In the long-run, Expedia will have gained by acquiring Orbitz because of its brand recognition, effective loyalty program, and list of corporate deals. CEO Dara Khosrowshahi is especially optimistic about taking Orbitz's private label functionality and bringing it to the flagship Expedia brand later this year.
Financial data released Thursday cast a light on how Expedia, Inc., has suffered from indigestion after it gobbled up Orbitz, which had been the fourth-largest online travel brand in the U.S.
When Expedia made its bid for Orbitz in early 2015, Orbitz had seen its revenues rise 8 percent in the prior year, to reach $900 million. In comparison, Orbitz only booked $764 million in revenue in 2016, representing a decline of 15 percent. Orbitz also saw a year-over-year decrease in gross bookings.
Orbitz also saw a year-over-year decrease in gross bookings.
In short, Expedia stumbled with the integration. Back in February 2015, its top bosses had spoken with hubris about how efficiently it had absorbed its last acquisitions of Travelocity and Wotif. But Orbitz turned out to be more a complex merger, executives acknowledge now.
Thursday’s call revealed more details about the hiccups.
Chief financial officer Mark Okerstrom said the migration is still not complete. When Expedia shifted the vast majority of Orbitz over to the Expedia.com and Egencia platforms, it didn’t bring over all Orbitz’s functionality, such as its distinctive, matrix-style display of airfares. The incomplete migration frustrated some customers, leading to a drop in sales of airplane tickets. Expedia says it is bringing those features over now.
In the first half of 2017, Orbitz may continue to underperform, executives all but said outright. One reason is that Expedia killed some of Orbitz’s sister projects, such as several points of sale for eBookers, and the HotelClub brand. The cuts reduced overall revenue.
The drop in revenue on the Orbitz side doesn’t represent the full loss, either. As Skift has reported, Expedia diverted the “vast majority” of the Expedia.com tech and product teams to the migration, which caused a drag on the results of those other brands, too, where growth in “room nights booked” has slowed.
Expedia remains optimistic, though. It expects synergies of approximately $75 million a year once the integration is complete.
Expedia chief executive Dara Khosrowshahi said that Orbitz’s engineers are doing some technical things for the air product that he is impressed by and he wants to bring those tricks across to the flagship brands.
Orbitz had also built private-label capabilities for partners that the CEO wants the Expedia flagship brand to adopt, too — something he says will happen later this year.
Khosrowshahi says he is optimistic about the combined operation’s ability to market what he calls a “full-service travel stack” to suppliers globally, such as banks that issue credit cards and want to offer points in Expedia’s loyalty program to their customers and partners who want to sell the company’s vacation package products.
Photo credit: In 2015, online travel agency giant Expedia, Inc., bought its smaller rival Orbitz for $1.3 billion. It has since struggled with onboarding the company onto its technology platform. Associated Press / Associated Press