Orbitz Worldwide on new track under Barney Harford

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Barney Harford, who had helped craft Expedia’s Asia-Pacific hotel business and served as a consultant to Kayak, walked into the perfect storm in early January when he signed on to replace Steve Barnhart as president and CEO of Orbitz Worldwide.

The global economy was already reeling, and travel demand and pricing were slack. Then, two months later, on March 11, Expedia.com dropped a competitive bomb by eliminating booking fees for airline tickets.

Orbitz was not Expedia’s only target. It was also seeking to regain ground it had lost to Priceline, which had eliminated air fees in 2008. But the move came as an especially devastating blow to the weaker competitor, Orbitz, where the majority of profit was from air booking fees.

While Expedia was positioned to withstand the loss of booking-fee revenues thanks to its large hotel business, Wall Street recognized the damage to Orbitz, and within two weeks, on March 24, its stock price had fallen to a low of $1.20.

Orbitz-HarfordMtnBut by May 6, when Orbitz announced a Q1 loss of $336 million loss (all but $4 million of which was tied to an impairment charge), it appeared to have managed to gain some momentum and to differentiate itself to consumers in its hotel business.

First, Orbitz nixed its own air-booking fees and introduced a form of price protection in a program called Hotel Price Assurance. It also launched Total Price search results, which reduced Orbitz’s hotel-booking fees, putting it at parity with hotel websites, and began displaying a hotel’s base rate, plus taxes and fees in the initial search results, a first for an online travel company.

As of July 22, Orbitz’s stock price, though still weighed down by fears of bank-covenant breaches and insolvency, had increased 79.2% from the March 24 low, to $2.15. Orbitz Worldwide is expected to release its financial results for the second quarter in early August, which will offer investors the first real insight into whether its product differentiation and all-out effort to focus on the hotel side of the business have helped the bottom line.

In the interim, Soleil Securities analyst Jake Fuller said last week that he was seeing some daylight for Orbitz, a public company majority-owned by Travelport, even though Orbitz had a whopping $652 million in debt through the first quarter.

Fuller pointed to these positive developments:

• Orbitz’s air-ticket volume increased 15% since April, when it eliminated air-booking fees.

• Orbitz has implemented some $40 million in annualized cost savings.

• It became "very aggressive" in the advertising/media business with its recent relaunch of Trip.com as a multibooking-engine search business, and increased advertising through paid links on Orbitz.com and on its sister company CheapTickets.

• Orbitz Worldwide scaled back its spending on marketing for subsidiary e-bookers in Europe "to let the top line run at a lower level and narrow the loss."

"I think they survive if they don’t run afoul of their debt covenants," Fuller said, referring to loan agreements that Orbitz Worldwide is required to meet in September and March.

"The bottom line is that the hotel business has been the failure of Orbitz," Fuller said. He noted that in both the Orbitz.com initial public offering in 2003 and the Orbitz Worldwide public offering in 2007, when it was spun-off from Travelport, the companies pledged that growth would come through expanding the hotel side of the business.

"But you can’t go to market with a subpar or me-too product," Fuller said.

In interviews with three analysts, all agreed that Harford is a dynamic force behind the scenes at Orbitz and that he has the skills and drive to make something out of Orbitz’s hotel business.

"Clearly, Barney is stirring things up," said Tom Botts, a partner at the Hudson Crossing travel-consulting firm. "I would argue that he has made more changes in the six months he’s been there than they’ve made in a long time."

However, one financial analyst, who declined to be identified, said that while Harford "has played the hand he’s been dealt as well as anyone," his moves will have a relatively minor impact given the state of the economy, lackluster travel demand and Orbitz’s lack of ample cash flow to pay down debt more rapidly.

"It’s a little bit like rolling a rock up a hill," the analyst said. Oh the other hand, he conceded that if some of Orbitz’s moves gain traction, the company could rebound within two or three years.

Soleil Securities’ Fuller said, "We’ll see if it works," but added: "I would argue that the steps taken to improve the hotel product are in no way small."

Orbitz spokesman Brian Hoyt tried to place the company’s current status in context, pointing out that Orbitz pioneered electronic flight-delay or gate-change alerts on customers’ mobile devices in its TLC program. But he said that henceforth the bulk of the development effort would be in the higher-margin hotel and vacation package businesses.

Orbitz, which was formed by major U.S. airlines in 1999, has "had an historical focus on air, air, air," Hoyt said. "Barney has come and put that goal [improving the hotel business] in overdrive."

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