Orbitz Leaps Into the Not-So-Friendly Skies
By Darnell Little
In April, Orbitz CEO Jeffrey G. Katz dodged a hail of bullets when the Transportation Dept. announced that there wasn't enough evidence of collusion to stop the launch of Orbitz, the online-travel site backed by five major airlines and dozens of smaller carriers. Instead, Transportation is requiring Orbitz to give a report of its business practices in six months time. That freed Orbitz to go live on June 4.
With the federal government temporarily out of the way, Orbitz now faces the hard part -- competing against online-travel rivals Travelocity.com Inc. and Expedia Inc. As of 2000, Travelocity and Expedia led the online-travel market with 35% and 25% share, respectively, of gross online bookings, according to PhoCusWright, Inc., a Web-travel consultancy in Sherman, Conn. And both sites are also profitable (see BW Online, 4/26/01, "Will Orbitz Suck the Air Out of Travel Sites?").
Sure, Orbitz is owned by UAL's (UAL ) United Airlines, AMR's (AMR ) American Airlines, Continental Airlines (CAL ), Delta Air Lines (DAL ), and Northwest Airlines (NWAC ). But it's so late in the game that its pedigree alone won't catapult it to the top. "While Orbitz' site is good, I'm not sure if it is going to be compelling enough to get a loyal Expedia or Travelocity customer to switch," says Henry H. Harteveldt, an analyst at Forrester Research. Nevertheless, Harteveldt and other analysts say Orbitz' marketing muscle, technology, and strong customer service will make it an appealing option for new online travelers.
RAISING THE BAR.
Even Travelocity CEO Terrell B. Jones thinks there's room for Orbitz. But he warns that the upstart has a lot of work to do. Travelocity has deals with America Online (AOL ) and Yahoo! (YHOO ), and Microsoft's (MSFT ) Expedia can count on MSN.com to push its service. Right now, Orbitz has no deals with portals. Plus, Jones says the newcomer isn't a household brand. "I love their name because it doesn't have 'travel' in it," he says.
What Orbitz does have are hopes of raising the bar in online customer service. Several sites send travel alerts to customers via e-mail, pagers, or Net-enabled mobile phones. Orbitz does all that, plus it offers users a toll-free line to retrieve flight updates. It also collects information from the airlines and the Federal Aviation Administration to provide airport road-traffic updates and predict possible flight delays. "They have got very clever, very extensive applications of customer service," says Harteveldt.
Orbitz is also betting that its new technology will provide consumers with more flight choices. Traditionally, travel agents use computer reservation systems (CRS), large mainframe-based applications, to book customer flights. The largest CRS, Sabre Holdings, is the majority owner of Travelocity. The problem with CRS, as Orbitz saw it, was that the high cost of the system allowed the provision of only a limited number of possible flight combinations.
Orbitz created a cheaper computer system that bypasses much of the CRS process and returns a wider range of flights. This technology helped lure Katz to Orbitz from his job as Swissair CEO. "Orbitz was making very impressive progress on something I thought never could be done," say Katz, who ran the CRS division of Sabre before working for Swissair.
"A LEARNING PROCESS."
But Expedia CEO Richard N. Barton says its technology offers more choice than Orbitz'. Earlier this year, Expedia launched its Expert Searching & Pricing system, a flight-schedule search engine that also expands the choices given by the typical CRS. Expedia's Barton challenges consumers to compare the two to see which offers the most options. "I see us having...two to three times as many choices," Barton says.
For many travelers, though, price is also key. Orbitz touts itself as the travel site with the lowest fares. But it has yet to prove that its prices for airline tickets, hotel rooms, and rental cars are consistently lower than its rivals, a tough task given the wide range of travel-service sites now offered on the Web. Forrester's Harteveldt thinks Orbitz is missing the boat by promoting price over service, pointing out that most online travelers want better customer service. "That's their key advantage, not offering the lowest prices," Harteveldt says.
Now that Orbitz is launched, Katz is dealing with a whole new rash of problems. He discovered that his call centers were seriously understaffed. The main problem: Orbitz underestimated the time that customers spent on the phone with reps (instead of the expected six minutes, it turned out to be more like 11). Another fire: The accidental cutting of a fiber-optic line in Chicago disrupted the service. And when Orbitz took the site down the next night for maintenance, it didn't post an alert on the main page, prompting even more customers to call for help. "It's a learning process," Katz says. "But we think overall the site held up pretty well."
Despite the problems, Orbitz is bringing lots of business. In its first three days, it booked more than $7 million. Plus, its $100 million online, print, and television-ad campaign is just beginning. Still, Katz has a few more bullets to dodge: The antitrust investigations into Orbitz by more than 20 state attorneys general are ongoing, and that could make Orbitz's ride a little more bumpy.
Little covers technology from BusinessWeek's Chicago bureau