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Orbitz Worldwide (NYSE:OWW)

Q3 2013 Earnings Call

November 05, 2013 10:00 am ET

Executives

Brian Wolf

Barney Harford - Chief Executive Officer, President and Director

Michael O. Randolfi - Chief Financial Officer

Analysts

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

Naved Khan - Cantor Fitzgerald & Co., Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Brian Nowak - Susquehanna Financial Group, LLLP, Research Division

Edward M. Woo - Ascendiant Capital Markets LLC, Research Division

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Welcome, and thank you, for standing by. [Operator Instructions] I would now like to turn your meeting over to Mr. Brian Wolf, Senior Director, Investor Relations. You may begin.

Brian Wolf

Thank you. Good morning, everyone, and thank you for joining us on the Orbitz Worldwide Third Quarter 2013 Earnings Conference Call. I'm joined on this call by Barney Harford, CEO of Orbitz Worldwide and Mike Randolfi, our CFO. As many of you have seen, we filed a press release this morning detailing our third quarter results. If you have not received the press release, it is available on the Investor Relations portion of our website. Additionally, this webcast will be archived on the site for a period of at least 30 days.

Some of the statements made during this call constitute forward-looking statements that involve known and unknown uncertainties and other factors, including the factors described in our SEC filings. These risks and uncertainties may cause our actual results or performance to materially differ from any future results or performance expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements.

Finally, during the call we will be referencing certain non-GAAP financial measures as defined by SEC rules. We provided in our press release or on our Investor Relations website a reconciliation of those measures to the GAAP financial measures, that we consider to be the most comparable.

I would now like to turn the call over to Barney Harford, CEO of Orbitz Worldwide.

Barney Harford

Thanks, Brian. The third quarter was another strong quarter in terms of both top and bottom line growth. Revenue grew 11% year-on-year in Q3 and adjusted EBITDA was up 13%. Our room night growth accelerated further to be up 22% year-on-year. We saw good room night growth across all of our businesses, with acceleration in standalone hotel at both CheapTickets and ebookers as we reap the benefits of best practice and technology sharing across our brands in the areas of CRM, SEM and landing page optimization.

In the quarter, we reached a major milestone. For the first time, standalone hotel and vacation packages represented over 50% of total revenue for the trailing 12 months in September 13, 2013, up a full 5 percentage points from 45% in the trailing 12 months ended September 2012. This reflects the success we've had with our hotel-focus strategy.

Over the last 4 years, we've been hard at work laying a great foundation for our business. In particular, we have migrated all our B2C brands to a common technology platform, which is now allowing us to make strong progress with site optimization to enhance conversion. We have developed world-class marketing optimization capabilities. We have put in place a robust data infrastructure and big data advanced analytics to take advantage of it, and we've developed cutting-edge mobile capabilities. Our results this year demonstrate the success of these initiatives.

Given the progress we've now made on these key foundational elements, we made a strategic shift earlier this year to turn the focus of our consumer brands towards developing a significantly differentiated consumer value proposition oriented around loyalty with a heavy mobile tie-in, and we talk initially about loyalty.

HotelClub has had a significant loyalty program for a while now, HotelClub rewards. HotelClub customers can earn member dollars when booking hotels in any of 17 languages and 35 currencies. We drew on our experience in the HotelClub program as we developed the concept of Orbitz Rewards, which we started testing back in Q1 of this year.

Since we began testing, we've learned a lot and we use those learnings to shape the new groundbreaking OTA loyalty program that we formally launched a few weeks ago, Orbitz Rewards. The Orbitz Rewards program allows customers to earn Orbucks, the currency of Orbitz Rewards, when booking Orbitz Rewards hotels, standalone flights and vacation packages on orbitz.com, and then redeem them instantly when booking Orbitz Rewards hotels around the world.

