Despite a Turbulent Take-off, Orbitz Is in Demand

Orbitz, the new online travel agency that’s backed by five major airlines, officially launched on June 4, prompting a wave of scrutiny and controversy that has become the very trade-mark of this site since the idea was first announced in late 1999.

Although the site’s debut was delayed for over a year in order to fine-tune its search engine and its online customer-service features, the Orbitz customer call center was overwhelmed the first day it opened. The Chicago-based Orbitz immediately announced plans to double its call center staff, and issued online apologies to consumers who found the search engine too busy to respond to their low fare requests. The Orbitz site was just hours old when a damaged fiber-optic cable stalled operations for nearly three hours. By Friday, the site was still having technical glitches, and was up and down much of the day.

During this time Orbitz continued to deny allegations that it violates antitrust laws by having unfair access to reduced fares from the five airlines that back it: American, Continental, Delta, Northwest and United. The U.S. Department of Transportation said in April that it had no reason to stop the site from operating, but the U.S. Justice Department has an ongoing investigation.

This auspicious beginning, however, has not obscured one fact: Orbitz, which promises to provide the “most low fares to Planet Earth,” is in demand.

As a player in the largest category of online consumer spending – namely, leisure travel – Orbitz reported gross online bookings of more than $1 million during its first day of operation and more than $3.3 million by its third day. Though still reporting delays during the second week, “Orbitz maintained a steady pace” of sales, said Carol Jouzaitis, an Orbitz spokesperson. “While the call center is not where we would like it to be, we have significantly improved the situation and we are still working on it.”

Industry analysts and Wharton professors caution that it’s too soon to say how Orbitz will compete with established web-based travel sites like Travelocity and Expedia. Travelocity had revenues of $192 million in 2000, while Expedia’s consolidated revenues in fiscal 2000 were $135 million. And who’s to say what stake Orbitz may claim in a burgeoning leisure online travel industry that Forrester Research reports averaged $12.2 billion in sales to 14.9 million households last year and is expected to grow to $28.9 billion in sales to 29.2 million households by 2004?

And perhaps an even more confounding question remains: Will the website “designed with the traveler in mind” actually benefit consumers?

“I think Orbitz is a very smart move for the airline industry but something that also benefits consumers,” said Wharton professor Robert E. Mittelstaedt, Jr., vice dean and director of the Aresty Institute of Executive Education. “There is almost no industry that has been changed as much as travel has been changed by the Internet.”

As evidence, he points to the demise of the traditional travel agent due to reduced commissions and ease of online ticket information and reservations. Not to mention the airlines’ ability to deal with excess inventory by selling on the Internet through any number of channels that advertise last-minute, discounted fares.

As consumers try to decide between such travel sites as Orbitz or Travelocity, says Mittlestaedt, “the issues will be who provides good service, who has good deals, is the site easy to use? The real question is how these sites differentiate themselves.”

Orbitz claims to provide the most reasonable available fares from more than 450 airlines, based on information from the consumer about destination and time of travel. Airlines like USAirways, which don’t have a financial interest in the company, pay Orbitz a commission for selling their tickets on its site. Orbitz also offers deals on rental cars, hotel rooms and more.

“No other site shows you flight options from all the carriers,” said Orbitz’s Jouzaitis. “Orbitz is the end to all that scrolling and searching. And we don’t steer people. Our whole reason for being is not to make assumptions about what you want or don’t want but to show you the big picture. Often our competitors are making assumptions and we don’t do that.”

Eric Clemons, Wharton professor of operations and information management, has a word of caution for anyone who thinks that all discount ticket sites benefit the buyer. “I don’t know how the idea got started that most travel sites are somehow good for the consumer,” said Clemons. “But it’s demonstrably false.”

As Jouzaitis implied, Clemons argues that some existing sites have access to consumer data that supply them with non-encrypted information about online users’ spending habits. This information, Clemons argues, dictates what fares the online ticket agency will try to sell individual consumers. “The idea that these discount travel sites are in some way acting as your agent is simply not true,” he said, arguing that some online options are dictated by commissions to service providers. “We have confirmed that some of the sites that have billed themselves as discounts for consumers are strongly influenced by overrides that determine what they sell you.”

But Clemons believes that Orbitz is different. “Orbitz was designed by airlines to ensure that consumers have an unbiased view of travel. This way, they can guarantee that overrides will not be used to influence airlines to recommend tickets.”

Wharton marketing professor David Reibstein sees the online travel sites as a way for the airlines to have more control over excess inventory in particular markets, using global distribution systems (GDS) like Sabre, the first travel computer reservations system. Orbitz has taken this one step further by building its own technology booking system that relies on a GDS for only 10% of its booking needs, creating lower commissions and flat transaction fees that are passed along in reduced costs to consumers.

“This means there will be more discounted fares available,” said Reibstein. “The only aspect of it that isn’t comfortable is when you get on the plane and you figure out you are paying more than the person sitting next to you who waited to buy on Wednesday night through e-savers.”

According to a report by investment banking firm C.E. Unterberg, Towbin, the fact that Orbitz has entered the market nearly five years after its major competitors means that the company “faces many obstacles. Meeting customer service needs, building pervasive brand awareness, and creating a comprehensive product offering will be extremely costly.”

But Henry H. Harteveldt, senior analyst with Forrester Research, thinks they anything said or written about Orbitz right now should be prefaced with an “If.”

“Orbitz is unproven in the marketplace right now. Their first couple of weeks out of the gate have been problematic, and it appears that they cannot handle the weight of consumers coming to the site,” said Harteveldt.” But if they do their marketing right and evolve their user interface to be very simple and straight forward, if they continue to offer great pricing deals, and if they deliver good customer service, they have a very strong potential of succeeding. Again, if they do those things right, they could emerge in a year from now as one of the top three online travel agencies. Due to lower GDS fees, Orbitz has better options.”

Can Orbitz deliver on its promise to deliver the planet’s cheapest fares? “I’ve been in this business for 20 years,” said Harteveldt. “One of the great mysteries of life is, ’What’s the lowest price out there?’”

Citing Knowledge@Wharton

Close


For Personal use:

Please use the following citations to quote for personal use:

MLA

"Despite a Turbulent Take-off, Orbitz Is in Demand." Knowledge@Wharton. The Wharton School, University of Pennsylvania, 20 June, 2001. Web. 21 December, 2014 <http://knowledge.wharton.upenn.edu/article/despite-a-turbulent-take-off-orbitz-is-in-demand/>

APA

Despite a Turbulent Take-off, Orbitz Is in Demand. Knowledge@Wharton (2001, June 20). Retrieved from http://knowledge.wharton.upenn.edu/article/despite-a-turbulent-take-off-orbitz-is-in-demand/

Chicago

"Despite a Turbulent Take-off, Orbitz Is in Demand" Knowledge@Wharton, June 20, 2001,
accessed December 21, 2014. http://knowledge.wharton.upenn.edu/article/despite-a-turbulent-take-off-orbitz-is-in-demand/


For Educational/Business use:

Please contact us for repurposing articles, podcasts, or videos using our content licensing contact form.

 

Join The Discussion

No Comments So Far