working with the partners to see whether we can bring them in line, if we can’t we will be pulling back there. Other areas where we believe we may be able to increase spend and to doing so achieve the ROI targets. We also look at – as we look at potentially new supply a clear factor in evaluating new supply opportunities are it's the availability of traffic what level of spend is associated with bringing that traffic in.

George Askew – Stifel Nicolaus

Okay. Thank you very much.

Operator

Our next question is from Mike Olson with Piper Jaffray.

Mike Olson – Piper Jaffray

Alright. Thanks a lot. You talked about lot about strengthening the international footprint. Can you just recap specific steps that you're taking or plan to take in attempting to gain share internationally especially in Europe, in other words what strategy can you use to gain share when you have competition that has a strong brand and business momentum in those geographies? Thanks.

Barney Harford

Sure, I think what I said was that we have a global footprint I think it's the case that in Europe, some of our businesses are in a stronger strategic position and some of them are in a weaker strategic position. You are certainly right that in this competitive environment it is tough to gain share when you are behind especially, when you are significantly smaller than the competition we recognize that. So we are working – in the process of working on strategies around what we will do. But I don't think, we have, don't think we are trying to set expectations where we can gaining significant amount of share in the short to medium term in those businesses. That is with regard to the ebookers businesses. With regard to the HotelClub business which we also see as a global primarily international business, run out of Sydney but really kind of a global footprint both in terms of the customer base but also the supply base. Really, I'm afraid, too early to comment in detail on that, I haven't spent time with the team, I will be doing that next week in Sydney and be happy to update folks more on that on the call next quarter.

Mike Olson – Piper Jaffray

Thank you.

Operator

Our next question comes from Doug Anmuth with Barclays Capital. You may ask your question.

Ron Jersey – Barclays Capital

Hi, this is actually Ron Jersey [ph] calling in for Doug, thanks for taking my questions. Two quick questions, the first is on ebookers now that it did complete the migration to the Austin platform. I'm wondering if you seen increase in supply in inventory and granted we know that the European market is difficult in travel but if the users have responded to that. And then secondly as a quick follow-up on the online marketing spend are you seeing continued PBC inflation as the environment remains relatively competitive? Thank you.

Barney Harford

So with regard to ebookers and the platform migration, there is a number of factors that are moving that we have seen consolidation of our global supply backend which has allowed us to speak consistently with one – with suppliers through one single extra net or connectivity system rather than have them connect through variety of different methods. That has simplified the way that we interface with suppliers and allowed us to create more consistent message with them. The primary focus of the migration was to bring the companies from one technology platform to multiple technology platforms and in doing so reduce cost – the cost of maintaining multiple platforms.

And so the – I would say not a significant step up in terms of transaction volumes that has resulted from that. The other factor to take in to account is we have over the last 12 months to 18 months been migrating hotels from third-party connectivity sources to our own that has so we have seen a step up through the platform migration and the associated consolidation of connectivity systems, we've seen a step up in the self source inventory mix. Finally, we have reached an agreement with our core hotels so brings significant new supply onto those ebookers businesses through that.

With regard to the question on PBC inflation, I think we focus less on the individual cost of the click, and we see – we focus more on how the competitive intensity what it takes for us to acquire demand through those channels. I think we have seen new entrance in the space in particularly, in the air space as the super search players have been more active in tapping in to demand from the search engines which they then bundle back to the various different LTAs. So – I think we seen some increased intensity. At the same time we have seen a range of new channels for us to tap in to the get demand opening up as well. So somewhat of a mix, but it's certainly a sector where the competitive intensity is high. And there are a number of players out there who have sophisticated systems that allow them to play the arbitrage game with regard to PBC.

Ron Jersey – Barclays Capital

Thank you.

Operator

Our next question comes from Steve Weinstein with Pacific Crest.

Steve Weinstein – Pacific Crest

Great. Thank you very much. In regard to the attached sharing with the airline partners, is there – can you help us understand what is the ongoing savings what we should expect on the current quarterly basis going forward from the changes and also was that included in your $45 million of overall cost savings or is that something different? And then finally, with the March quarter, pretty much done here, can you just talk a little bit about the bookings trends you’ve seen compares to fourth quarter is it better or is it worse, how are things changing? Thank you.

Marsha Williams

Sure. This is – in terms of the cost savings, if you look at our cash flow statement you will see that we spent about – or paid to the airlines about $20 million in 2008 under the tax sharing agreement. And that number will go down in 2009. Now it's a little bit of a difficult number to forecast because it's based on our forecast of taxable income for the year. But I think we will see a pretty meaningful savings in that. Those tax sharing payments are not included in the $40 million to $45 million of operating run rate savings that we have outlined. So those reductions in cash that we will be paying to the airlines are in addition to the again $40 million to $45 million of cash savings. And we do make those payments quarterly, and we make them quarterly based on our estimate of taxable income for the year. And obviously it is an estimate until we close out the tax books which again in nine months after the year end.

In terms of our booking trends we really don't speculate mid quarter on where we are. I can say that we planned pretty conservatively for the year, and part of the reason we did that was we wanted to make sure that we were sizing our expense reductions appropriately based on some of the softness that we saw particularly, in October and November of last year. Like I said December did rebound a little bit and was a bit stronger than October and November but we sized our cost cuts based on the October/November trends that we saw.

Steve Weinstein – Pacific Crest

Okay. Thanks.

Operator

Our next question comes from Jennifer Watson with Goldman Sachs. You may ask your question. Ms. Watson, your line is now open. Please check your mute feature. I will go to the next question comes from Mark Mahaney with Citigroup. Your line is open.

Mark Mahaney – Citigroup

Hi, thank you for the quick follow up. I believe you announced that $20 million in cost savings from payroll in Q3 – did not know in the Q3 earnings call that is then I think this time you are saying $40 million to $45 million including CapEx savings, is that correct?

Marsha Williams

Let me just be clear, so our run rate on operating savings is $40 million – or excuse me, in total cash cost is $40 million to $45 million for 2009. Now, we anticipate that our total capital spending in 2009 will be in the $45 million to $50 million range. So if you look at our cash flow statement this year you will see that we spent about $58 million on CapEx, we see that coming down in 2009 to a range of $45 million to $50 million. So some of the savings are in CapEx, and some of the savings are in OpEx.

Mark Mahaney – Citigroup

Got it. And from a timing perspective and this is sort of annualized saving by year end (inaudible)?

Marsha Williams

Yes. On the cash run rate savings the $40 million to $45 million, that is a 2009 run rate savings, and we've already basically implemented all of the changes needed to affect those cash run rate savings.

Barney Harford

On the question of CapEx expenses I think we said 40 to 45, the correct number is $45 million to $50 million. Just to be clear.

Mark Mahaney – Citigroup

Thank you.

Operator

At this time, I'm showing no further questions. (Operator instructions) I'm showing no further questions.

Barney Harford

Great, well, thank you very much for joining us. We really appreciate your interest in Orbitz and look forward to sharing more information in subsequent calls. Thank you.

Operator

That concludes today's conference call. Thank you for your participation. You may disconnect at this time.

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