Members appreciate how straightforward the program is versus traditional points-based programs and how easy it is to redeem Orbucks. Orbitz Rewards members can earn up to 5% when booking Orbitz Rewards hotels and 1% when booking standalone flights and vacation packages. Unlike other travel loyalty programs, members can redeem Orbucks instantly. There are no minimum redemption hurdles and there are no blackout dates and no restrictions on combining rewards with other offers. And best of all, the program is free to join.

Media reaction to the launch of the program has been extremely positive and consumer engagement has been high. While the program is still in its early stages, we are already close to reaching the 1 million-member milestone. Early indications are that the program is working as intended to drive greater hotel cross-sell from air bookers and greater levels of repeat activity in general.

Turning to mobile. We continue to make investments in mobile and more broadly in building world-class experiences for customers using touch devices, be it smartphones, tablets or, over time, touch-enabled PCs. Our investments are paying off. Across all of the Orbitz worldwide consumer brands around the world, 27% of hotel bookings in Q3 were made on mobile devices, i.e, smartphones and tablets.

In terms of orbitz.com, same-day hotel bookings, which represent about 20% of total orbitz.com bookings, over 60% were made on a mobile device. During the quarter, we launched a totally redesigned third-generation Android app for Orbitz, having major usability and speed improvements to make it faster and easier to search, book and access itineraries after booking.

Providing a great Orbitz Rewards experience on mobile devices has been a key strategic priority for us and in parallel with a full launch of Orbitz Rewards, we launched updated versions of our iPhone, iPad and Android apps that deeply integrate Orbitz Rewards member benefits into the mobile experience. We've incorporated additional earned bonuses and incentives for Orbitz Rewards members booking through our mobile apps. On the burn side, redeeming Orbucks through our apps is a breeze.

Combined, our initiatives in loyalty and touch are part of our push to create for our customers the most rewarding place to plan and purchase travel on touch devices.

And our goal of being the most rewarding place to plan and book travel on touch devices isn't limited to the U.S. market. We remain focused on driving international expansion. Ebookers continues to achieve strong growth in standalone hotel bookings through mobile growth, promotional activities and optimization of algorithmic channels. We are investing to expand the addressable market, the HotelClub. We recently launched an updated version of the HotelClub app for iPhone and iPad, that allows for booking in 15 languages in 35 currencies, a major improvement from the single language and single currency of the predecessor version. And we're making good progress towards the launch of the JTG helloworld private label partnership in Australia and New Zealand expected to launch by the end of the year.

Before I wrap, I'd like to thank the Orbitz Worldwide employees for all their hard work over the course of the quarter. They should feel proud of what has been accomplished. With that, let me turn the call over to Mike.

Michael O. Randolfi

Thanks, Barney. Turning to our third quarter financial results, we delivered strong growth in both the top and bottom line for the quarter. Net revenue grew 11% year-over-year to $221 million and adjusted EBITDA came in at $45 million, up 13% from the third quarter of last year.

Stayed room nights, including vacation packages, grew 22% which drove our year-over-year revenue increase. Approximately 7 points of this year-over-year stayed room night growth was from our American Express partnership. Revenue per room night also benefited from American Express, which has had -- which has higher average ADRs than our overall business. ADRs were up 7% year-over-year for the quarter, with domestic ADRs up 9% and international ADRs up 3%.

Excluding our private label distribution business, ADRs were up 3% year-over-year, with domestic ADRs up 3% and international up 2%. Vacation package revenue was up 12% in the quarter. Standalone air revenue was down for the third quarter versus prior year due to lower air volumes and a noncash benefit recorded in air revenue during the third quarter of 2012 to reduce an unfavorable contract liability.

This was partially offset by the addition of the American Express airline servicing revenue stream. The lower air volume was due to lower volume in the U.S. OTA channel attributable to higher fares and a strategic shift in our marketing investments to emphasize hotel over air in both the U.S. and in Europe.

Cost of revenue as a percentage of revenue was 17.7%, down 154 basis points from the third quarter of 2012. The leverage was driven by efficiencies at our customer service call centers and lower levels of fraud. These improvements were partially offset by cost associated with higher global hotel volume growth -- volume and growth in the private label distribution channel. Marketing expense as a percentage of revenue was 33.3%, up 169 basis points from the third quarter of 2012. The deleverage we saw in the third -- in the quarter was driven primarily by a mix shift towards businesses that have higher marketing expense as a percentage of revenue, specifically our private label business.

