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Coverage Initiation: Orbitz Worldwide Inc.
Orbitz Worldwide Inc. (OWW) is making its debut in the Value Line Investment Survey. The online travel company provides customers with the tools to research, plan, and book a variety of travel products through several websites, including its flagship website: Orbitz.com. The company generates revenue using both merchant and retail models. Orbitz acts as an intermediary under its merchant model, collecting on pricing spreads between customers and suppliers. Under its retail model, the company generates revenue through commissions paid by suppliers.
Orbitz Inc. was originally formed in 1999 by several airlines, including American Airlines, Continental Airlines, Delta Airlines, Northwest Airlines, and United Airlines. Its commercial website was launched in 2001, and the company went public in 2003.
In 2004, Orbitz Inc. was acquired by Cendant Corporation, and later sold to The Blackstone Group as part of Cendant’s travel distribution services business. Orbitz Worldwide Inc. was formed from the restructuring of this business after the sale, and is made up of several brands including CheapTickets, The Away Network, RatesToGo, Orbitz for Business, ebookers, HotelClub, and, of course, Orbitz.com. Orbitz Worldwide became a publicly traded company in July 2007.
Since then, the company has struggled to post profits. The recent recession, which began shortly after its initial public offering, severely weakened the travel industry. With stubborn unemployment and strained personal income levels, the operating environment has been persistently difficult. Hotel rates dropped, as did airline prices, and consumer demand decreased dramatically. As a result, Orbitz has reported disappointing results over the last several years.
However, the company’s outlook seems to be improving. As the economy recovers, albeit slowly, the travel industry is making a comeback. Demand for travel products is up, and rates are on the rise as well. As a result, we expect a boost in performance for the company related to higher bookings in 2010. In fact, Orbitz will likely overcome its deficit and reach profitability this year.
Furthermore, the company is a leader in the online travel market, along with competitors Priceline.com (PCLN) and Expedia Inc. (EXPE), and will likely continue to strengthen its position as conditions continue to improve. In fact, Orbitz recently launched a new hotel search tool that gives customers the ability to compare hotels side-by-side on the search results page, a groundbreaking initiative in the industry. With new innovations like this one, Orbitz will likely be able to increase competitiveness and carve out an even larger piece of the market.
Overall, Orbitz is well positioned in a highly competitive industry. Although the company has suffered losses due to recent economic conditions, Orbitz will likely be able to drive growth down the line as the travel industry continues to rebound, giving it considerable long-term growth potential.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.