Online Travel Site Orbitz Plans IPO
Controversial online travel site Orbitz Inc. said Monday it plans to go public, even though it’s losing money, being investigated by two U.S. agencies for possible antitrust violations and facing a skeptical market for new stock offerings.
The fast-growing site, formed by five major U.S. airlines in 1999, hopes to raise up to $125 million to keep expanding its business. But the proposal to float an initial public offering comes as the Justice and Transportation departments, along with several state attorneys general, are probing further into rivals’ allegations that Orbitz has an unfair advantage in providing consumers with the cheapest air fares.
The Chicago-based company, revealing its financial condition for the first time in its registration filing with the government, said it lost $8.9 million on revenue of $32.2 million in this year’s first quarter after losing $103 million last year as it ramped up operations. Orbitz also said “we expect to incur losses in the future.”
And Orbitz is wading into an IPO market that is decidedly lukewarm toward companies that aren’t profitable. With the economy and stock market languishing, investors are being choosy about buying new issues. Orbitz’s lead underwriter is Goldman, Sachs & Co.
Another young travel-related concern, JetBlue Airways, is up 62% from its April 2 IPO price, but the fledgling carrier is making money.
Orbitz’s biggest test could be convincing investors to buy its stock despite the government investigations. Rivals claim that Orbitz gets deeply discounted seats from its founding carriers that aren’t available to other travel agencies. Regulators are examining whether this amounts to collusion among the airlines to give them a stranglehold on the Internet travel market.
The IPO would give the public a minority stake in Orbitz, so “the airlines are still going to control Orbitz and therefore consumers are still going to be hurt by Orbitz,” said Antonella Pianalto, executive director of the Interactive Travel Service Assn., a trade group for online agents and an Orbitz critic.
Orbitz denies any wrongdoing, claims its service is unbiased and says it gets the lowest fares in exchange for providing those airlines and other travel suppliers with sophisticated Web technology that drives down their distribution costs. The five founding airlines--AMR Corp.’s American, UAL Corp.’s United, Delta Air Lines Inc., Northwest Airlines Corp. and Continental Airlines Inc.--account for 70% of Orbitz’s ticket sales and executives from each of those airlines comprise Orbitz’s board of directors.
Department of Transportation spokesman Bill Mosely declined to comment on Orbitz’s IPO specifically, but said his agency is “monitoring all developments at the company” as it prepares to submit its report on Orbitz to Congress by July 1. In its filing, Orbitz also warned that it expects its rivals “will continue to engage in lobbying” and other actions to generate “negative publicity about Orbitz and pressing legislation or regulation that could be harmful to us.”
Orbitz’s filing didn’t indicate how many shares the company hopes to offer or at what price. It also didn’t specify a date for the offering; those details will be in subsequent revisions of its registration filing. Orbitz said it expects the stock to trade on Nasdaq under the symbol “ORBZ.”
Despite its controversy, Orbitz is a hit with consumers and it’s expected to become more popular as more travelers migrate to the Internet to book their reservations. Orbitz is the third-most popular independent travel site behind Expedia Inc. and Sabre Holdings Corp.’s Travelocity.com, according to some researchers.
But critics contend that if Orbitz keeps routinely undercutting rivals on price, it ultimately will reduce competition in the Internet market and lead to higher prices. Shares of Expedia fell $5.54 to $78.36 on Monday on Nasdaq, while Sabre slipped 97 cents to $37.95 on the New York Stock Exchange.
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Times staff writer Bonnie Harris contributed to this report.