SG&A expense as a percentage of revenue was 30.6%, up 182 basis points from the third quarter of 2012. As we mentioned on our previous calls, we are lapping an insurance reimbursement and a lower incentive compensation accrual. Excluding these items, we saw over 300 basis points of improvement in leverage, resulting from targeted cost reductions we took earlier in 2013 and the benefits we captured from the migration to our global platform.

Our interest expense was $12 million in the third quarter, up 35% from the comparable period of 2012. This increase was due to the higher average interest rate incurred on our term loans, driven by our debt refinancing in March 2013 and subsequent debt repricing in May 2013.

The weighted average interest rate on the term loan was 223 basis points higher this quarter versus the third quarter of 2012. Although at a higher rate than our old credit facility, the refinancing of these term loans has provided us with valuable stability in our capital structure.

Net income was $13 million for the third quarter. We ended the quarter with $160 million of cash and cash equivalents, as well as $65 million available on our undrawn revolver.

For full year -- moving to guidance. For the full year 2013, we expect net revenue of approximately $840 million, which is at the low end of our August guidance, but still up significantly from our guidance in February and May. For adjusted EBITDA, we expect to deliver full year growth of between 9% and 10%, which is towards the top end of August guidance.

I do want to take a moment to highlight a few items that are impacting our revenue and EBITDA guidance and longer-term trajectory. First, on the revenue side. On the air side, as I mentioned earlier, air volumes are lower in the U.S. and in Europe as we focus marketing investments on hotel. This is reflected in our slightly lowered revenue guidance.

We moved from the test phase to full launch of the Orbitz Rewards loyalty program in mid-October. We're very excited about the long-term potential for Orbitz Rewards loyalty program to drive repeat activity. The Orbitz currency that members earn, what we called Orbucks, gets booked as contra revenue. This will have a negative impact on the revenue take rate for each of our products. The impact will be greatest on the air side because we're offering an amount of Orbucks, that represents a higher percentage of our take rate on air transactions than on hotel transactions. This will also have a short-term impact on our revenue growth rates, again, with the greatest impact on the air side. Longer term, we expect the loyalty program to have a positive impact on our revenue growth rates, as we tap into a greater share of our customers travel spend.

We expect to see the greatest impact on the hotel side given the program's hotel-focused redemption mechanism. The longer-term shift towards hotel would have a positive impact on our overall revenue margin.

We lapped the launch of our American Express partnership toward the end of the third quarter, which will impact growth rates in our air, hotel and BP revenue line items, although obviously, we'll continue to gain the benefit of the partnership and it's ongoing organic growth.

As indicated previously, in terms of room nights, the American Express partnership contributed 7 points of our 22% stayed room night year-over-year growth in the third quarter. Overall, we expect strong hotel revenue growth, albeit, at a lower rate than we're reporting today for the third quarter. We expect air revenue to decline to a greater extent in the fourth quarter than the third. In aggregate, we expect a continuation of the shift in revenue mix towards the strategically important hotel segment.

Next, turning to adjusted EBITDA. As mentioned in last quarter's call, looking at the fourth quarter of 2013, there are some year-over-year bonus comparability impacts. As a result of 2012 performance, we made only nominal incentive compensation payments for last year's performance, which had a particularly significant impact on adjusted EBITDA in the fourth quarter of 2012.

With our current outlook for the balance of 2013, we expect our fourth quarter incentive compensation expense to be approximately $7 million higher year-on-year.

In summary, we're feeling very positive about the launch of Orbitz Rewards, our continued investments in mobile capabilities and international. With that, operator, we'd like to open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Dan Kurnos.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Great. Just 2 quick questions, Barney. Just first on the international bookings, it looks like they were flat year-over-year. Just maybe any color on what was driving that in terms of -- and maybe even break it out a little bit more granularly between air and hotel? And then secondly, from a high level perspective, we have heard some initial reports that maybe business travel could be posting a modest recovery next year. Just curious if you're starting to see any of those trends and how that might impact the business?

