Online travel agency Orbitz Worldwide Inc. (OWW) reported mixed results in its release of fourth-quarter and 2008 full-year earnings this week.
The company reported better than expected earnings but lower than predicted revenues for the quarter.
Orbitz Worldwide operates Orbitz, Cheap Tickets, the Away Network and Orbitz for Business in the United States. Orbitz operates under the brand ebookers in Europe and HotelClub and RatesToGo in Australia. The company has nearly 1,600 employees.
Orbitz is the smallest of the three main competitors for the on-line travel business. Expedia (EXPE) the largest, reported fourth quarter revenues and earnings below analyst’s projections while Priceline (PCLN) topped analysts’ consensus in both revenues and earnings.
All three of the companies were adversely affected by the general decline in on-line travel bookings.
Orbitz reported an 8% decline in bookings which contributed to the 9% drop in total revenue as compared to the comparable period for 2007. Revenue was also impacted by foreign exchange rate fluctuations.
Orbitz earned $8 million, or 10 cents per share for the period. The company had a loss of $11 million in the 2007 fourth quarter. The consensus among analysts was for earnings of 9 cents per share from $189.9 million in company revenues.
New company Chief Executive Officer, Barney Harford, said in a statement accompanying the release that the company is facing tough competition from a decline in business and personal travel.
Orbitz joined the growing list of companies issuing no guidance for coming periods. Harford pointed out that the company sees no signs of improvement in travel trends. He expects Orbitz to be impacted by competitive price pressure and reduced capacity aboard scheduled flights and continuing high hotel vacancy rates.
OWW’s balance sheet is a cause for concern. With cash and equivalents of $10 million after deducting draws on the company’s line of credit, there is little flexibility with which to address operating difficulties. Orbitz had $24 million in cash and equivalents at the end of 2007.
The company has a current ratio of 0.3, with $128 million in current assets and $386 million in current liabilities. With $537 million of long-term debt and $438 million of equity, the company’s debt-to-equity ratio of 1.42 is also straining the company’s resources.
In the highly competitive online travel agency environment in which Orbitz operates, the lack of liquidity and the stress of servicing debt is a handicap. Unless there is overall improvement in the travel business, it is likely that there will be consolidation of the industry. It remains to be seen if Orbitz has the power to be an acquirer.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
