Recession Hitting Hard: Online Travel Companies’ Revenues Drop

Locations in this article:  Chicago, IL

crashing arrowAirlines are laying off workers, cutting back services and charging new fees, hotels are seeing record-low occupancy rates, and cruise lines are practically giving away cabins.

Now the online travel booking industry is also feeling the pinch from the recession., which also operates and, announced today that its revenue dropped 6.7 percent in the fourth quarter of 2008 amid an 11 percent decline in business.

Though the company still recorded a fourth quarter gross profit of $484 million, it posted a $2.76 billion “goodwill” writedown on its balance sheet for 2008 after its stock price dropped by more than two-thirds during the year.

Revenue from the airline ticket sales portion of Expedia’s business dropped 16 percent in the quarter, and its worldwide hotel revenue per room night decreased 19 percent.

The Chicago-based, another leading booking site, is also suffering from the worldwide decline in both business and leisure travel. In the U.S. alone airline traffic fell about 9 percent during the fourth quarter of 2008, and world-wide hotel revenues have declined by 12 percent.

Orbitz does not plan to release its quarterly results until February 24, but its fourth quarter is expected to look as bleak as its third quarter did.

The company incurred a net loss of $287 million in Q3 2008, and plans to cut costs to the tune of $25 million in 2009, partly by cutting 10 percent of U.S.-based employees.

Analysts say that travelers continue to visit sites like Expedia and Orbitz, but they increasingly are using them only to research fares, while choosing to do their actual booking direct with individual hotels or airlines. is one of the few Web-based travel sites to post a profit in the uber-competitive online bookings market. Its earnings for the Q4 2008 were one percent higher than a year earlier, and it sold 44 percent more airline tickets in the fourth quarter than it did in Q4 2007.

And unlike Expedia and Orbitz, Priceline’s stock price jumped 16.6 percent in the fourth quarter. Analysts attribute the company’s growth to its no-fee booking policy, its small size relative to its competitors, and its highly visible ad campaign featuring ex-Star Trek star William Shatner.

One development that could adversely affect the fortunes of all three companies is the recent court ruling that requires them to pay the city of Anaheim, California $21 million in back taxes and fees and penalties related to hotel occupancy taxes.

The dispute stems from the companies’ practice of paying city taxes only on the wholesale price of room bookings (the price the online company pays to buy the room from the hotel or consolidator), rather than the retail price the customer ultimately pays. They company pockets the difference.

More than 40 other cities and counties across the country have filed similar suits against the three companies. If the Anaheim case is ultimately successful after appeals are exhausted, it could set a precedent that means they could be on the hook for millions more in back taxes.

Related links: Wall Street Journal, BTN Online, BusinessWeek, Medill Reports

By Karen Elowitt for

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