Manish Hemrajani, Oppenheimer (Market Perform)
OWW shares were down ~5% yesterday after American Airlines announced the withdrawal of its fares from Orbitz after the companies failed to reach a commercial agreement, alluding to a similar dispute between the two in 2010. Fares for US Airways will be withdrawn on Sept. 1; however, American/US Airways tickets will continue to be available to business customers through Orbitz for Business. We view this as a negative for Orbitz, which generates meaningful revenue from US airline ticket sales (Air 27% of revenue) as compared to other US OTAs [online travel agencies]. We believe the dispute could make other OTA peers uncomfortable, but in the near term, potential beneficiaries of the dispute would be airline suppliers, and, to a lesser extent, Expedia.
Eric Sheridan, UBS (Buy; $11 PT)
We note a few key differences vs. the last time OWW faced such a dispute with American (Dec. '10 - Jun '11): a) American had not merged with US Airways (thus, larger now); b) fares were pulled from both consumer & business sites (vs. just consumer this time); & c) air represented a larger portion of OWW total bookings (standalone air bookings were ~74% of total in 2010 vs. 63% 2014E). We note that at the time, OWW management had stated they were able to recapture ~half of AA ticket volumes by shifting business to other airlines. We expect a resolution over the coming months, resulting in minimal full year revenue impact.
Jake Fuller, FBR Capital Markets (Market Perform, $9)
American Airlines and US Air are dropping off OWW. While we estimate that the carrier may account for as much as 5-6% of OWW annual revenue, we expect any hit to be much smaller. Why? 1) The carrier is still on the OWW corporate platform and was not in the 2011 fight, 2) In the last scuffle, OWW said it was able to shift about half of American demand to other carriers, 3) We would not expect this issue to extend for a full year. The stock was off 5% yesterday, but the actual EBITDA risk here is likely only ~ $1M if we assume the fight extends for a period of 3 months.