The Orbitz Merry-Go-Round

After a series of different owners, the online travel site is public again but still searching for profits

In its brief life, Orbitz Worldwide has endured more ownership changes than many corporations have over a century. Since launching its online travel site in 2001, the Chicago company has been the collective property of its five airline founders, a publicly traded corporation, a subsidiary of conglomerate Cendant, a unit of private-equity powerhouse Blackstone Group, and since its July IPO, a publicly traded outfit again.

The respective owners have had distinct plans for growth and separate methods of operating. They've installed different CEOs—three of them so far, including its current chief, 46-year-old Steve Barnhart—each with his particular management style and philosophy. And with every ownership change, Orbitz's coveted entrepreneurial culture has been threatened. "Being a guerrilla fighter, being tireless and having no bureaucracy, those are distinctive parts of an entrepreneurial culture that can be lost," says James Schrager, clinical professor of entrepreneurship and strategy management at the University of Chicago Graduate School of Business.

What's remarkable is that Orbitz has managed to maintain its momentum. True, its stock has been a stinker. But the company is expected to reach $857 million in revenue in 2007, up 12% from last year, according to analysts' estimates. In fact, since 2004, the year Cendant acquired it for $1.25 billion, Orbitz has had compound annual revenue growth of 24%—above the online travel industry's 20% rate, says Jake Fuller, an analyst with Thomas Weisel Partners. Annual earnings are forecast at $48 million.

And it has amassed a 24% share of the U.S. online travel market, edging past rival Travelocity's 21%, according to Thomas Weisel data. "I would argue it's a healthy business," Fuller says.

Spirit Curbed

What's the secret? From the very start, Orbitz managers have focused intently on keeping the startup atmosphere alive. Above all, that has meant communicating honestly and often.

Jeffrey G. Katz, the company's first CEO, wrote e-mails called "Good Morning Orbitz," which were always direct and sometimes peppered with sarcastic humor about the company's performance. If prospects were bleak, as they were for travel after the September 11 terrorist attacks, Katz didn't mince words. "It was all about candid communication—good and bad," says Katz, now chief executive of educational toy maker LeapFrog Enterprises of Emeryville, Calif.

Over the years, Orbitz has evolved from a Chicago startup with 10 employees into an international force with about 1,600 people in the U.S., Europe, and Asia. The globalization began in 2004, when Cendant, which is headquartered in Parsippany, N.J., paid more than 15 times earnings to acquire it. Cendant then combined Orbitz with CheapTickets, another online travel site, as well as hotel wholesalers Flairview Travel and later ebookers, a European travel site.

The trouble was that the accumulation of businesses turned cozy Orbitz into a chain of corporate islands. Cendant was also bureaucratic and buttoned-down, like financial firms on Wall Street. Barnhart, a financial planning executive at Orbitz at the time, admits that the parent and subsidiary cultures "were almost diametrically opposed."

Thickets of Bureaucracy

Then-CEO Mitch Truwit worked hard at insulating his company from the Cendant style. At Cendant, for example, approvals for deployment of funds had to go through layers of approval—even for a $50,000 project. It might have made sense at Cendant's Avis or Budget Rent A Car agencies, but it could stymie creativity at Truwit's fast-paced Internet business. So Truwit and his top lieutenants flew to the parent's headquarters often to take care of process chores, leaving Orbitz's entrepreneurial workforce to follow their own rules. "If there was a lot of bureaucracy to deal with, it was mine to deal with," he says. "They were more flexible with us than they were with the other subsidiaries."

For investors, however, Orbitz's second time around as a publicly traded company hasn't been a joy ride. After opening at 14.90 at its IPO, shares have plummeted more than 40%, to less than 9 today. But on Nov. 12, Orbitz reported third-quarter results that were higher than expected. Barnhart promises to boost profitability further by diversifying Orbitz's bookings from mostly airline tickets to higher-margin offerings, packaging air and hotel reservations, say, with ground transportation and concert tickets. Most analysts buy the story, expecting roughly $100 million in operating income and more than $900 million in revenue next year. Avoiding another sale of the company next year would be an accomplishment, too.

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