Orbitz Worldwide Is Up For Sale: Who Are The Potential Buyers?

February 5th, 2015 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Orbitz Worldwide, the Chicago-based online travel agency (OTA) responsible for brands like Orbitz.com and Cheaptickets.com, is working alongside a financial adviser, to find a suitable buyer. The company has generated the interest of a few private equity players and other players in the Internet sector.

Orbitz has been a small player in the online travel space  and has failed to generate adequate economies of scale. Some analysts believe that Orbitz wishes to gain that benefit of scale by getting acquired by a stronger company. [1]

Orbitz: Performance To Date

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Orbitz Worldwide, was founded in 2000 by Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines, and American Airlines. Since its launch, the company had undergone several ownership changes, which acted as a hindrance to its wholesscale development. The company also suffered due to a lack of direction. Additionally, internal conflicts and poor strategic decisions further stunted the growth process for the company.

Though its main brand Orbitz.com, is the third largest player in the domestic U.S. market,  it is nowhere close to its rivals on a comparative basis. To add some color, for Q3 2014, Priceline (NASDAQ: PCLN) experienced a 27% room night growth and Expedia (NASDAQ: EXPE) experienced a 24% growth. Orbitz experienced a 19% growth rate and, notably, from a much smaller base. In 2013, Priceline and Expedia, individually  sold more than 22 million and 12 million hotel room nights per month, respectively.

The other brands under Orbitz Worldwide (including Cheaptickets, ebookers, and HotelClub) haven’t been successful in gaining a strong foothold in their respective segments.

Orbitz Worldwide’s management had been trying to effect a company turn around  in the last few years, witg little success, however. For example, in Q3 2014, the company’s net revenue grew by 15%, though net income declined by 30%. Over 40% of its third quarter revenue came from hotel bookings, and 24% from airfares.

For the full year 2014, Orbitz forcasted net revenue and adjusted EBITDA growth between 8% and 10%. The company derives 74% of its revenues from the U.S. Markets. [2] [3]

Potential Buyers?

Expedia recently acquired Travelocity (Read our article on the deal here) and might not be able to acquire Orbitz without raising antitrust issues. Besides, according to industry sources, both Priceline and Expedia have stated that they are not interested in the Orbitz acquisition. About three-fourths of the North American online travel sales are generated in the U.S., where Expedia is the market leader with over 40% share of bookings.  In contrast, Priceline generates about 16% of the U.S. online travel agency (OTA) market.  Orbitz might not be able to generate meaningful growth for either of these giants.

However, there are newer players trying to enter the online travel space and carve out a a niche for themselves. Companies such as Amazon (NASDAQ: AMZN) can gain a strong foothold in the U.S. OTA market space with the help of Orbitz Worldwide.

Also, foreign players such as Ctrip International (NASDAQ: CTRP) or Alibaba (NYSE: BABA), might grab the opportunity to eat into the U.S. online travel market share, which is predominantly ruled by Expedia and Priceline. (Read more about the new entries into the online travel space here).

  • Amazon

Amazon has decided to compete in the OTA space with its travel platform (which went live on January 1, 2015). It will initially focus on a curated selection of hotels within driving distance of New York City, Los Angeles, and Seattle. Amazon stands to gain a significant portion of the U.S. market share by acquiring the third largest OTA player in the U.S.

  • TripAdvisor

In Q1 2014, TripAdvisor (NASDAQ: TRIP) rolled out its Instant Booking feature which aimed at reducing the friction related to mobile bookings. The user experience is enhanced by allowing users to complete all booking related steps from selecting a room to inputting personal and credit details on the TripAdvisor platform itself. This new model will expand TripAdvisor’s features beyond a travel review website, as TripAdvisor starts offering services similar to other established OTAs. In the long run, Instant Booking might help TripAdvisor to provide direct competition to established names such as Expedia and Priceline, and gain a portion of their market share. Acquiring Orbitz might further aid TripAdvisor in achieving this goal.

  • Ctrip

In the recent past, Ctrip has undertaken measures to significantly bolster its international presence.  Some of the measures are mentioned below:

  • Early this year, Ctrip entered into an agreement with Amadeus (an IT provider for the global travel and tourism industry) to help Ctrip further grow internationally. The deal will let Ctrip sell airline tickets outside mainland China. Ctrip plans to target Hong Kong, Taiwan, Korea and the U.S., in the initial stage and later on move into countries such as Canada, Australia, New Zealand, Japan and Thailand. Xiong Xing, CEO of Ctrip’s air ticketing business expressed, in a post on the Amadeus blog, that Ctrip’s key to success lies in evolving into a truly international player. [4] According to Ctrip’s Chairman and CEO, James Liang, the strategic combination with Travelfusion will assist Ctrip’s future growth by bolstering Ctrip’s dominance in China’s international travel market. [5]
  • On January 5th, Ctrip announced completing the purchase of a majority stake in Travelfusion, a U.K. based travel distribution system that operates from London and Shanghai. Travelfusion’s clientele include online travel agencies (OTAs), travel management systems (TMCs) and self booking tools (SBTs), from across the globe. [6]
  • Earlier in 2014, Priceline strengthened its commercial partnership (initiated in 2012) with Ctrip by investing $500 million in the company. Through the investment, both the companies intend to increase the cross-promotion of each other’s hotel inventory and other travel services. Ctrip gained access to Priceline’s global portfolio of over 500,000 accommodations, as a result of this acquisition.

These initiatives indicate that Ctrip, one of the largest Chinese OTAs,  is keenly eyeing the marketplace outside China. Hence, Orbitz can provide meaningful growth to Ctrip in the U.S. Additionally, the economies of scale which Orbitz might acquire through Ctrip, could allow the former to evolve from a struggling OTA, into a formidable competitor in the U.S. travel marketplace.

  • Alibaba

Alibaba has recently announced its intention to separate its online travel business, Taobao, into an independent brand called Alitrip. Alibaba’s strengths include, the recent $25 billion IPO, which gives it adequate resources to provide stiff competition to the Chinese OTA leaders such as Ctrip, eLong, and Qunar. Alitrip includes more than 10,000 vendors providing plane tickets, vacation packages, and services for hotel booking, visa applications, and tour guides. Though Alibaba is initially targeting China, it can surely enter the U.S. online travel market with the help of Orbitz Worldwide.

  • Private Equity Firms

There is a probability of private equity firms acquiring Orbitz as well, however, that would not be the most advantageous outcome for Orbitz, given that it already has a significant amount of debt from prior transactions.   [3]

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Notes:
  1. Orbitz Is Said to Explore Sale, Draw Buyout Interest, Bloomberg, January 20, 2015 [↩]
  2. Orbitz Up For Sale? Expedia to Move on Travelocity? More Deals Tipped for the Online Travel Space, Travel Trends, January 21, 2015 [↩]
  3. Orbitz Gives In, Hires Bankers to Find a Buyer, Skift, January 20, 2015 [↩] [↩]
  4. Ctrip Turns To Amadeus To Power International Expansion, Travel Weekly, January 14, 2015 [↩]
  5. Ctrip Announces Investment in Travelfusion, Ctrip, January 2015 [↩]
  6. Travelfusion API – a B2B Booking System for OTAs, Whatech, November 2014 [↩]