Barney Harford

Sure. On the -- so in terms of international gross bookings, I think we saw, as we mentioned at ebookers in particular, strength and acceleration in standalone hotel led by a softer reported levels in -- on the air side. So that's what we're seeing on the international gross bookings front there. In terms of business travel outlook, I think we're seeing -- when we think about our Orbitz for Business group, we're seeing strong performance from that organization both in terms of new client additions, the model and the opportunity to effectively manage costs down, while gaining high level customers satisfaction is a -- works well with the corporate travel market. But we're also seeing robust travel from our clients. I think we're particularly pleased at OFB earnings. It's one of these that really acts in our favor, to be able to achieve online adoption rates of 90%-plus. And this is a real differentiator versus the vast majority of traditional players that are out in the marketplace today at a much lower levels of online adoption, which one, isn't great for customers and two, isn't great for costs.

Daniel L. Kurnos - The Benchmark Company, LLC, Research Division

Great. Just one quick housekeeping question, Mike, is there more any more granularity you could give us in terms of actual impact of the contra revenue impact from the loyalty programs?

Michael O. Randolfi

Yes, to give you a little bit of context around how contra revenue will be impacting us. As you look at the loyalty program, the way the program is structured is people earn on 1% on air, 1% on dynamic packages and then 3% on hotel and then 5% on mobile. And so you can take that into account and then you also -- you have the ability to look at the take rates, but the contra revenue will reflect those reward levels.

Operator

Our next question is from Brian Fitzgerald.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

A couple of questions. One, regarding the extra Orbitz Reward incentives on the mobile side, is that strategy purely there to drive market share as Internet usage shifts to mobile? Or what other tangential improvements come with the mobile of usage and traffic -- consumer pricing elasticities, is better for same-day travelers, better travel product mix on mobile? We'd love your color around that. And then one follow-on, if I could, your room nights growth accelerated again in Q3. In terms of drivers, is it more traffic or better conversions or a little bit of both there?

Barney Harford

Sure. So the mobile strategy, Mike outlined part of the way we're creating this really integrated value proposition around loyalty and mobile with the higher level of earn when you book a hotel through a mobile app, albeit, mobile app, iPhone, iPad, Android, where you have the -- where customers have the opportunity to earn 5% back in Orbucks as opposed to the base earn rate of 3%. And our goal there is that we see the mobile category as extremely strategic. We, in particular, think we can make a lot investments on the app side and the beauty of apps is that it correlates much better with customers coming to us directly. In general, you come to our app by kind of opening up your device and clicking on the iPhone as opposed to kind of go into -- going to Google and typing a query. So it has a direct traffic that is extremely attractive for us from a contribution perspective. So we want to do as much as we can to encourage trial and downloads and use of our mobile booking apps. We also think they're really, pretty cool and it's a really fun booking experience. And so as we've kind of created this -- kind of the revised mission to create the world's most rewarding place to plan and purchase travel on touch devices. And we really wanted to make sure that, that loyalty component and that touch device component came together. And so one way to do that is to really spike the earned level both on an ongoing basis. We're also -- we've spiked the earned level on air to be 2% on air for a launch promotional period. So I think this lines up with what we've -- where we think there's a really interesting opportunity for us to create enhanced customer engagement, and rather than seeing mobile as an afterthought in terms of the royalty rollout, it was really very much front and center. And I think we're trying to create our best possible loyalty experience on mobile devices.

Michael O. Randolfi

One other thing just to add a little bit more color on the contra revenue with regards to that. The rewards part of the program and how people earn is, obviously, a critical part of how the contract revenue impact is modeled. Also, it's important to take into account that, that will also reflect a presumed redemption rate, which is obviously -- there's some level lower than 100% that's assumed going forward.

