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How the Expedia-Orbitz deal could have happened five years ago

News this week that Expedia has bought rival Orbitz signals a fundamental shift in the world of online travel agencies.

But the industry already had an inkling that something like this was on the cards.

This isn’t about the rumours which emerged in early-January this year, when Orbitz Worldwide executives and attorneys were known to be working feverishly on a major transaction, according to our sources.

Instead, people should cast their minds back to over half a decade ago, in the closing months of 2009, when the scenario being played out in the Expedia-Orbitz deal this week was first mooted.

And, furthermore, Orbitz Worldwide’s convoluted history and ownership structure is the key to the story.

Background

The company’s original creators in 1999, a group of US airlines, courted controversy from the very beginning as the online travel agency was considered by others in market (even before launch) to be a cartel which could control the distribution of airline content and prices in favour of Orbitz.

There was no love lost on either side – Orbitz employees gave it the internal codename T2: Travelocity Terminator.

The suspicions led to the likes of rivals Expedia and Travelocity, as well as (ironically, as it later emerged) Galileo GDS, to push for an investigation by the US authorities.

The bitterness between Expedia and Orbitz at the time, for example, is illustrated by this rather pointed tweet from Rich Barton this week, who was CEO of Expedia in the early 2000:

The probe by a number of US regulatory bodies continued for another two years after Orbitz’s official launch in 2001, but ultimately the online travel agency was cleared of any naughty behaviour.

By 2003, Orbitz was also ready to go public on the US markets, listing in New York in December of that year.

Within nine months, Cendant had come knocking with $1.25 billion of its own to take control of the company, effectively ending any significant involvement by the airlines in Orbitz (they had retained some board positions).

And then things got pretty complicated.

Cendant, which also owned Galileo, sold the pair to the Blackstone private equity group (a process which triggered the creation of Travelport and its decision a few months later to acquire Worldspan) and paved the way for Orbitz to return again to the public markets.

That chain of events saw Travelport retain 48% of the company when the new IPO took place in 2007.

2009/2010

Fast forward a few years and Travelport had designs of its own to list on the public markets.

By late-2009, speculation was increasing that the company would list either in the UK or US.

But it still had the thorny issue of its own debt schedule resulting from the Blackstone ownership, perhaps leaving potential investors lukewarm knowing that much of the proceeds from listing on the markets would be used to pay off its former backer.

One answer suggested at the time by Jake Fuller, then-managing director Soleil Securities, would be for Travelport to divest its ownership of Orbitz in the run up to its IPO and get some handy cash.

Fuller also speculated that a likely suitor for Orbitz could be Expedia.

Travelport filed documents in January 2010 to list on the London Stock Exchange – a decision which backfired within weeks when the economic markets went south (literally, as southern Mediterranean countries faced considerable concerns over growth and debt) and investors got cold feet, leaving Travelport with no choice but to withdraw its application.

And there things settled for another four years.

2014/2015

Travelport went through a number of debt and equity issues of its own during the apparent quiet period after 2010, but the intention was always for it to have another crack at listing on the public markets, not least to finally rid itself of the Blackstone ownership.

By early-2014, speculation resurfaced that Travelport would try to list in the US at some point during year, a decision which was made public in June when its S1 was filed with the Securities and Exchange Commission in the US.

This then triggered the same scenario that Fuller had predicted back in 2009, with Travelport disclosing that it had divesting its ownership of Orbitz down to 37% by July and then 1% by the time the stock hit the markets in September.

Although it was not the direct sale that Fuller predicted, Orbitz’s ownership structure had changed dramatically to the extent that it no longer had a powerful part-owner (which just happened to have a significant role in the distribution chain, a set-up which Expedia had railed against all those years before) with the potential to derail or hinder a sale.

And with Travelport out of the way (and the global power and influence of Priceline pushing Expedia to launch an aggressive expansion strategy of its own, initially through the $280 million acquisition of Travelocity), the rest is now history.

Well, history created just this week.

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Kevin May

About the Writer :: Kevin May

Kevin May was a co-founder and member of the editorial team from September 2009 to June 2017.

 

Comments

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  1. Dan Wacksman

    I agree with Timothy this consolidation is not good for suppliers or consumers. I keep thinking what would have been really interesting would have been if Ctrip had acquired Orbitz, quickly giving them global scale and making them a viable global player as leader in China and and a strong player in many other markets around the world. I see that as a huge missed opportunity as well as something that could have potentially benefited consumers and suppliers by adding another strong competitor to the mix.

     
    • Kevin May

      Kevin May

      @dan – Alibaba coming in would’ve scared the socks off everyone… But suspect OWW is probably too small fry for Alibiba… Think bigger 😉

       
  2. Timothy O'Neil-Dunne

    There is a difficulty here that says whether or not the DoJ would have looked at the deal then as it may now. Frankly there was little appetite to try and resolve that then because DoJ was much harder on concentration in the Travel Industry. Look forward to today. We have effectively only 4 airlines dominating the US market. We have gone from 4 top table viable OTA players to now 2. However with a Republican controlled Congress (both Houses) the chances of a demand for a review will fall on fallow ground.

    if one applies the logic from the suit AA vs Travelport, Orbitz et al (including Sabre) the definition of “marketplace” control would apply that there is now monopoly power in the marketplace. (Sherman and Clayton Acts).

    We stand at great risk of permanently hurting competition. A state that will be clearly irretrievable. Saying that enlarged Expedia is at risk of being squished by Google is the excuse from the Bellevue executive suite. I don’t buy that. True choice is the victim here. I would encourage the regulators and the courts to be vigilant in ensuring that competition is not snuffed out. True independents such as Skyscanner must not be allowed to become roadkill along the way.

    I am concerned about this and everyone else should be to. In our space if EXPE starts to throw its weight around then the elephant could be squashing a lot of mice. What is likely to be the case is that a battle will emerge with one airline and EXPE having a dispute and the public will have to accommodate their spat. It will happen soon.
    Cheers

    Timothy

     
 
 

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