Q3 2008 ORBITZ WORLDWIDE INC Earnings Conference Call - Final.(Broadcast transcript)

OPERATOR: Good afternoon. My name is Christian, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Orbitz Worldwide third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Thank you. Ms. Burns, you may begin your conference.

SHANNON BURNS, DIRECTOR OF IR, ORBITZ WORLDWIDE, INC.: Thank you. Good afternoon, and thank you for joining us on the Orbitz Worldwide third quarter 2008 earnings call. I'm Shannon Burns, Director of IR for Orbitz Worldwide. On the call this afternoon are Steve Barnhart, President and CEO of Orbitz Worldwide and Marsha Williams, the company's Chief Financial Officer. Before we get started, I would like to remind you of a few items. First, the rebroadcast, reproduction or retransmission of this conference call or the webcast without the expressed written consent of Orbitz Worldwide is strictly prohibited. Second, we filed a press release this afternoon detailing our third quarter results. If you have not received this press release, it is available on our Investor Relations website at www.orbitz-ir.com. Additionally, this webcast will archived on this site for a period of at least 30 days and an MP3 file of the call and the transcript will also be posted on our site. Third, some of statements made during this call constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors including the risk factors described on our Form 10K/A filed with the Securities and Exchange Commission on August 28, 2008. These risks and uncertainties may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements.

Also, I would remind you that some media are participating in this call in a listen-only mode. Finally, during the call, we will be referencing certain non-GAAP financial measures as defined by the SEC rules. Where required, we have provided in our press release or on our website a reconciliation of those measures to the GAAP financial measures we consider to be the most comparable. This reconciliation is available on our Investor Relations website. In order to give everyone an opportunity to ask questions during the Q&A, we request that you please limit yourself to one question and one follow-up question. At this time, I'd like to turn the call over to Steve Barnhart, President and CEO of Orbitz Worldwide.

STEVE BARNHART, CEO, PRESIDENT, ORBITZ WORLDWIDE, INC.: Thank you, Shannon. We are pleased with our solid third quarter results. We hit our long-term target range for revenue growth and would have reported the net profit for the quarter without the impairment charge. Growth rates for hotel and car revenues accelerated over the second quarter in both the U.S. and at ebookers. Our European businesses also posted growth in their revenues, and we continue to achieve significant growth in our highly profitable advertising and insurance businesses. I will review details around our performance in U.S. and then talk about ebookers and HotelClub. Finally, I will discuss the outlook for the travel business, which given the current economic industry conditions, is quite different from when we last spoke. Then Marsha will review our third quarter financial results and we will take your questions.

We've have stated in our calls this year that accelerating growth in our U.S. business was a key goal for Orbitz Worldwide and that we expected to show improved growth each quarter throughout the year. Third quarter results show that our initiatives have been successful. These initiatives included launching Orbitz Price Assurance, creating more effective offline advertising that would drive more customers to book their travel with us and other site enhancements. We also won the MSN business and now provide travel services on their travel sites in the U.S. and the U.K. In addition, we began to benefit from lapping the pullback in search marketing, which we started in the third quarter of last year. We have also stated that increasing non-air and other net revenue as a percentage of our total net revenue is the key goal and our results in the third quarter also demonstrate success.

Non-air and other net revenue as a percentage of total net revenue reached 64% in the recent quarter, up from 61% in the second quarter of 2008 and has jumped from 58% in the third quarter of 2007. Price Assurance has performed in line with our expectations. As a result of this innovative functionality, which offers consumers a solution to one of their travel concern, growth has strengthened on Orbitz.com. Research indicates the offline advertising we created to support price assurance is compelling to consumers and attracted additional traffic to our site in the third quarter. This traffic created stronger bookings for both air and non-air products and we are pleased with the the overall economics. As an indicator of the broad reach of this innovative functionality, travelers in over 2,400 routes have received refunds since we launched Price Assurance and we're mailing thousands of checks to customers each month. This is a winning program for Orbitz and more importantly, for our customers.

We continue to make excellent progress in monetizing the traffic on our sites through advertising, which contributed to our growth in total non-air and other net revenue. Advertising revenue increased over 60% in the third quarter, with the increase coming primarily from travel advertisers. We saw strong growth from several sources. First, we sold more advertising space on our site and improved our prices as we continue to add more high demand travel advertisements to our site. For example, we've been successful in working with destination tourism advertisers because we have demonstrated to them the value of reaching the Orbitz traveler. International air carriers and other resorts have also been strong advertisers as they invested to counter the impact of the weak dollar and attract more U.S. tourists. Independent hotels have also increased their advertising spend as hotel demand has softened.

In addition, we added link-based advertising in our booking path. Our goal is to monetize traffic that is browsing without distracting customers who are on our site to book travel on that business. We continue to test this concept to find the balance that maximizes both the customer experience and our return.

We expect advertising will continue to be an ongoing source of strong revenue growth with attractive margins. We are continuing to evolve our advertising product offering to further …