Orbitz CEO: Late entry forces airline-backed ticketing site to spend big

ORLANDO -- In his first public speech since taking the helm of Orbitz, the controversial airline-owned ticketing Web site that's due to be launched next spring, company CEO Jeffrey Katz yesterday said the online travel latecomer needs "more money than God" to make its grandiose technology plans work.

And Orbitz has to break new technical ground because the first movers in the online travel business moved long ago, Katz said at the eTravelWorld conference here. Meanwhile, Orbitz earlier this month delayed the planned launch of its Web site from this fall to next June (see story).

Fortunately, the nation's leading airlines have heavenly amounts of cash to invest. Their participation has prompted antitrust-related investigations by the federal government because of claims by travel industry rivals that Orbitz will stifle competition in the ticketing business (see story). But Katz, who joined Orbitz in July, said the only way to pull off what the Chicago-based company is trying to do is to rely on the deep pockets of its airline backers.

An advanced search engine being built by Orbitz would never see the light of day were it not for the $300 million being pumped into the venture by UAL Corp.'s United Air Lines, AMR Corp.'s American Airlines, Delta Air Lines Inc., Northwest Airlines Inc. and Continental Airlines Inc., Katz said. Marketing expenses alone are expected to chew up $100 million as Orbitz tries to catch up to more established rivals.

For example, online travel sites Travelocity.com and Expedia.com are each approaching $2 billion in annual bookings. "We have to come in different if we want to survive, and we need to compete against those first-generation companies," Katz said. "If the strategy was still [just to] get in fast, we'd already be dead."

"For his model of doing business, he's right," said Michelle Peluso, CEO of New York-based online travel package supplier Site 59.com. "They have a huge customer acquisition strategy, and that costs big bucks."

The initial investment that the airlines are making in Orbitz is "staggering," said John Ackermann, president and CEO of corporate travel supplier e-Travel Inc., an Oracle Corp. subsidiary in Waltham, Mass. "It's hard to imagine who else would be willing to make that kind of investment on largely unproven technology," Ackermann said.

The search engine Orbitz is trying to build, with help from ITA Software Inc. in Cambridge, Mass., is supposed to be able to quickly sort through every conceivable fare alternative for users who are looking to book flights online. That kind of search capability has long been a goal of the companies that operate the big computerized reservation systems.

Katz himself looked at the idea of developing such a search engine when he was managing Sabre Inc.'s reservation system during the mid-1990s. At the time, Sabre executives decided the project would be "too complex," he said. "[But] it turns out you only need more money than God to make it work."

For example, Katz said, Orbitz plans to install a PC server farm that can handle volumes of users "on the scale of an Amazon from the get-go." The company then plans to have at least 100,000 users try out its Web site during a beta-test period that's scheduled to start in February.

Katz said Orbitz is courting non-airline investors to join its initial owners, but he added that other companies wouldn't have been attracted to the venture if the airlines first hadn't anted up their money.

More than 30 airlines have agreed to list all of their available fares on the Orbitz site, and Katz said the company hopes to add more discount and regional airlines in the near future. The largest airline not in the fold thus far is Dallas-based Southwest Airlines Inc., which already directly sells tickets through its own Web site (see story).

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