4 Things You Didn't Know About Orbitz
Nov 16th 2013 10:00AM
Updated Nov 16th 2013 10:02AM
Orbitz Worldwide (NYSE: OWW) has been a major player in the online discount travel industry for years, competing with the likes of priceline.com and Expedia (NASDAQ: EXPE). The industry itself is becoming increasingly important for consumers looking to make travel arrangements online, and any changes within the industry have major repercussions for investors. However, one thing Foolish investors don't want to do is invest in a company they don't understand. Here are a few interesting facts you may not know about major travel industry player Orbitz Worldwide.
Major airlines created Orbitz
With the popularity and convenience of e-commerce travel sites for booking flight and hotel reservations on the rise in the mid-to-late 1990's, the airline industry caught sight of the trend and decided they wanted more than a piece of the profits. As such, several of the major airlines decided to team up and create their own website in which customers could book flight and travel packages for a discounted rate similar to the other websites already in operation, such as Expedia and Travelocity. The four major airlines included Continental Airlines, United Airlines, Northwest Airlines, and Delta Airlines, with American Airlines joining the project later on. With $145 million invested in the project, these airline companies strategized for the next 19 months, testing the site's functionality and working out all the details, ensuring their product would produce high profits while lowering their distribution costs. Orbitz was soon launched in June 2001.
John D. Rockefeller would be proud!
John D. Rockefeller, the head of the most infamous monopoly in American history, Standard Oil, would have applauded the creation of Orbitz. This is because it was created by more or less all of the major airlines to essentially put other online travel sites out of business. Before, during, and two years after launching the site, Orbitz Worldwide was being charged with antitrust scrutiny by its online travel competitors and other organizations. Its competitors complained that the new site would provide unfair advantages to the company since Orbitz Worldwide's creators controlled over 3/4 of domestic air travel. Orbitz's competitors took their case to the Department of Transportation, who saw nothing wrong with Orbitz launching their own website. Disappointed and angered, competitors took the case to the Department of Justice and the U.S. House Committee on Energy and Commerce. The DOJ ruled in 2003 that Orbitz was not a cartel and that there was no evidence of price fixing. The argument could be made that the media attention garnered by the lawsuit actually helped Orbitz grow!
Orbitz hasn't always been on good terms with major airlines
During late 2010 American Airlines actually ceased offering fares to customers via Orbitz.com. As is often the case, the move was financially motivated--American Airlines did this to force Orbitz to use American Airline's new Direct Connect electronic transaction system. This was deemed illegal by various courts, and American Airlines was ordered to resume offering fairs to customers on Orbitz. Adding insult to injury, the order was made just days after American Airlines went public on YouTube insulting Orbitz.
This isn't the only time Orbitz has gotten in trouble with a major airline. Have you ever wondered why Southwest Airlines is never listed on any major travel site? That isn't a mistake--Southwest not only opposed the creation of Orbitz from the beginning, but has since refused to offer pricing on any major travel site. It went so far as to sue Orbitz when its logo and pricing was used in advertising materials by Orbitz. It clearly isn't easy trying to offer discounted travel to consumers.
There's an advantage to being the first in an industry
Orbitz was created, largely, as the major airlines' answer to websites like Expedia. So one might expect with all of this industry backing that it would be the number one player in this highly competitive industry. Surprisingly,it is Expedia that wins the prize as number one travel websites in the world today. It does this through over 140 travel websites, each operated and geared toward a specific market segment. The key takeaway from this point is that Foolish investors should always be on the lookout for new an innovative companies that aren't afraid to blaze new trails. This is not to take away from the success Orbitz has experienced since its creation, which is laudable.
Orbitz Worldwide has an extremely interesting history filled with airline wars and antitrust accusations. It has had a rough time lately, losing ground to competitors like priceline.com. But given its beginnings as a creation of essentially every major airline in the United States, and strong support from its major shareholder Travelport, its hard to imagine Orbitz Worldwide going anywhere anytime soon.
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The article 4 Things You Didn't Know About Orbitz originally appeared on Fool.com.Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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