Barney Harford

Now with regard to your question on travelers room night growth. So I think there are a number of things that are contributing to the strong trends that we've been seeing here. We've talked for a while about the investments we've made in our advanced analytics capabilities and data infrastructure, which is allowing us to develop sophisticated models to allow us to best allocate our investments. And so what that ultimately means is that it becomes less of a "hey, what's happening across-the-board?" It's more how you're doing at mining individual pockets of opportunity and how are you doing at aligning your spend with the opportunity of each individual kind of grain of demand. But I think, we continue to see strong performance in the SEM channels. We've also had some successes on the SCO side. Landing page optimization is really kind of doing well for us as we build on the lower platform. And the flex architecture that -- which is a highly-modular page architecture that we've built on top of that. And as I call that in particular, CheapTickets and ebookers have accelerated particularly strongly. CheapTickets has been doing some really creative, fun promotional activities. And so we've seen -- we've actually seen acceleration on the air side at CheapTickets and now on the hotel cross side of that versus prior periods. And ebookers, in particular, has been developing a lot of best-practice sharing capabilities that they've inherited from other points of sale and pushing the envelope there in the European market. So is it a simple kind of traffic versus conversion point? Not really because often success here actually has to do with being able to find higher converting traffic and arbitraging that more than a kind of a broad across-the-board conversion benefit.

Operator

Our next question is from Mark Mahaney.

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

2 questions please. First, Barney, I know you talked about the international bookings growth kind of flattish year-over-year and you attribute that to softer growth on the air side. Any color on why this air side may have been soft? Is there macro issues? Is it just less emphasis on your part given the worse economics there or the less attractive economics? Or is there a market share issue there? And if I -- can I just ask you to talk about that same-day bookings trends? And the broad question here is there seems to be an interesting trend across the online travel agencies, especially with mobile -- the proliferation of mobile devices. How do you think about those same-day bookings? Are those bookings that you wouldn't have been able to access in the past and so they're largely incremental? Anything that, say, you can talk about that as a new market opportunity that's really been enabled by mobile devices, how attractive you find those same-day bookings?

Barney Harford

Sure. I'll take that mobile one first. So I think, we absolutely see this same-day booking acceleration as being a new market opportunity that historically has not been as available to kind of OTA players. Customers previously would be kind of getting on phone or walking up to the front desk and it really wouldn't be a very good experience in terms of the customer being able to evaluate various different offerings, and often just the fact you're standing at the front desk may mean you actually get gouged a bit on the rate. Whereas, I think, with the opportunity now just to pull-up, for example, the Orbitz -- one of the Orbitz apps, with the press of one button be able to find a bunch of nearby hotels that have been ranked based on our algorithms to reflect the best possible value and incorporating mobile steals, so rates that are exclusive to mobile in over 400 destinations worldwide. That is -- I think, that is definitely a new opportunity. We mentioned that same-day bookings on orbitz.com now represent 20% of the total bookings share on orbitz.com. And when you look on a mobile device, 60% of those bookings are going through a mobile device. So I think it is really the mobile device which is facilitating that expansion opportunity. And I think, we continue to focus on how do we create usability and content that allows us to kind of best lineup against that demand. We certainly find that hotel -- our hotel partners, when they understand that mobile app bookers skew closer in from an AP perspective and also skew in shorter length of stay, that has an impact on their willingness to offer these exclusive rates because the closing nature of these bookings means that the inventory is going to expire otherwise. And so that's been important for us. And our sort capabilities have been evolving. Our app sort is now a combination of radius and rate comparatives-based, which creates for -- making it easier and easier for customers to find the best possible deal in the relative vicinity to them. Mike, do you want to take the international point?

