Orbitz revaluates its operating costs in light of lower demand
Published: 13 Nov 2008
"That's not a tide that we can swim against at the rate we did in Q3."
This statement has come from Orbitz chief executive Steve Barnhart in the context of the performance of the OTA in the prevalent economic environment in an interview with Reuters. The OTAs acknowledge that they are clearly living through an unprecedented period in financial and economic history.
"Although we are continuing to implement initiatives to grow our business, we do not expect to be able to offset the slowdown in the global economy. Therefore, we expect growth in gross bookings and revenue to fall below our long-term target range of nine to twelve percent in the fourth quarter of 2008 and in 2009," Barnhart had said as the agency shared its third quarter results.
"In response to these industry trends, we are currently re-evaluating all of our operating costs in light of lower demand," he said.
According to Reuters, Expedia and Priceline shares have lost more than 50 percent each. Orbitz shares are down 40 percent for the same period.
However, Barnhart noted that OTAs have the means to generate travel demand even during down economic times.
"We are somewhat counter-cyclical," he reportedly said. "We can be a force in stimulating travel demand."
In the same report, Priceline chief executive Jeffery Boyd said: "Given the outlook for the general economy, we are forecasting a significant reduction in U.S. dollar-denominated international gross booking growth rates. Of course, further negative economic developments such as a fresh wave of instability in financial markets or high profile financial or industrial company bankruptcies or bailouts which depress consumer sentiment would likely lead to below forecast results."
Meanwhile, Goldman Sachs analyst Jennifer Watson cut her rating on the stock to "Sell" from "Neutral" and slashed her price target to $2.70 from $6.80, implying 15 percent downside to Tuesday's closing price of $3.18, according to boston.com.
Watson said Orbitz has grown gross bookings more slowly than Expedia Inc. and Priceline.com Inc., and she does not expect this to change in a more challenging economy. Orbitz will underperform Expedia and Priceline, Watson said, because of heavy reliance on domestic air travel, which brings in 25 percent of revenue and has been hurt by cuts in airline capacity.
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