Even before his company's June launch, Orbitz was thrust into the spotlight as competitors, such as Travelocity and Expedia, claimed the company was a threat to free enterprise. Critics alleged that Orbitz--backed by some of the nation's largest airlines including American Airlines and United Airlines--was part of a plot to seize control of online ticket sales.
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The government continues to review whether Orbitz violates antitrust laws by having unfair access to the airlines' discount tickets.
Meanwhile, growing numbers of the traveling public book tickets at the Chicago-based company. Orbitz's launch attracted more visitors than the debut of any other e-commerce site, according to Nielsen/NetRatings, which measures Internet audiences. Traffic continued to grow until the terrorist attacks on New York and Washington nearly three weeks ago.
Since then, public perception has gone against the airline industry. Much of the public is afraid to fly, analysts say, and travelers question the safety of the nation's airports.
Airlines have cut the number of flights and laid off employees, and some carriers have acknowledged that they are perilously close to bankruptcy. The government has agreed to a $15 billion bailout for the industry, but analysts have said that the sector's troubles could worsen if the public's confidence isn't restored.
The crisis has spilled over into online travel. Katz said last Monday that Orbitz had laid off 10 percent of its work force to prepare the company for what could be an "extended" downturn. Rival travel Web sites Travelocity, Priceline.com and Expedia have seen their stocks plummet.
BizTravel.com, a niche travel site that focused on offering services to business travelers, closed its doors last week.
When will it all end? While he agreed the recovery won't happen tomorrow, Katz said in a recent interview that his company is already seeing signs that the American public is returning to the skies.
Q: What's going to happen to the online travel industry?
A: It's the world's third-largest industry, so I don't think that gets turned off. Travel will continue to be very large, and it will come back to a growth mode over time. It's how long that will take is what I don't know or what most people can't predict. For travel Web sites and Orbitz in particular, we had a very strong summer and we built up a very strong cash position. We can live through an extended rough patch.
While I can't predict when the industry will come back, I am surprised at the volume of sales we were doing even after the tragedy. Business does appear to be coming back smoothly--I won't say quickly, but smoothly, day by day. My own personal observations: I've traveled four times in the last two weeks, and you can sort of see it happening at the airports.
What was it like at Orbitz after the attacks?
When we first heard about the first Trade Center impact, the FAA issued their complete stop of all traffic at airports. We went into the mode of actually changing the whole Web site, from providing emergency assistance to conveying information of what was happening--what procedures and policies were in place at the FAA, the airports and the airlines. Shortly thereafter, around 10 a.m. Central time, we were evacuated from our building because we are right across the street from the Sears Tower. We operated the Web site and care command center remotely from people's apartments around the city.
Weren't there a lot of calls for refunds and transfers?
Yes, there were. We were taking over 10,000 calls a day in the initial week after the incident. Those calls are now diminishing, but certainly a lot of people were calling with questions. Many, many people were looking for changes to their tickets--or refunds.
How much will the refunds hurt your business?
It has an impact, but its impact appears to be on a week's worth of sales. Most people are moving their plans. While there are some refunds, people are changing their itinerary. They are most often booking for future dates.
Can you give percentages?
The week of the disaster, it seemed to be about half refunds and about half changes. But we're talking about that week. And even now we can see not only new bookings, but clearly that a large majority of people are choosing to change their trips rather than asking for a refund.
Weathering the storm
Have you had layoffs?
We can't forecast how long before things return to normal, but we're forecasting that it will take an extended time. And in light of that, we implemented a plan to ensure we remain in a strong position so when the market comes back, we're able to take advantage of that. So we've reduced marketing expenditures, other expenditures like capital equipment, and, unfortunately, we thought it was prudent to reduce staff. We've reduced 17 employees. That's 10 percent of the company's work force. We thought this was something we had to do given the tremendous upheaval the industry has gone through.
Have you and the rest of the airline industry come together to fight against the fear factor out there?
The first thing happening is the visible and not visible increases in security measures. The industry needs to get back to market in the appropriate way.
In other words: Make sure the marketplace knows that we're in business, that it is reliable, and that the service levels are good. The marketplace needs to get that message from people like us, as well as from the airline and hotel industries. That way, people recover at their own personal pace. Again, we can already begin to see indications of that in our own bookings.
What about the effects on prices?
In the near term, there is a lot of inventory to sell. We are already seeing hotels in particular but also the airlines offering economically attractive prices. National Airlines is out there with prices ranging from $1 to $100 round-trip. Hawaiian Airlines has just come in with some very attractive offers. Long term, we have to be honest that there will be a cost associated with the increase in security. Does that hit yours and my tax rate? Is it another per-ticket surcharge? Does it go into the price of the ticket?
There will always be periods where there's excess capacity, and during those periods there will be lots of deals in the market. In the near term, there's lots of capacity to sell. Somebody has to pay the cost of the increased security. And the marketplace must carry that. I don't know what form that will be. If we have federalized security, does that mean we'll all pay a portion of our tax bill for that, or will that mean a higher surcharge that we pay for in the tickets?
Critics have charged that you're going to gobble up competition and then jack up prices. Explain why that is or isn't true.
Pricing in the airline and hotel business is about supply and demand. Airlines have literally millions of seats to fill every day. And if demand is high they have more opportunity to get prices high. And if demand is low, as it is today, they have no choice but to discount widely. There's actually more competition online and dramatic fare sales like I don't think anybody has seen. To me, that's the best proof that Orbitz isn't going to change the nature of supply and demand. We're a distributor and we are one of many, and the huge pressure that airlines feel to sell millions of seats every day is what controls whether prices are plummeting as they are today or going upward as they were two years ago.
Does Orbitz feel hunted?
(Laughing.) I think we had a storybook start-up year is how I would characterize it. We had many of the problems that start-ups have in addition to lots of regulatory scrutiny. But our focus was primarily on the launch, and internally the focus was on the people. And I think that, as I look back on the last year, everybody feels good that we had a very successful launch and, so far, that the vote from the consumer is very much with us.
Not everyone gets scrutinized like you guys--and your competitors came out strongly against you.
That's true. I think it's the inherent nature of the travel industry. You have the online travel industry. You have two companies who at that time had virtually a duopoly on a multibillion-dollar business. It's widely known that in those types of situations, people protect their vested interest in any way they can.
What did you think when they were blasting you?
That's what they felt they had to do to try and stop Orbitz from coming into the market. I think now that we're in the market they're more focused on competing in the marketplace, which is where it all should have started. But that's where it is now, and that's the right place to be. There's more competitors now, and consumers have a lot more choice.
What's the greatest misconception about Orbitz?
That the consumer marketplace has heard of us. We're new. We've been operating for only three months. Customer awareness of us is a fraction of the awareness of Travelocity and Expedia.
So you're a David with all those airlines backing you and the other guys are Goliaths?
Yeah, we are. Let me give you a fun fact. When you do research on travel shoppers, one out of every five have heard of Orbitz. That number is typically 60 to 90 percent for Travelocity and Expedia. That's a statistical fact. So we are still a rather unknown commodity to the average person on the street.
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