Michael O. Randolfi

Yes, on the international side on the growth bookings, as Barney highlighted, we continue to emphasize hotel over air, really throughout our business. So you're seeing the impact of that in our revenue growth rates, our room night growth rates, the acceleration we saw from the first quarter to the second quarter to the third quarter. And that was definitely magnified, particularly in ebookers, as Barney mentioned. We saw ebookers continue to accelerate throughout the quarter as we reap the benefits of our continued focus on the hotel business throughout our business. We did also see some air channel volume impacts as a result of higher airfares. But you obviously are having the benefits on the hotel revenue side and room night side that's generating positive benefits for us. So if you look at our gross bookings in aggregate, what you really -- what you see in aggregate is you see higher hotel volumes, higher hotel booking volumes -- values. You see higher airfares and you see lower air volumes.

Operator

Our next question is from Naved Khan.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Can you guys talk about the room night growth trend that you saw in the past, in October and how it compares with Q3?

Michael O. Randolfi

Yes, With regards to room night growth trends, in terms of providing color on the month, what I'd indicate in terms of where we provided color in prior quarters on a specific month, it was to give context around how the quarter is trending. What I would indicate for the fourth quarter is that we are looking at room night growth in the mid- to low-teens for the fourth quarter.

Naved Khan - Cantor Fitzgerald & Co., Research Division

And that reflects the AmEx sort of lapping in the fourth quarter?

Barney Harford

American Express contributed 7 percentage points of growth in Q3.

Michael O. Randolfi

In the third quarter.

Naved Khan - Cantor Fitzgerald & Co., Research Division

So just -- so excluding that and just looking at the consumer side, how does it look?

Michael O. Randolfi

Well, the lap, the 13 -- I'm sorry. The room night growth rate...

Barney Harford

I think what we're trying to say, same as that room night growth in Q3 is what the AmEx contribution to growth was and the guidance for Q4 is low- to mid-teens.

Michael O. Randolfi

That's right.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Got it. okay. That's helpful. And then just on the JTG, Barney, you did say that it's on track to be launched by year end. But in terms of how it ramps and how it's marketed by your partner, how do you expect it to sort of go through your P&L income? And how should we sort of think about it for 2014?

Barney Harford

This is an exciting partnership. It has got a lot of long-term potential. I don't think it's something that you should be trying to get a model specifically. It's not of the scale, for example, of the American Express partnership. But I think it is one where we think there's substantial long-term potential. Our partner, JTG, is launching a unifying brand, hotel world across the Australian market. They are the second largest travel agency network in Australia with over 1,000 retail locations. The significant majority of which we'll be rebranding to the HotelClub -- to the helloworld brand, and we will be providing the online technology for the online offerings for helloworld. And so I think as they focus their marketing investments that historically have been fragmented across their various different retail brands all around hotel world, I think we expect some good engagement with the Australian, New Zealand market over time.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Got it. Okay. And then lastly just on the mobile front. Barney, can you talk a little bit more about in terms of the sort of progress on improving the conversion rates on the mobile devices in, say, smartphones versus the desktop? How does that gap look like today versus they were maybe it was in the last 6 months, 12 months?

Barney Harford

I think, it varies by product and it varies by web versus app and I think it also varies by kind of the query type. I think we see the strongest hotel -- the strongest conversion on hotel and car side. The conversion is lower on the air side. I think a greater chunk of the air query activity is in itinerary based, so customers traveling are trying to use the app to understand alternatives. But I think we're feeling pleased about how the engagement and conversion is trending, in particular, with the app experience and with the mobile web experience. We are experimenting with a variety of different techniques to encourage those users to engage with and test out the mobile app. I think we're particularly excited about the opportunity for the spiked Orbitz Rewards value proposition to enhance that engagement with the apps and drive superior conversion, just given the way the experience works both on the earned side and also on the burn side, where it's a pretty cool integrated experience.

Operator

Our next question is from Heath Terry.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

To the extent you can, can you give us a sense of, I believe, you said 3% growth that you saw in ARPU or ADRs in the international business? Was there much of a delta between what you saw in Europe versus some of the other regions? And then just to follow-up on Mark's question relative to same-day booking. So much of that is happening over sort of site-specific or use-specific apps. Any feeling that you need to broaden out the app portfolio that Orbitz currently has in that direction?

