Expedia Acquisition of Orbitz
Expedia announced their intent to acquire Orbitz Worldwide in February 2015 for $12 a share cash. In September they got regulatory approval and the nod from the US Justice Department indicating they will not try to block the deal. The acquisition officially closed in September 2015 stopping all trading of OWW Stock on the New York Stock Exchange (NYSE: OWW).
The stock trading stoppage isn’t the first time for Orbitz. The Company has been an independently traded company twice. The first time we IPO’ed was December 2003. We were young entrepreneurs that all had the dream to go public. We went out on NASDAQ as ORBZ with loads of fanfare and press.
2003 also the time when the scandals of Enron and Arthur Anderson were dominating the news. Being a Chicago company, our auditors were Arthur Anderson. We were required to retain a new audit firm.
Orbitz’s first IPO and Sarbanes-Oxley Compliance
Sarbanes-Oxley was being formulated back then. Standards had not been fully defined and everyone was running scared from the fallout of the Enron collapse. As a management team, we had to shift our focus to SoX compliance. Our executives had to personally sign risking their own assets indicating that every dollar was true and correct. Our focus was diverted from building the best travel website in the world to accountants.
As the Director of Technology at the time, I was responsible for building the systems to ensure the company achieved SoX compliance. A company technically has 2 years to become SoX complaint after going public. Orbitz financials were based on a Calendar year (Jan-Dec). Going public in December, however, shortened our timeline to 12 months since SoX compliance is based on a Company’s fiscal year. It was a challenging time in our history to setup all of the systems and audit points required to be a public company.
I personally believe the focus on compliance took our eye off of the ball. This was the time that online travel companies were emerging and establishing dominance in the industry. Expedia owned the market and Travelocity easily pulled back ahead of us. My memory of this period were that our stock price dropped after our IPO and didn’t rebound, our sales weren’t growing as expected, we weren’t gaining market share and we were struggling to be SoX complaint. I assume these events and likely many others factors I am not aware of made us a good acquisition target. Orbitz was acquired by Cendant Corporation (NYSE: CD) in September 2004 — 9 months after going public and 3 months before we had to file our SoX complaint financials.
Orbitz Acquisition by Cendant Corporation & Blackstone
The Cendant experience was an exciting time. They had virtually unlimited resources to expanded the online travel portfolio worldwide. We grew the online business through some very prominent acquisitions. I was fortunate to be involved with several of these initiatives as a member of the Cendant Global Operations (GO) team. It was an exciting time.
Cendant leadership subsequently elected to divest into 4 public companies (Travel, Car Rental, Hotel and Real Estate). Orbitz moved into the travel division called Travelport. My role at the time shifted to assist with separating various IT assets and contracts from Cendant to Travelport. June 2014 the assets of Travelport were acquired by the Private Equity firm Blackstone Partners.
It wasn’t long after the Blackstone/Travelport deal was closed that the Board of Directors voted to consolidate all of their online travel assets into one company — Orbitz Worldwide and take us public once again.
Orbitz second IPO, Orbitz Worldwide
My role during this era shifted to assisting Orbitz with moving systems and contracts from Travelport to Orbitz and I officially rejoined the Orbitz team as Senior Director of Architecture (aka the A-Team). This go-around we went public on the New York Stock Exchange (NYSE: OWW).
The second IPO has been a real struggle for Orbitz. The Company not only had high performance expectations they were carrying obligations from the prior acquisitions and integration activities on their books. As an example,Cendant acquired Orbitz for $1.2 billion. The companies valuation dropped from the time they acquired us to the point when Orbitz Worldwide was formed. The difference in the paid value vs the current value is carried as a loss on accounting books.
Orbitz Names New CEO
Suffice of to Say, Orbitz Worldwide did everything they could to survive, but the weight they had to carry was substantial. Steve Barnhart, the Orbitz CEO and the executives were under intense pressure to perform. Steve was a good man and worked harder than anyone I’ve seen to make the company work. He was devoted to trying to make things right for the company. I am confident that Steve did everything he could to pull Orbitz through. In 2009, the CEO of Travelport, Jeff Clarke, visited the Orbitz office in Chicago with a former Expedia employee, Barney Harford. They met with Steve for about an hour then called an all hands meeting.
