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Orbitz
Type Public
Founded 2001
Headquarters Chicago, Illinois
Industry Travel services
Website www.orbitz.com
Orbitz, Inc. is an Internet travel company headquartered in Chicago. Orbitz,
along with all other Cendant travel businesses, was sold to a subsidiary of
the Blackstone Group, in a deal worth over $4.6 billion to form a new
company called Travelport.
Beginnings
Orbitz constituted the airline industry's response to the rise of online
travel agencies such as Expedia and Travelocity, as well as the continued
increase in GDS fees, and trailed its major competitors by several years.
Continental Airlines, Delta Air Lines, Northwest Airlines, and United
Airlines, subsequently joined by American Airlines, invested a combined $145
million to start the project in November 1999. It was code-named T2 — some
claimed, meaning "Travelocity Terminator" – but adopted the brand name
Orbitz when it commenced corporate operations as DUNC, LLC (the initials of
its first four founding airlines) in February 2000. [1] The company began
Beta testing early the next year, and Orbitz.com officially launched in June
2001.[citation needed]
Anti-trust concerns
Even before the site began operating, the company faced intense antitrust
scrutiny – after all, five of the six oligopolist "major" airlines,
controlling 80 percent of the US air travel market, were collaborating.
Several consumer organizations, as well as Orbitz's primary competitors at
the time (Expedia, Sabre, Travelocity, Galileo) spent a significant amount
of money lobbying the United States Department of Transportation to block
the project from the outset, and some 23 state attorneys general also voiced
concerns thanks to local competitors complaining. When the DOT permitted the
company to move ahead in April 2001, the competitive lobbying effort was
switched to the Antitrust Division of the Department of Justice and the U.S.
House Committee on Energy and Commerce.
Among the concerns raised were these:
* above all, the so-called Most Favored Nation provision, by which the
airlines agreed not to cut deals with competing sites under more favorable
terms than with Orbitz
* the airlines' agreement to release certain discount fares only to Orbitz
or other entities at Orbitz low distribution cost, at the expense of its
online and offline competitors
* that Computer Reservation System fee discounts extended to partner
airlines would undermine competitors and damage the fledgling online travel
industry
* that the airlines would coordinate efforts secretly to reduce discounts
* Orbitz was breaking out the service fee from the ticket price, not making
the total price clear
The Interactive Travel Services Association (ITSA), an organization of
Internet travel agencies and GDSes - all Orbitz competitors - issued a
report in December 2001 arguing that Orbitz was stifling its members.
Partly in response to consumer advocate complaints, Orbitz announced in May
2002 it would make its fares available to customers via its call center for
those consumers that did not have computer or internet access.
In July 2003, the Department of Justice ruled that Orbitz was not a cartel
and did not pose a threat to competition. Orbitz's rapid growth had not
impeded its online competitors' businesses which had continued to grow
apace, and no evidence was found of price fixing. Additionally, changes in
the marketplace had eroded both the advantages of the Most Favored Nation
clause and the webfares that Orbitz had due to its low supplier cost. Orbitz
continued its success in the market based upon its unique technology
platform.
IPO, sale, and future prospects
In August 2003, Orbitz filed to do an initial public offering (IPO).
Businessweek, commenting on the proposed IPO, noted that Orbitz lost $5.3
million in the first half of 2003 on revenue of $107 million; that airlines
would control the board of directors of Orbitz even after the IPO; and that
much of Orbitz's business model was structured to benefit the airlines at
the cost of (future) shareholders. [2] In November, Orbitz filed paperwork
to sell shares at between $22 and $24 each. [3]. The company went public on
December 18, 2003 at a price per share of $26. [4][5] After the IPO, the
airlines held 70% of the outstanding stock and over 90% of the voting power.
