Orbitz Cuts Outlook due to Software Glitches

Internet travel site Orbitz cut its full-year profit forecast, saying software glitches had hurt its hotel and airline ticket sales businesses.

The company on Wednesday raised its second-quarter earnings forecast, saying it had cut costs across the board, but dropped its revenue forecast for the quarter and for the year.

Orbitz said it had had a number of problems on both the hotel and airline fronts. It rushed into developing a proprietary network of hotels, with glitches that would "throttle" the system to a crawl, Chief Executive Jeff Katz said on a conference call.

Meanwhile, airlines had tried out new pricing strategies that led to Orbitz error messages and had cut the number of fare sales--and sales generally boost Orbitz business. Finally, competitors had increased marketing, raising the stakes in the battle for customers, executives said.

The Chicago-based company said it now expects pretax income of $9 million to $10 million, or 21 cents to 23 cents per diluted share in the second quarter compared with its previous forecast of $3.6 million to $6.6 million or 8 cents to 15 cents per share.

Adjusted income would be $11 million to $12 million, or 26 cents to 29 cents per share, instead of the previous guidance of $5 million to $8 million and 11 cents to 18 cents per shares.

Second-quarter revenue would range from $74 million to $75 million instead of $77 million to $80 million.

Orbitz also cut its full-year 2004 revenue forecast to a range of $295 million to $305 million from a previous $320 million to $340 million, and it cut its full-year adjusted pretax income guidance to $35 million to $40 million or 80 cents to 91 cents per share, from a previous $50 million to $60 million or $1.14 to $1.36 per share.

The company in the second quarter tried to ramp up its own network of hotels, but the system showed unintended results that did not satisfy customers, and there were other software issues.

"Problems at a hotel computer reservations system could cause our hotel platform to slow, or even fail," said Katz said.

He said the problems had been "largely" solved, but as a result Orbitz' more profitable proprietary hotel system got off to a slow start in the second half, which would affect revenue and profit.

Some airline clients in the second quarter got error messages when trying to book connecting flights in a test of a system that will debut later this year, executives said.

Reuters