During the meeting they announced that Barney Harford would be taking over as President and CEO of Orbitz and Steve Barnhart would be leaving the Company.
“Based on Barney Harford’s LinkedIn Profile, he held six roles at Expedia over 7 years (1999-2006). He held several Advisory and Board positions the period after leaving Expedia prior to joining the Orbitz team.”
This is a photo I took during the announcement of Steve Barnhart being replaced by Barney. Steve is standing by Jeff Clarke, CEO of Travelport.. Steve appeared to be dazed, but handled the situation professionally. We all know how difficult this had to be for him.
Orbitz Bumps and Mishaps
From the outside looking in, It seems that Orbitz has been involved with a number of high-visibility bumps and mishaps during Mr. Harford’s leadership. I personally believe that one of the biggest was using Internet of Things (IoT) concepts to change search results to show more expensive items to Apple users:
Orbitz was very clear that they were not charging more for Apple customers, however, the cat was out of the bag. The fact they showed more expensive options first assuming “Apple users” had higher expectations than people that used Windows and Android did not seem to be well received by consumers.
The concept of showing people that use different types of operating systems more expensive and different results blew up in the press. I believe this tactic caused loyal customers to stop trusting Orbitz who was always known for displaying unbiased and lowest fares. I know that I stopped using Orbitz after I learned of this strategy. I am a devoted Apple user.
Being linked with Travelport resulted in Orbitz being pulled into a battle with American Airlines, one of the original founders of Orbitz, over adding fees to their fairs. American and Travelport/Orbitz battled in court and American ultimately won permanently pulling their content from the Orbitz consumer sites. American was one of the largest airfare channel partners for Orbitz. Pulling those flight options appears to have caused material impact on Company’s sales:
Barney was a member of the Advisory board of Kayak from February 2008 – December 2008 prior to Joining Orbitz. I have no firsthand knowledge of what transpired, but based on what I read in the press, Kayak stopped using Orbitz exclusively when pulling content they use to display to their customers. Kayak was founded by former Orbitz associate Steve Hafner. We had a very good relationship with them. I have no idea why they would risk their partnership with Orbitz who was instrumental in helping put them on the map. Orbitz filed a lawsuit in Chicago for breach of exclusivity provisions against Kayak. Orbitz ultimately dropped the lawsuit.
Another area that has seemingly suffered is the Orbitz Customer Experience that the Company was originally well known for. We lived and died by the Customer the entire time I worked for the company. We nearly always sided with the customer and did whatever we could to resolve issues. A quick search of the Web is now full of customers complaining about the services received from Orbitz. Here’s a few stories that caught my attention:
Judge throws out lawsuit against 22-year-old computer whiz who found a way to get cheap airfare
It is unclear to me why they would do this, but Orbitz and United Airlines partnered up to sue a 22-year old kid that found a loophole and created a small website that anyone could use. Personally I would think it would have been easier to close the loophole than for big Corporations to sue a 22 year old kid that was just trying to be an Entrepreneur, but for whatever reason they decided it was easier to settle this matter in court. The case gained worldwide attention and was ultimately dismissed.
The End of the Era for Orbitz, not the End of Orbitz
I always thought of Orbitz as the Little Engine that Could. No matter what came its way the company survived. This time, however, things feel different to me. The brand will no doubt be out there, but the DNA of what we built is likely going to dissipate. Expedia now controls the majority of the online travel business. They own Orbitz, Travelocity, Cheap Tickets and many other prominent online travel websites worldwide (see Expedia Global Network of Brands). Based on my experience at Orbitz trying to do this very same thing with CheapTickets.com, eBookers, Away.com and others, I personally believe it is going to be difficult for them to maintain the uniqueness of Orbitz while simultaneously operating so many different brands.
It seems to me that consumer options to find cheap fairs are closing. What we started back in 2001 was a company that was based on providing the lowest fairs possible to customers. Now days it seems that one site vs another isn’t going to benefit consumers much when the back end systems serving up content is effectively the same.