After posting strong Q3 results, Orbitz Worldwide CEO Barney Harford names "industry-best" loyalty program and early mobile strategy as keys to growth.
The comments were made during a one-on-one interview at Phocuswright in Los Angeles, the annual travel industry convergence.
Earnings growth pegged at 15% YoY - driven by focus on loyalty
The latest earnings call was a solid one for the third-largest OTA, which posted 15% revenue growth year-over-year and an increase of 19% in hotel rooms booked.
Orbitz is playing on a field dominated by the massive Priceline and Expedia, forcing the OTA to develop underdog strategies to increase revenues against a backdrop of immense advertising spend and growing market share of the other market players.
Expedia has its own loyalty program, as does portfolio brand Hotels.com, while Priceline offers a cash-based rewards program of its own. So in many ways, Orbitz has matched the industry trend to leveraging a loyalty-based marketing effort. What's different here is the aggressiveness of the reward, in addition to the ease of redemption that exists via its transparent application within the app.
When considering the company's impressive performance this quarter, Harford emphasizes the refocusing of the company's value proposition on the self-proclaimed "industry-best" loyalty program, Orbitz Rewards.
The big strategic themes are what we're doing in the loyalty space. We're refashioning the company as being a travel rewards company as opposed to just a travel agency. We think this has giving us a really spiked value proposition, that's meaningfully differentiated from what everyone else is doing.
We launched Orbitz Rewards about a year ago, and it's been great. The Orbitz Rewards membership base will pass three million by the end of this year, it is far and away the best travel loyalty program in the market. You earn up to 2% back on flights and up to 5% back on hotels, and if you have the Orbitz Rewards credit card you get another 5% rewards for your Orbitz spend.
There's nowhere you can save 7% on flights or 10% on hotels, at least not unless you are a mega-traveler staying 10 or 11 nights - in which case the Hotels.com rewards program gets you 10% back.
The rewards chart posted below shows the breakdown of loyalty benefits, and how the rewards credits play out as far as instant redeemability without blackout dates.
Harford is satisfied with the performance of the rewards program one year in, which has seen its ranks swell to nearly 3 million members since launching.
Growth at the intersection of loyalty and mobile
A dual-pronged focus on loyalty and mobile is driving the primary strategy at Orbitz, where more users book on mobile while also increasing the number of nights completed by each booker. This aids in the ongoing fight for share with the larger players like Priceline and Expedia, while also increasing the actual value per customer to Orbitz.
We've been early investors in mobile; we saw the opportunity far in advance. It was only three years ago that I was laughed off the stage when I was asked how big I thought mobile could get. I said that it's going to be 10% by this time next year - and everyone was laughing at me. We just announced on Thursday that mobile now accounts for 1/3 of all our hotel bookings across the world. That's an amazing statistic only 3 years on.
I think we probably lead the industry. I think Expedia says its one in 5, and Booking.com doesn't disclose....we feel great about our [mobile] metric. It speaks to the investments we've made and in particular the mobile apps that we've developed.
The company has increased rewards for mobile bookings in a direct attempt to accelerate the shift to mobile, and encourage more app installs. Harford says that, by creating the bonus for mobile app bookings, more users are returning to the branded apps after downloading, thus increasing the stickiness and overall brand loyalty.
Initially, a couple of years ago, when we made the call for the strategic investment in mobile and loyalty, we decided to really focus on loyalty but also the intersection with mobile. We quickly realized that the world is moving to mobile and loyalty is an incredible strong value proposition - let's put a disproportionate amount of resources to creating an amazing loyalty experience within that mobile medium.
The earn and the burn are optimized. You are earning more Orbucks when you are booking on the apps - 5% rather than 3% - which incentivizes app download, trial and booking on the app. Users see it as a a fun and streamlined way to book and our repeat levels are higher, as we're willing to give them a higher level of earn through the loyalty program, which also has the benefit of coming to us directly.
The burn experience is also easy, which uses a radio button to trigger the burn of Orbucks. All it takes is one touch, and the Orbucks can be redeemed directly within the app automatically with real-time, immediate feedback. In order to redeem the Orbucks, you have to be booking on Orbitz.