Michael O. Randolfi

On the ADRs, for us, the international is going to be skewed disproportionately to Europe just given the size of our business. So most of the ADR rate increase you're seeing is -- on the international side is primarily for Europe. In Asia, generally, the ADRs are lower. But most of what you're seeing is on the European side.

Barney Harford

Yes, in terms of the app portfolio, just some specific operating systems you're thinking about or some other direction? I was just thinking in terms of the app portfolio, were there some other particular operating systems you're asking about?

Heath P. Terry - Goldman Sachs Group Inc., Research Division

No, no, less particular operating systems and more specific-use cases, whether it's in sort of the HotelTonight direction or in the direction of sort regional or even meta-search beyond just sort of the core Orbitz apps?

Barney Harford

Well, look, I think the HotelTonight is a competitor or ours. They focus on same-day hotel bookings. And I think we feel we have a compelling and competitive product to that. I mentioned earlier that we have same day -- we have mobile steals that are available in over 400 markets internationally and a very robust marketplace for hotels that are competing for that same amount of business. But compared to folks who only offer a few hotels in each market, we also have a robust group of -- a large set of hotels in addition to those kind of -- the hotels that are kind of specifically priced for very aggressive movement. So I think we certainly look to -- we're looking with the apps to expand the set of use-cases and I think what we are seeing as mobile evolves, I think we are seeing a slow movement towards the -- kind of the more blended desktop behavior. So if we look back a year ago, AP window was even shorter and over the course of the last 12 months in mobile, we've seen AP window on mobile devices extend somewhat. It's still substantially lower than it is on the desktop. Tablet is in between, but we're seeing, again, tablet move closer to desktop. And I think what that really shows is that is you're seeing a broadening of the use-cases as -- while mobile initially has had that really strong use-case of same-day, in-market searches, people realize that's actually a pretty compelling way to search for trips that are further out as well. And we're very much focused on supporting those use-cases as we develop functionality.

Operator

Our next question is from Brian Nowak.

Brian Nowak - Susquehanna Financial Group, LLLP, Research Division

I have a couple. Total global hotel room night continue to be pretty solid and, Barney, I think you mentioned ebookers and HotelClub. But I was wondering, can you help us better understand kind of the growth trends of the core orbitz.com business domestically and what you're seeing there in October? And then I guess just kind of following up on October, what changed in the revenue guidance? I mean, is this because you guys are just choosing to emphasize air less? Are U.S. hotels getting more competitive? What really drove the guidance cut?

Barney Harford

So I don't think we're going to get into kind of providing business-by-business breakdowns on a month-by-month basis. But in terms of Orbitz trends more broadly, I think, Orbitz is performing well. And we're really pleased with the innovation the team is showing across the various different kind of components. Obviously, the U.S. consumers will get Orbitz and CheapTickets and we feel really good about the innovation that they're showing, and the variety of different levels that the team has been able to pull to create some really strong results. And I think the loyalty program, we're -- as we roll that out, we think that has some really good, longer-term kind of opportunities of the business. Mike, do you want to take the second point?

Michael O. Randolfi

Yes, in terms of -- for the quarter in terms of the room nights as we indicated, while we're not providing some specifics around October, we are providing some insight and color around...

Barney Harford

Specifically, what to revenue guidance coming down.

Michael O. Randolfi

In terms of the revenue guidance. Yes, in terms of the revenue guidance, I mean, it's a combination of the items that we had mentioned throughout the call. I mean, there's been a mix shift that we've seen as we've continued to emphasize hotel over air. And that's where we've deployed our investment. Overtime, we think that's where the strategic benefits are within our business. We have seen some lower air volumes in the air channel, as indicated, primarily due to higher air fares. But I would point out that we continue to bring up our revenue guidance throughout the year. We started out in the first quarter -- and if you look at the midpoint of what we had indicated and the midpoint in February was $808 million. The midpoint in May was $822 million. The midpoint in our last call was $845 billion. So you've continued to see that growth. You've continued to see strong and accelerating room night growth. In the fourth quarter, we've indicated room night growth will be in the low- to mid-teens. So what I would say is, as we've looked at it, this is a tweak based on what we're seeing.

