Cendant and Orbitz Deal

On September 29th, Cendant, an American travel conglomerate, paid $1.3 billion in cash for Orbitz, an online travel website. By teaming up with Cendant, Chicago-based Orbitz moves ahead of Expedia (owned by InterActiveCorp) to become second only to Travelocity (owned by Sabre) in the online travel business.

Orbitz current strength lies in selling cheap air tickets. Like other online travel agent, it is also trying to get into business travel, which has higher margins. It was originally conceived as a way for its founders – Amerian, United, Delta, Northwestern and Continental airlines – to sell directly to customers and so avoid paying commissions to other travel sites. But American airlines are in financial trouble and need cash. Additionally, Cendant can use Orbitz to aggregate its assets into a single sales channel that can be displayed on its customers’ computer screens.

Within a few years, the majority of all travel purchases are expected to take place online. According to Forrester Research, in American, online bookings will rise from $53 billion this year to $111 billion by 2009. Travel websites already represent roughly 45% of all online sales in America.

That places a premium on sites that are able to offer one-stop shopping with the lowest prices. But the cost relationship b/w shop window and inventory owner may not at all be appealing to the customers. They will rightly suspect that Orbitz is not an independent travel shop scouting out the best deals for them, but one that deliberately pushes travel options from Cendant’s subsidiaries to the top of its list of offerings. Businessmen call this “synergy”. Whether customers also see it as a good deal remains to be seen.