Northwest Airlines last week said in early June it will begin loading negotiated corporate rates via the Airline Tariff Publishing Corp.'s automated filing system into Orbitz For Business, if requested by clients. Northwest also is planning to load the rates onto its own Web site and said it would track for customers bookings made on both sites.
The statement represents yet another sign of viability for Orbitz For Business, which also has added a handful of key features, including fields that require travelers to indicate a reason for booking out of policy and the ability to pay with a UATP card.
Based on airline filings with the Securities and Exchange Commission, BTN estimated Orbitz's 2002 loss at $19 million. Yet, sources familiar with Orbitz claimed the company is profitable so far this year and has passed Travelocity as the second-largest online agency after Expedia.
Sabre this month offered no update to an analyst asking for Travelocity's marketshare performance. According to travel e-commerce research firm PhoCusWright, Orbitz in 2002 grew year-over-year gross bookings volume by more than 200 percent versus Travelocity's growth of 12 percent.
Meanwhile, interested parties have their eyes peeled for any sign of whether and how well Orbitz is serving larger corporate accounts. Thus far, only McDonald's is confirmed as a large corporate user, and they are only in a test, but Orbitz general manager of corporate travel David Cerino said the company has "a number of Fortune 500 to 1,000 accounts."
Some sources said McDonald's is seeking to expand its relationship with Orbitz, potentially replacing Carlson Wagonlit Travel as its domestic agency, but that could not be confirmed with the company. Seeking to calm what already had been an overblown industry reaction to McDonalds' initial test
(BTN, March 10), a spokesperson last week said, "We caution anyone from jumping to conclusions based on industry rumors. This is just pure speculation."
According to Northwest, which soon will begin loading corporate negotiated rates onto nwa.com to be booked using the traveler's frequent flyer number, the cooperation with Orbitz For Business is customer driven.
"We have been influenced by a few things," said vice president of sales and customer relations Fay Beauchine. "Corporate clients want access to discounts and all our product offerings seven by 24 in more than one channel. They continue to want access to Web fares. Orbitz and nwa.com will allow corporations to access Web fares, corporate discounts or any other published fare.
"It's all starting to come together," she added, noting that clients wishing to take advantage of the offers will sign CorpNet agreements
(BTN, June 24, 2002) and data release forms to allow Prism Group to consolidate and report the data by e-mail or online.
Asked whether clients can negotiate more than the usual incentives from Northwest in return for booking on nwa.com or Orbitz, Beauchine said, "We have lots of inquiries in the marketplace about this, but have no three-way deal struck yet." Northwest will not share with clients any savings it garners from its booking connection with Orbitz that bypasses the GDS. "Corporations know there are benefits, but we are not planning to add points on discounts. We think the functionality is great in itself."
Additionally, she said, soft-dollar incentives and Northwest's small-business loyalty program remain unrelated.
Beauchine envisioned that a number of clients—particularly those working in multiple countries—would choose nwa.com or Orbitz for portions of their booking needs and retain a traditional agency for other services. Traditional agencies also could use tools from Aqua Software to book on Orbitz.
"I see quite a good level of co-existence," between online and traditional agencies, she said. "Travel agencies seem to be hanging onto their big customers. They are totally aware that Orbitz is a robust product and of interest to corporations, and I think they are prepared with their own tools."
The contrast of Orbitz For Business with the mega travel agencies was a major theme at March's Corporate Travel World conference in New York.
Keynote speaker Jeffrey Katz, chairman, president and CEO of Orbitz, took the most direct shots yet at the megas and claimed: "Online agencies will be the norm for big companies in three years." Noting that the "mega model has worked well and will continue to prosper," Katz listed a few unique aspects of the "reports and rebates approach," including onsite agents, pre-booking controls, back-office tools, data integration and "cost-plus with rebate-sharing magic." Katz's praise of the megas ended with "top-flight experience."
Emphasizing that the models are different, Katz promoted Orbitz's "new" and "superior" technology, consumer presence, traveler service and low costs. He particularly focused on the low-cost argument, saying mega agencies build in "as much costs as you're willing to carry," and "don't deliver enough value to justify today's transaction fees. No corporation assigns profit and loss responsibility to a travel manager. It's the line manager's budget. So you ask, 'Do I want low-cost opportunities or not?' If so, you begin to make the tradeoffs."
Carlson Wagonlit Travel president of North America Robin Schleien related a story that equated Orbitz with Southwest Airlines. "What low-cost carriers are to the flag carriers is similar to what the online agencies are to travel management companies," he said. "They're operating at a significantly lower cost base, with lower overhead. We have to look at those differences, and if TMCs don't begin to more effectively facilitate full content access, then I dare say the value of the TMCs will decline in the eyes of many of our customers."
Though Orbitz may be operating at a lower cost, it did require a significant investment by airline owners to get it off the ground. According to their 2002 annual reports, Northwest Airlines accounted for $3 million in Orbitz-related losses and UAL Corp. said that "equity in losses of affiliates increased $11 million, 92 percent, primarily due to losses recorded for the company's investment in Orbitz." Northwest holds a 15.6 percent interest in Orbitz, while UAL's piece is 22 percent.
Continental Airlines reported that the carrying value of its 13 percent interest was $8 million in 2002, and that it paid Orbitz $3 million for services. Delta gave little additional detail on its 18 percent interest. According to an Orbitz SEC document from May 2002, AMR owns about 26 percent of Orbitz. AA also pays the online agency to run its Web site.
"Orbitz has been profitable and cash positive all of 2003," said one member of the Orbitz board of directors, noting that airlines no longer are propping up the company with seed money, contrary to the claims of some competitors.