Orbitz is lining up to provide agencies with airline reservations connectivity, similar to what they get from global distribution system providers, pending changes in the U.S. Department of Transportation's rules governing the GDSs.
"We are well positioned to allow third-party travel agents and other parties to connect directly to airline systems using our Supplier Link technology, subject to favorable changes in GDS regulations and supplier approval," Orbitz wrote in an updated Initial Public Offering filing sent yesterday to the Securities and Exchange Commission. "This would allow Orbitz to generate additional Supplier Link revenue and would allow suppliers to realize savings for transactions conducted away from Orbitz. These travel products would encourage travel agents to use a special version of our booking engine software instead of booking tickets through GDSs."
Orbitz, which said it sold $857 million in gross travel bookings during the quarter ending June 30, said 30 percent of its air bookings in June were processed using the Supplier Link technology-now in use by America West, American, Continental and Northwest airlines
(BTNOnline, June 20). However, "we may face technical or economic constraints that prevent us from maximizing the number of bookings we can fulfill using this technology," Orbitz said, explaining that its agreement with Worldspan "may limit the growth of our Supplier Link business."
A 10-year agreement between Orbitz and Worldspan, amended in December, requires Orbitz "to meet minimum volume guarantees for air and car transactions for any year in which we are using Supplier Link technology for either of those travel products. We must meet specific quarterly thresholds or pay Worldspan a segment fee for each segment by which we fall short. The agreement provides that these minimum levels will be waived if Orbitz cures any shortfall within the quarter or if it elects to book 100 percent of net air and car segments through Worldspan for that quarter. In the event that it falls short of the minimum net segments without curing the shortfall, Orbitz would be required to pay $1.78 for each segment below the specified minimum.
"Unless we are able to sufficiently increase our number of bookings or modify the terms of the agreement with Worldspan, it will be necessary for us to control the number of Supplier Link segments we can complete in a particular year, and instead direct some of these transactions to Worldspan, in order to avoid making segment fee payments to Worldspan," Orbitz continued. "If we need to limit the number of Supplier Link segments processed in a particular year, it could have an adverse effect on our relations with Supplier Link participants or prevent us from growing that business."
Although Worldspan pays Orbitz for each booking processed through the Worldspan GDS-totaling $19.7 million for the six months ending June 30-"the gross profit from a Supplier Link transaction is higher than that from a GDS transaction," the company said.
Meanwhile, the SEC document also revealed that Orbitz lost $$2.9 million in the latest quarterly period, ending in June, on revenues of $58.3 million. The company has spent all of its nearly three-year history in the red, with the exception of a $3.8 million profit in the last quarter of 2002.