Orbitz Worldwide has worked hard to shed its longtime status as the No. 3 online travel player. After going public in July (for the second time, following a few years of being privately held), it has inched its way up to tie Travelocity for the No. 2 slot behind Expedia, with 27 percent of the domestic online travel agency market, according to Morgan Stanley. While the company, which also owns CheapTickets and Away.com, has enjoyed international growth of around 25 percent a year, the bulk of its business is in the slower-growing U.S. market. Orbitz Worldwide CEO Steven Barnhart talked with U.S. News Associate Editor Kimberly Palmer.
What are the biggest challenges to the online travel industry right now?
If you look at the travel industry in general, one of the challenges you see is really for consumers. As planes have gotten more full, as hotels have gotten more full, the logistics of traveling have gotten more difficult. So part of what we try to do is not just book tickets for consumers, but we try to make the travel experience better for them. We do that through two ways. One, OrbitzTLC, is a system that allows us to alert customers if there's an issue with travel, whether their flight is delayed or proactively letting them know there is a transit strike in New York, or whatever. The other thing we launched more recently is OrbitzTLC Traveler Update, which allows travelers to communicate in real time with each other [by posting their travel experiences, such as the length of security lines and whether flights are on time].
Do you worry that in part because of the weakening U.S. dollar, Americans will cut back on travel?
I think that consumers are pretty resilient. ... You will certainly see consumers change their travel, but I don't think Americans and Europeans view travel [in such a] discretionary [way] as they used to. It's part of what they do. You'll see people change how they travel. They might not travel as far. There are lots of ways to change how you travel to accommodate your economic status without giving up travel.
Much of your revenue is from airline tickets. Do you think you need to diversify, in case people start flying less?
We're heavily skewed toward airline tickets in terms of gross bookings. Part of that is because tickets are very expensive. If you look at revenue, about 55 percent comes from things other than air—hotels, cars. We've been clearly expanding off of our air business. But the air business, it was our heritage. It's a great business. We don't dislike it, but people on our site buying air tickets also want to buy hotel rooms. As long as consumers are buying tickets, that's fine, we're fine.
Why does Expedia have higher profits and growth than Orbitz?
If you look at this year, we outgrew Expedia in the U.S. In the first half, we outgrew them internationally, as well. They have a higher percentage of their business in international, so overall, they might have outgrown us.
It seems as if online travel sites charge a fee, which is added to the fare, for booking flights. How much is the fee on Orbitz?
The major airline travel sites do charge a fee. It varies [at Orbitz and CheapTickets], but it's usually in the $4 to $6 range generally. Offline travel agents often charge a $20 fee.
Why should consumers use a site like yours instead of going directly to air carriers' sites and saving the fee?
In many cases, we'll find you a better fare, but not in all cases. What you get from Orbitz is that we show you all your options—you can't get that on the United or American website. ... We provide care ... and the TLC packages we talked about. And with a [hotel and air] package, in many cases, we'll provide a much better value. We offer a lot of things that bring value to our customers, which is why they're willing to pay a fee.
So what's to stop customers from using Orbitz to identify the best airline deals and then buying them directly from the airline?
There's nothing to stop them, and consumers do that. There's a portion of consumers for whom it's worth their time to take the extra step and to search for it and then go somewhere else. There's other consumers for whom either it's not worth their time or they value the assistance we provide.