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  • Two Partnerships That Can Improve The Outlook For Orbitz (OWW) 0 comments
    Feb 14, 2014 2:08 PM | about stocks: OWW

    Orbitz has been struggling to solidify its online presence as a major travel booking destination. Competition is extremely high and product diversification is a difficult task. This makes domestic growth for Orbitz a challenge. One area that can give revenue a boost in the years to come is international expansion, as a result of two recent partnerships.

    Nowadays, users have too many options when it comes to websites used for booking travels. This makes companies like Orbitz hard to distinguish themselves from other competitors. Websites like kayak.com enables users to directly compare rates from various online booking websites in just a few clicks.

    Another key newcomer to the online booking market is trivago.com. The website is to booking websites what google is to online searching: an overly simplistic, minimalistic, no non-sense, straightforward search engine. Here is the way trivago works. The user inputs the desired destination and gets results based on either popularity, rating, price or distance. When the user chooses a specific deal, he then gets redirected to the website that carries that specific deal.

    This does not mean that Orbitz has inferior deals to competitors, but that chances of users picking an Orbitz deal are diminished. Good news for Orbitz is that trivago only offers hotel reservation. At the same time, hotel bookings represented 38% of total revenue, the highest percentage out of all 5 revenue segments in the latest quarter.

    So, what is OWW doing to tackle this issue? As of February 12th 2014, Orbitz partnered up with Amadeus, an IT company that offers solutions to the travel sector. Amadeus will help improve the global distribution system (GDS), improving customer experience across online and mobile devices. However, the venture will be limited to business operations in North America.

    While we see this as a positive development for domestic customer retention, we also foresee an indirect benefit coming from the Amadeus partnership, to the international position of Orbitz. Currently, online travel booking penetration rates stand at 60% in the United States and 25% in Asia Pacific. OWW has recently partnered up with Jetset, Australia's second largest offline travel agency. Since online booking has not been fully embraced by Australian citizens, this allow Orbitz to share its online technology with JTS, positioning the company ahead of existing competition.

    Domestically, Orbitz is pushing users towards the Orbitz rewards Program, whereby registered users get to earn 1%-5% cash back for booking a hotel, flight or vacation package. This can certainly help Orbitz in terms of customer retention rates, especially for business travelers that use the service more often. However, the average American only gets 2 weeks' vacation time per year and would be less likely inclined to take advantage of a rewards program.

    So, what does this mean for revenue?

    Revenue has been declining by 2.5% per year on average, for the last 5 years. International revenue accounted for 28% of total revenue in FY2012. We can expect the proportion to expand in the next few years due to the JTG partnership and greater international online booking rates.

    Orbitz has been having trouble staying profitable, posting positive operating income only once in the last 5 years. It looks like 2013 will be a breakthrough year, as we expect Orbitz to post an operating income around $65 million. If international growth pans out and domestic revenue remains steady, we can see operating income continue growing in the next 5 years and operating margins in the mid-single digit.


    The recent partnerships are an important step for Orbitz to remain relevant in the crowded market of travel booking. The success of Orbitz is largely dependent on what it can do on an international level. We see this as the catalyst for OWW moving forward, as domestic growth remains challenging due to competition.

    MissionIR provides investor relations services to publicly traded companies in exchange for compensation. This article may be part of our efforts to widen a client's exposure. To read our full disclaimer, visit http://disclaimer.missionir.com

    Stocks: OWW
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