[6] Because Orbitz had such a strong brand and consumer acceptance, most
shareholders saw the carrier ownership as very positive for its long term
sustainability.[citation needed]
On September 29, 2004, Orbitz was acquired for $1.25 billion by New
York-based Cendant Corporation. Cendant paid $27.50 per share. [7]
Given Cendant's spate of acquisitions in Europe, there has been some
speculation about Orbitz being exported to Europe as a brand or the
continued use of acquired Cendant brands like ebookers and Octopus Travel.
Currently, there is a large project underway to migrate all Cendant brands
onto a common technology platform, with ebookers being migrated to the new
platform first, followed by CheapTickets.
In June 2006, The Blackstone Group, a private equity firm, entered into a
definitive agreement with Cendant Corp to acquire Travelport, its travel
distribution services business for about $4.3B in cash, a significant
reduction in value to the original acquisition prices of the individual
companies. Travelport includes the Orbitz travel reservation website used by
consumers, the Galileo computer reservations system used by airlines and
thousands of travel agents, Gulliver’s Travels and Associates wholesale
travel business, and numerous other travel related software brands and
solutions.
Technologies
Orbitz runs on a Red Hat Linux based platform and was an early adopter of
Sun's Jini platform in a clustered Java environment. [3][4] Both JBoss and
BEA WebLogic are used as application servers within their environment along
with various other proprietary and open source software. [5] Orbitz licenses
ITA Software's Lisp-powered QPX software to power their Orbitz and ebookers
are developing a common technology platform, which would enable the same
platform to service multiple travel brands in multiple languages in
different markets and currencies as well.
Controversies
Maddox incident
In March, 2005, Orbitz.com received email complaints numbering in the
thousands from readers of a website called The Best Page in the Universe.[8]
The author, George Ouzounian, who writes under the name Maddox, recounted an
unsatisfactory experience with Orbitz in which he was given an impossible
itinerary in 2002. This story was read by over a hundred thousand people
within less than a week, and instigated a boycott against the company by
many of these readers.
Orbitz is claimed to have responded to the many thousands of emails that
Maddox readers sent to them with an explanation of Maddox's itinerary and
changes that they have made in their business practices on Maddox's own
website (see above). Maddox responded to this later on his page, and also
noted that the email explanation constituted a breach of Orbitz's own
privacy policy.
Southwest Airlines
Southwest Airlines filed a lawsuit against Orbitz for trademark infringement
and false advertising in May 2001. Southwest, which had opposed the project
from the outset, claimed Orbitz misrepresented its prices and used its
trademarks without permission. In July, it withdrew its fares from Airline
Tariff Publishing Company, the entity that distributes fare information to
Orbitz and others, and dropped its case against Orbitz. Southwest went on to
remove themselves from every other online outlet except their own,
southwest.com
Trivia
Orbitzgames.com was launched in September 2005 as a showcase of all the
promotional Orbitz games produced to date. [6]
Wink Martindale is the host of the mini-game show "Take on Orbitz" (as
featured in the commercials).
Footnotes
1. ^ Edgar Online
2. ^ Business Week
3. ^ Forbes
4. ^ Atlanta Business Journal
5. ^ [1]
6. ^ Motley Fool
7. ^ Orbitz Press Release
8. ^ *Orbitz Blows, The Best Page in the Universe
References
* ORBZ Securities Registration Statement (S-1/A) (2002-07-03). Retrieved on
2006-11-09.
* Commentary: Orbitz' IPO Doesn't Deserve to Fly (2003-11-29).
* Will Orbitz's IPO Fly? (2003-11-26).
* Orbitz IPO Soars (2003-12-18).
* Orbitz Stock Price at $26 for IPO (2003-12-16).
* Orbitz Loses Altitude (2003-12-18).
* Cendant Corporation Completes Acquisition of Orbitz (2004-11-12).
Numbered references
1. ^ Edgar Online
2. ^ Business Week
3. ^ Forbes
4. ^ Atlanta Business Journal
5. ^ [2]
6. ^ Motley Fool
7. ^ Orbitz Press Release
8. ^ *Orbitz Blows, The Best Page in the Universe
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