November 12, 2008 / 7:05 PM / 10 years ago

Web travel agencies feel pinch of weaker demand

CHICAGO (Reuters) - Online travel agencies are a traveler’s best friend when budgets are tight, but the current economic crisis is so bad it has squelched a lot trips and clouded the outlook for companies that sell bookings.

Expedia Chief Executive Officer Dara Khosrowshani is interviewed at the Reuters Hotels and Casinos Summit in Los Angeles, California February 12, 2008. REUTERS/Phil McCarten

The top three publicly traded online travel agencies (OTAs) — Expedia Inc, and Orbitz Worldwide — delivered mixed results for the third quarter. But they were unanimous in their caution amid economic challenges not seen in 80 years.

“That’s not a tide that we can swim against at the rate we did in Q3,” Orbitz Chief Executive Steve Barnhart told Reuters in an interview.

Since the beginning of the third quarter, Expedia and Priceline shares have lost more than 50 percent each. Orbitz shares are down 40 percent for the same period.

Barnhart noted that OTAs have the means to generate travel demand even during down economic times.

“We are somewhat counter-cyclical,” he said. “We can be a force in stimulating travel demand.”

Orbitz, which posted a quarterly net loss due to an impairment charge on Monday, said it would cut its workforce by 10 percent to generate savings. The company said the weakening fourth-quarter economic outlook made the job cuts necessary.

Expedia Inc, the largest online travel agency, reported a decline in quarterly net profit last month and acknowledged that economic turmoil caused a “broad pullback” in travel spending in September and October.

“We’re clearly living through an unprecedented period in financial and economic history,” Expedia CEO Dara Khosrowshahi said on an October 30 conference call with analysts at reporters.

“As it relates to Expedia, the key development since Q2 is that the softness that we saw in the U.S. and UK markets has extended to nearly all our geographies and all our key product areas,” he said. also reported smaller net quarterly profit and predicted fourth-quarter profit slightly below Wall Street estimates, citing the economic slowdown.

“Given the outlook for the general economy, we are forecasting a significant reduction in U.S. dollar-denominated international gross booking growth rates,” Priceline Chief Executive Jeffery Boyd said on a conference call last week.

“Of course, further negative economic developments such as a fresh wave of instability in financial markets or high profile financial or industrial company bankruptcies or bailouts which depress consumer sentiment would likely lead to below forecast results,” he added.

The caution expressed by OTAs is a departure from the optimism they showed in the first half of 2008 before the U.S. credit crunch took on its current, more beastly form.

In February, CEOs like Barnhart said OTAs, which specialize in sniffing out travel deals, would appeal to bargain-hunting travelers.

OTAs also could take comfort in geographic diversification. If one travel market slumps, a company needs only to focus on another healthier market.

Barnhart said that business model ultimately will mitigate the impact a sour economy has on bookings. He also said the lure of travel package deals remains tempting for visitors to OTAs.

Orbitz said packages produce average savings of $200 a trip, based on two people sharing a hotel room for four nights.

In this way, the economic downturn has provided a chance for OTAs to prove their worth to cash-strapped customers. But Henry Harteveldt, an industry analyst at Forrester Research, said the companies are not taking full advantage of it.

For instance, he said, OTAs could help airline passengers manage or circumvent new fees for services and products by arranging deals on their behalf and including perks like those in package deals.

“The problem with the online travel agencies is that they are pretty much substitutable for each other,” Harteveldt said.

Reporting by Kyle Peterson, editing by Richard Chang

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