Operator

Our next question is from Ed Woo.

Edward M. Woo - Ascendiant Capital Markets LLC, Research Division

Great. Have you noticed any significant changes in the competitive environment either in the U.S. or international?

Barney Harford

I don't think I'd call out anything significant. It is and continues to be a competitive category. A lot of competitors are doing a lot of creative stuff, but I don't think -- I wouldn't say anything in terms of the intensity has just changed last quarter, no.

Michael O. Randolfi

Yes. No, we continue -- I mean, this is a very competitive business as you know. There is lots of competitive aspects of the business. We continue to do very well in that competitive environment. I mean, we've demonstrated in the last year that we're able to find niches in the marketplace that give us the ability to generate good room night growth, good revenue growth and allow that to fall to the bottom line.

Barney Harford

Yes, and I think what -- obviously, there's a few guys out there who are a little bit bigger than us. What that just means is that we need to be identifying and putting weight behind insurgent strategies where we can use our particular assets and the characteristics of our business to our advantage. Orbitz.com, for example, has historically had a greater orientation towards air than hotel compared to some of the other peers in the marketplace. So the loyalty program is something that gives us the opportunity to share margin with customers in a way that we think can enhance long-term repeat rate, direct site visitation and drive the orientation towards hotel in a way that would be more costly for a player that had a higher hotel mix already.

Operator

[Operator Instructions] Our next question is from Michael Purcell.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Most of my questions have been answered, but I just wanted a quick clarity on the revenue change for fourth quarter regarding Orbucks. Is that because the adoption rates are increasing faster than you expected? Or was it just the timing in the rollout?

Michael O. Randolfi

Yes, we're not going to provide a lot of context around the specifics on the contra revenue with regards to the program. What I would indicate is there are -- there's going to be some short-term impact on the revenue take rates there. It will affect our revenue growth rate in the short-term. But what you would expect that as consumers ultimately start redeeming, they see the benefits of the program, they enjoy the program. They start coming directly to our site. You're going to see long-term benefits over time and it's going to support our shift in mix more from air to the higher take-rate hotel business.

Barney Harford

In terms of kind of our view, August to November, it's certainly not new news to us that there's going to be a loyalty point accrual. You've obviously been tweaking the accrual rate just to kind of reflect what we've seen in terms of redemption rates, et cetera. But we've known that there's going to be this loyalty -- that there's going to be a revenue impact from the loyalty launch as we've been working to get the program lined up.

Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then secondly, just to expand upon the competitive question. Obviously, the big news in the travel space and one of which was the Travelocity being an affiliate partner with Expedia, which will take place next year. Do you see that impacting the marketing channels? Or -- and do you see that going forward, more of these affiliate or private label deals within the OTA industry?

Barney Harford

Well, Travelocity, specifically, that's been a travel -- anyway that's been a challenged brand for awhile. I'm not sure that flipping that particular business over to a private label version of Expedia is going to significantly change the comparative trajectory for the Travelocity brand. But it's certainly, I think, an interesting deal structure. And I think we have, with our American Express partnership, with the JTG partnership and I think, the comments that we made in the last quarter, we definitely see substantial opportunity, in particular, around the world as we look at so many markets that, today, don't have as strong OTA players with the kind of breadth and depth of capabilities, in particular, around mobile marketing optimization, site optimization, et cetera. And so we very much see this as being an opportunity both for existing players, be they OTA players or be they more traditional players that realize how critical it is to have a strong presence online. Albeit, folks can have great relationships with customers through some other means and who are just getting started in online travel. So we definitely think it's interesting and we have a technology platform that can support that in a very extensive way.

Operator

At this time, there are no further questions.

Barney Harford

Great. Well, we thank, everyone, for their time and we look forward to talking to you again in the next -- in February.

Michael O. Randolfi

Thank you.

Operator

Thank you for participating on today's conference. You may now disconnect.

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