Orbitz Worldwide added travel industry veteran Brad Gerstner to its board of directors, and Gerstner says he took the post to support CEO Barney Harford's mission to transform Orbitz into "a global hotel powerhouse."
Gerstner made his bones in the travel industry as co-CEO of cruise powerhouse National Leisure Group, and he served at General Catalyst Partners, was vice president of PAR Capital Management and is founder and CEO of Altimeter Capital Management.
Orbitz also gave a board seat to Martin Brand, managing director of the Blackstone Group's private equity group. Brand also serves on the board of Travelport. Blackstone is the leader of the private-equity trio, which owns Travelport and controls Orbitz Worldwide.
The recruitment of the two new board members follows by two months Orbitz equity transactions with Travelport and PAR Investment Partners, which has Travelport's parent company, including Blackstone, controlling about 56% of Orbitz stock and PAR picking up about one-fourth of Orbitz's outstanding shares.
While U.S.-based online-travel insiders will tell you that adding Gerstner to the Orbitz board is a great move, the backdrop to the appointment of Gerstner and Brand points to the dynamics of the relationship between Orbitz and Travelport, a coupling that has Travelport calling more of the shots than is the norm for major stockholders.
In its new 10-K, Orbitz states: "Our certificate of incorporation provides Travelport with a greater degree of control and influence in the operation of our business and the management of our affairs than is typically available to a stockholder of a publicly traded company."
In fact, Travelport has final say about who sits on the Orbitz board and imposes tight restrictions on Orbitz's GDS and airline relationships, among other areas. Travelport even controls the formation of Orbitz board committees.
Gerstner, who formerly was PAR's vice president, apparently was PAR's pick for the board, and Brand was Travelport's selection. Ultimately, Travelport's owners have veto power over any board slot.
Along the same lines, when Orbitz Worldwide completed its IPO in 2007, it entered into GDS agreements with Travelport that led to Orbitz paying Travelport nominal segment-shortfall penalties in 2008 and 2009 because OWW's ebookers' unit didn't process enough segments through Galileo and Worldspan, according to the 10-K.
The Orbitz-Travelport GDS agreement mandates that ebookers use Travelport GDS -- i.e. Galileo and Worldspan -- exclusively in some European countries, and transmitting bookings through other GDSs leaves Orbitz subject to $1.25-per segment shortfall fees.
Orbitz didn't meet its quota, which led to it paying ebookers' shortfall penalties to Travelport over the last two years.
Orbitz, which uses Galileo, Worldspan and Amadeus for GDS services, historically has not had to pay shortfall penalties to Travelport for segments originating in Orbitz's domestic U.S. brands.
If Orbitz has to pay segment penalties to Travelport from time to time, Orbitz also is dependent on Travelport for a chunk of Orbitz revenue.
In 2009, according to the 10-K, Orbitz received $112 million in incentive payments from Travelport for bookings processed through Worldspan and Galileo, and those incentive payments accounted for about 10% of OWW's overall revenue.
"Because our GDS service agreement with Travelport limits our ability to modify our existing agreements with the airlines or to enter into new, direct distribution arrangements, we may have limited flexibility to respond to developments in the airline industry, and we may be forced to forgo new partnering opportunities," Orbitz states. "The limitations imposed by the GDS service agreement may place us at a competitive disadvantage and could negatively impact our business and results of operations."
Thus, although OWW is a publicly traded company, its fate is controlled to a great extent by Travelport.