So it's been very successful in helping us drive a meaningful level of increased cross-sells. It has also increased the number of hotel bookings that we're getting per active hotel booker. If you look at it on a trailing 12-month basis, we've seen a 10% increase in number of hotel bookings per hotel booker - not just for Orbitz Rewards members but from the entire userbase.
B2B and white labeling driving additional growth
The third strategic area for Orbitz is in its business-to-business offering, where the brand offers booking tools for businesses. This solution sits alongside other competitors in the OTA space, such as Expedia's Egencia, that are seeking new ways to book available inventory by selling to business travelers.
Most of these corporate travel solutions are like an ERP system - you need an hour of training to figure out how to get through it and still its painful. If Orbitz.com required it's customers to have an hour of training before they were able to use the site, we would be out of business tomorrow. So we've taken that same ease of use and deployed it in the managed travel space.
So OFB has been able to achieve levels of online penetration over 90% - that compares with the competing solutions such as the traditional TMCs - if they're lucky, they are at 60% online adoption. Or an Egencia that's probably in the 80s. The reasons that online penetration is vital is that 1) online transactions are cheaper, 2) travelers prefer to be empowered and looking at their own options on a screen in front of them rather than the phone, and 3) empowered travelers make smarter decisions.
Orbitz has also launched an off-the-shelf product for smaller businesses called Orbitz for Business Express that delivers less managed travel with low upfront costs. The product allows these companies to enjoy business travel savings without the larger structure that increases costs.
Some of these companies may already have good relationships with an existing TMC, and so Orbitz also offers a simple online booking tool layer for companies that have unbundled the online booking tool from customer service.
This means that Orbitz can power online bookings while leaving the customer service and support piece to the TMC - a relationship that is already in the works with IBM, where the company will drive the corporate booking environment in over 90 countries by 2015 while leaving the traditional TMC service provider American Express in place to support and manage the travelers.
The OTA's white label product is another B2B product driving earnings. The white labeled travel search powers the loyalty redemption programs of credit card issuing banks, such as Capital One, Royal Bank of Canada, and US Bank. Harford also announced an upcoming partnership with Bank of America to also power the travel redemption platform for the bank's travel rewards in 2015.
How does Orbitz fit in the larger OTA landscape?
The final question to Harford was how the third-ranked OTA fits into a landscape increasingly dominated by Expedia's heft and Priceline's reach.
Both of those stocks are performing well, and delivering sufficient returns and capital to expand via acquisitions (such as Priceline/OpenTable and Expedia/Wotif). The dominance of the above brands is also fodder for media attention, which leaves Orbitz in an underdog position to secure a growing foothold in the territory of larger revenue giants.
Even so, the brand has splashed out on some of its own acquisitions to grow its share in the most strategic way - such as acquiring Travelocity's private label business in a bid to grow share in the whitelabel arena mentioned earlier.
Harford concludes that Orbitz is well-positioned to grow its business via its three identified strategic focuses of loyalty, mobile and B2B:
We've got a B2C business that we see as highly disruptive and allowing us to deliver something that is meaningfully differentiated for consumers. And that offers a loyalty program that is fundamentally easy to understand - unlike points-based programs like Expedia is offering. You know booking a hotel through our mobile app that you will earn 5% of the say back in Orbucks and you can use those Orbucks immediately with no blackout dates or minimum redemption hurdles. It's a very attractive value proposition on the consumer side.
With mobile, we want to make sure that we are present and delivering an unprecedented ease-of-use and fun functionality for consumers as they spend more time on mobile. We're at a third right now, and it won't be long until we're at a half. We're already starting to think of our desktop site as a legacy site, and focusing innovation on the smaller form-factor experiences.
We see a ton of opportunity for us in the core travel space. You won't see us acquiring assets in the restaurant reservation space anytime soon, but you will see us do a ton of innovation in the core travel space and an unrelenting focus on the mission that we're focused on: to build our sites to be the most rewarding places in the world to plan and purchase travel.
Orbitz has created marketing collateral to explain the rewards, including targeted campaigns for specific demographics, and the following video: