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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 8/28/03  Orbitz Inc                        S-1/A       8/27/03    2:136                                    Merrill Corp/New/- FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Pre-Effective Amendment to Registration Statement   HTML  1,084K 
                          (General Form)                                         
 2: EX-23.1     Consent of Experts or Counsel                          1      6K 

As filed with the Securities and Exchange Commission on August 27, 2003

Registration No. 333-88646

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Orbitz, Inc.
(Exact name of Registrant as specified in its charter)

200 S. Wacker Drive, Suite 1900
Chicago, Illinois 60606
(312) 894-5000

(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Jeffrey G. Katz
Chairman, President and Chief Executive Officer
Orbitz, Inc.
200 S. Wacker Drive, Suite 1900
Chicago, Illinois 60606
(312) 894-5000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box.    o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

           If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

           The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Subject to Completion. Dated                         , 2003.

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

                       Shares

Orbitz, Inc.

Class A Common Stock

          This is an initial public offering of shares of Class A common stock of Orbitz, Inc. Orbitz is offering         shares of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional           shares. Orbitz will not receive any of the proceeds from the sale of the shares by the selling stockholders.

          Prior to this offering, there has been no public market for the Class A common stock. It is currently estimated that the initial public offering price per share will be between $         and $         . Application has been made for quotation of the Class A common stock on the Nasdaq Stock Market under the symbol "ORBZ."

          See "Risk Factors" beginning on page 9 to read about factors you should consider before buying shares of the Class A common stock.

          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

          To the extent that the underwriters sell more than            shares of Class A common stock, the underwriters have the option to purchase up to an additional            shares from the selling stockholders at the initial public offering price less the underwriting discount.

          The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York on                         , 2003.

Prospectus dated                         , 2003.

[Inside Front Cover Page Graphics To Be Filed By Amendment]

   
PROSPECTUS SUMMARY

          This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the section entitled "Risk Factors," our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise indicated, the terms "Orbitz," the "Company," "we," "us" and "our" refer to both Orbitz, Inc. and Orbitz, LLC and the term "fares" means air fares. This prospectus assumes the exchange of all membership units of Orbitz, LLC held by our Founding Airlines or their affiliates for 107,633,299 shares of Class B common stock that will occur prior to consummation of this offering. After this exchange, which we refer to as the "IPO Exchange," Orbitz, LLC will be a wholly owned subsidiary of Orbitz, Inc. This prospectus also reflects a    -for     stock split, which will be effective at the consummation of this offering, assumes the automatic conversion of our outstanding Class C common stock into 765,296 shares of Class A common stock effective upon the earlier of (1) one day prior to the IPO Exchange or (2) consummation of this offering as required under the terms of our Amended and Restated Certificate of Incorporation and assumes that the underwriters do not exercise their option to purchase additional shares. In addition, this prospectus assumes the automatic conversion, effective at the closing of this offering, of each option to purchase shares of our Class C common stock outstanding under our stock option plans into an option to purchase shares of our Class A common stock on a one-for-one basis.

Orbitz

          Orbitz is a leading online travel company that enables travelers to search for and purchase a broad array of travel products, including airline tickets, lodging, rental cars, cruises and vacation packages. Since launching our website, Orbitz.com, in June 2001, we have become the third largest online travel site based on gross travel bookings. We believe our rapid growth has been driven by our comprehensive display of fares and rates, our innovative technology, our consumer friendly website and our extensive supplier relationships. On our website, consumers can search over two billion fares and flights on more than 455 airlines as well as rates at over 45,000 lodging properties and at 23 car rental companies. Our search results are presented in an easy-to-use matrix display that provides what we believe to be the broadest selection of travel options available to consumers, enabling them to select the price and supplier that best meet their individual travel needs. Our agreements with leading airlines, together with our powerful technology, allow us to offer consumers what we believe to be the largest selection of low fares generally available to the public. We also have commercial agreements with leading suppliers of lodging and rental cars that offer consumers a wide array of competitive rates.

          We were formed by leading U.S. airlines to access the rapidly growing online travel industry, to address the need for an unbiased, comprehensive display of fares in a single location for consumers, and to establish a lower cost and unbiased distribution channel for air travel suppliers. Our original investors and founders were Continental Airlines, Delta Air Lines, Northwest Airlines and United Air Lines. Subsequently, American Airlines joined as an investor. Collectively, we refer to these five investors as our "Founding Airlines." Following our formation, numerous U.S. and international airlines, including our Founding Airlines, have entered into distribution agreements with us, including charter associate agreements. Many of our suppliers provide us, on a non-exclusive basis, with their lowest fares generally available to the public and guaranteed minimum transaction fees. Our airline suppliers benefit from our low-cost distribution model, access to our large customer base and our unbiased display of fares.

          Our large customer base has also enabled us to establish relationships with leading hotels and car rental agencies that give us access to preferred rates at thousands of hotel properties and numerous car rental companies. In the third quarter of 2002, we launched our OrbitzSaver program, designed to provide consumers with a wide array of low-cost prepaid hotel rooms. Suppliers also

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benefit from OrbitzSaver rates due to fewer cancellations and the ability to sell under-utilized inventory. Our prepaid OrbitzSaver program accounts for an increasing percentage of the hotel rooms we sell. Through our OrbitzSaver program, we have relationships with many hotels that, by participating in our Orbitz Merchant Hotel initiative, provide us room inventory directly at negotiated rates. Rooms sold under the Orbitz Merchant Hotel program, launched in March 2003, generate higher per transaction revenues for us than hotel rooms sold using other methods.

          Over the past 12 months, we have launched additional features and services designed to complement our core consumer offering. In August 2002, we launched our Supplier Link technology, which enables Orbitz to establish direct connections with air travel suppliers and bypass the traditional global distribution systems, or GDSs, when booking airline tickets. As a result, Supplier Link allows participating airlines to distribute tickets at a lower cost to them while generating increased profitability to us. Since the initiation of this program, we have implemented Supplier Link with five major domestic airlines, and during June 2003 approximately 30% of our air transactions were conducted using Supplier Link. In September 2002, we established Orbitz for Business, the first corporate product offered by an online travel agency. Orbitz for Business provides companies with the same functionality offered to our leisure customers while adding features to address the needs of both business travelers and corporate travel managers who administer travel policies.

          Since our launch, over 18 million consumers have registered to use Orbitz.com, and we have conducted over 19 million travel transactions. In the quarter ended June 30, 2003, we sold $857 million in gross travel bookings.

Competitive Strengths

          Orbitz has the following competitive strengths that have enabled us to quickly become the third largest online travel service provider based on gross travel bookings.

Strong Brand Recognition and Large Audience

          Orbitz brand awareness rivals that of our major competitors despite our more recent entrance in the market and lower overall marketing expenditures. We believe consumers associate the Orbitz brand with online travel leadership, ease of use and low fares and rates on travel transactions. According to comScore Media Metrix, Orbitz is one of the three most visited travel sites on the Internet with approximately 13 million unique visitors in June 2003. Our large customer base provides a significant distribution channel through which we can sell travel products and services.

Value for Consumers

          Orbitz offers consumers a value proposition that we believe helps us attract new customers, retain existing customers and reinforce repeat booking activity. We believe our comprehensive display offers consumers the broadest selection of travel options, the largest selection of low fares generally available to the public and a wide array of competitive rates for other travel products. Our powerful search technology and easy-to-use website enable consumers to quickly evaluate a broad range of options through our innovative and intuitive matrix design and various search features, including Flex Search and Travel Tips. Our personalized traveler care system alerts our customers to situations and events that could affect their travel plans.

Value for Travel Suppliers

          We provide travel suppliers with significant value by distributing their products to our large customer base. We display air search results in an unbiased manner, in accordance with price and other search criteria. We also reduce supplier distribution costs by maintaining supplier-friendly terms

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and deploying cost-saving technologies, such as our Supplier Link program. Under our Supplier Link program, we believe that suppliers can save up to 70% compared to average GDS distribution costs.

Innovative Technology Platform

          We employ search technology capable of quickly searching over two billion fares and flights on more than 455 airlines, as well as rates at over 45,000 lodging properties and at 23 car rental companies. Our technology platform gives consumers immediate access to what we believe to be the most comprehensive selection of travel options available to the public. Our system design is flexible and facilitates innovative technology initiatives, such as our matrix display, our Orbitz Merchant Hotel program, Supplier Link and our Flex Search capability.

Low-cost Operations

          We built our operating infrastructure to minimize costs associated with each travel purchase. To achieve this goal, we focus on: low customer support costs and low fulfillment costs by maintaining an intuitive, easy-to-use website that minimizes telephone interaction; low customer acquisition costs through efficient performance-based marketing expenditures; low technology costs through our efficient technology platform; and controlled overhead costs through a highly disciplined focus on employee productivity and careful overhead expense management. We believe our revenues per employee are higher than those of our major online travel competitors.

Strategy

          Orbitz' objective is to grow profitably as a leading online distributor of travel products. The key elements of our strategy include the following:

          Increase Sales and Profitability of Non-air Travel Products

          We are a leader in the online sale of air travel. Airline tickets are generally the first product purchased as consumers make their travel plans. A key component of our strategy has been to leverage our leadership in the sale of air travel to sell other travel products and services, many of which offer higher profit margins than air travel products. We have launched several key initiatives to take advantage of this opportunity, including focusing on the marketing and cross-selling of hotels, car rentals and other non-air travel products. An important element of this strategy will be a continued focus on improving and building our Orbitz Merchant Hotel offering. We also intend to introduce our dynamic packaging product, which will enable consumers to create a customized package involving air, car, hotel and other products in one transaction at one bundled price. We believe our Orbitz Merchant Hotel program allows and our dynamic packaging product will allow Orbitz to take advantage of negotiated rates with travel suppliers that will provide better prices to consumers and greater profitability to Orbitz.

Retain Customers by Providing a Superior Experience

          Our website is easy to use and offers consumers what we believe to be the broadest selection of travel options, the largest selection of low fares generally available to the public and a wide array of competitive rates on other travel products. We believe these factors generate a high degree of customer loyalty and result in high customer retention rates. Other key initiatives to promote even higher customer retention include maintaining strong supplier relationships to ensure competitive inventory for our consumers, leveraging our technology to deliver site improvements that ensure ease of use and provide consumers with the ability to make informed choices, investing in technologies that will improve personalization across our site and developing our customer care capabilities to make travel more convenient.

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Capitalize on Innovative Technology Platform

          We will continue to capitalize on our strength in developing innovative technology to enhance relationships with suppliers. Specifically, we intend to grow our Supplier Link business, and to establish similar functionality in our lodging business by creating direct connections between Orbitz and hotels.

Expand our Customer Base

          Our goal is to increase our customer base by acquiring new customers in a cost-effective manner and increasing our market share in the rapidly growing online travel industry. We intend to achieve this objective by emphasizing performance-based online advertising and other targeted marketing strategies, cost-effectively building our brand through traditional broadcast and print channels and generating increased transactions from existing customers through recognition and incentive programs. We also intend to expand our customer base by increasing our presence in corporate travel.

Pursue New Business Opportunities

          We plan to use our innovative technology and our relationships with travel suppliers to expand into new business opportunities. These new business opportunities may include building our corporate travel business, expanding into international markets and developing a suite of additional tools specifically designed for use by travel agents.

   
Company Information

          You may contact us at our principal executive offices, 200 S. Wacker Drive, Suite 1900, Chicago, Illinois, 60606, or by telephone, (312) 894-5000. You may find us on the Web at Orbitz.com. We do not intend to incorporate by reference any information contained on our website into this prospectus, and you should not consider information contained on our website as part of this prospectus.

          Orbitz, the Orbitz design, the stylized "O" design and other trademarks or service marks of Orbitz appearing in this prospectus are the property of Orbitz. This prospectus also contains additional trade names, trademarks and service marks of ours and of other companies. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by these other parties.

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The Offering

          Each share of Class B common stock is convertible into one share of Class A common stock at any time at the option of the holder thereof.

          The number of shares of Class A common stock to be outstanding after this offering excludes:

•

10,337,000 shares of Class A common stock currently reserved for issuance upon exercise of options under our 2000 Stock Plan, all of which are subject to outstanding options as of June 30, 2003 at an exercise price of $2.32 per share. No further awards will be made under our 2000 Stock Plan;



•

16,484,708 shares of Class A common stock currently reserved for issuance upon exercise of options under our 2002 Stock Plan, of which 7,067,048 shares are subject to outstanding options as of June 30, 2003 at a weighted average exercise price of $2.75 per share; and



•

shares of Class B common stock, held by our Founding Airlines or their affiliates, which are convertible into                            shares of Class A common stock at any time by the holders thereof.

(1)

Excludes              shares eligible for sale upon exercise of the underwriters' option to purchase additional shares.

5

   
Summary Combined Financial Data

          The following tables summarize the combined financial data for our business. You should read these tables along with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and related notes included elsewhere in this prospectus.

          We derived the summary combined statements of operations data for the period from February 24, 2000 (date of inception) through December 31, 2000 and for the years ended December 31, 2001 and 2002 and the summary combined balance sheet data as of December 31, 2001 and 2002, set forth below, from our audited combined financial statements included elsewhere in this prospectus. We derived the summary combined balance sheet data as of December 31, 2000 from our audited combined financial statements that are not included in this prospectus. We derived the summary combined statements of operations data for the six months ended June 30, 2002 and 2003 and the summary combined balance sheet data as of June 30, 2003 from our unaudited interim combined financial statements included elsewhere in this prospectus. We derived the summary combined balance sheet data as of June 30, 2002 from our unaudited interim combined financial statements that are not included in this prospectus. In management's opinion, these unaudited combined financial statements have been prepared on substantially the same basis as the audited combined financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the combined financial information for the periods presented. The historical results do not necessarily indicate results expected for any future period.

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(1)

Revenues represent activities of Orbitz subsequent to the limited launch of our website in February 2001. Revenues include significant transactions with our Founding Airlines and certain of their affiliates. See further information about related party transactions at Note 8 to the combined financial statements appearing elsewhere in this prospectus.

(2)

No provision for income taxes is reflected as Orbitz, LLC is treated as a partnership for tax purposes. All operating losses of the partnership have been allocated to our Founding Airlines. Subsequent to this offering, we will be taxed as a C corporation rather than as a partnership and profits and losses will be taxed at the corporate level.

(3)

Pro forma net loss includes approximately $5,689,000 and $1,526,000 of stock compensation expense for the year ended December 31, 2002 and the six months ended June 30, 2003, respectively, which relates to a modification of our stock awards. A new measurement date for all stock awards occurred in April 2002 as a result of the restructuring transaction (see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview—Restructuring") and recognition of compensation expense related to unvested stock awards will begin upon the earlier of one day prior to the IPO Exchange or consummation of this offering. Compensation expense included in pro forma net loss has been recorded over the weighted average remaining vesting period of the modified options as if this offering occurred on January 1, 2002. Not reflected in the pro forma net loss is the nonrecurring compensation expense of $26,141,000 to be recognized at the time of the offering related to vested stock awards.

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(4)

Pro forma net loss per share is based on the weighted average number of shares of common stock outstanding after giving effect to the IPO Exchange and the automatic conversion of our Class C common stock to Class A common stock upon the earlier of one day prior to the consummation of the IPO Exchange or the consummation of this offering.

(5)

While we believe that earnings before interest, income taxes, depreciation and amortization (EBITDA) is an important financial measure, it is not intended to represent cash flow for the period, is not presented as an alternative to operating income as an indicator of operating performance, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles, or GAAP. We believe that EBITDA is a useful supplement to net income (loss) and other operating statement data to help investors understand our ability to generate cash flows from operations that are available for taxes, debt service and capital expenditures. A reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA for each of the fiscal periods indicated is as follows:

(6)

"Gross bookings" is an operating statistic that represents the total value of travel booked through our website, including taxes and fees, but net of reported cancellations. We believe that gross bookings is a useful measure for investors to analyze the growth of travel bookings on our website.

(7)

The combined balance sheet data set forth above on an "as further adjusted" basis reflects the IPO Exchange and the issuance of    shares of Class A common stock at an assumed initial public offering price of $    per share (the midpoint of the estimated price range shown on the cover page of this prospectus) and the receipt of the offering proceeds to us after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, as if these events occurred on June 30, 2003.

(8)

Subsequent to this offering, we will be taxed as a C corporation rather than as a partnership. The resulting deferred tax assets, which relate to the period prior to this offering, will be offset by a full valuation allowance as we have determined that it is more likely than not that the deferred tax assets will not be realized.

8

   
RISK FACTORS

          You should consider carefully the risks described below, together with all of the other information in this prospectus, before making a decision to invest in our Class A common stock. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In this case, the trading price of our Class A common stock could decline and you may lose all or part of your investment in our Class A common stock.

   
Risks Related To Our Business

          Because we have a limited operating history, it is difficult to evaluate our business and prospects.

          Our business began operations in February 2000 and we launched our online travel service in June 2001. As a result, we have only a limited operating history from which you can evaluate our business and our prospects. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving industries, such as the online travel industry. Some of these risks relate to our ability to:

•

attract and retain customers on a cost-effective basis;



•

expand and enhance our service offerings;



•

operate, support, expand and develop our operations, our website, our software and communications and other systems;



•

diversify our sources of revenue;



•

maintain adequate control of our expenses;



•

raise additional capital;



•

respond to technological changes;



•

respond to litigation;



•

respond to regulatory changes or demands; and



•

respond to competitive market conditions.

          If we are unsuccessful in addressing these risks or in executing our business strategy, our business, financial condition or results of operations may suffer.

          We have a history of operating losses and may incur losses in the future.

          Since our inception in February 2000, we have reported operating losses each year. Our operating losses were $42.9 million from the period of inception through December 31, 2000, $105.5 million and $18.9 million for the years ended December 31, 2001 and 2002, respectively, and $5.7 million for the six months ended June 30, 2003. We may continue to incur operating losses, and we cannot assure you that we will be profitable in future periods. Historically, most of our financing came through contributions from our Founding Airlines and their affiliates. The Founding Airlines and their affiliates have no obligation to make further investments in us, and we do not anticipate that they will do so.

          Under our business plan, we will continue to incur significant sales and marketing expenses to expand our customer base. Accordingly, we will need to increase our revenues at a rate greater than our expenses to become profitable. We cannot predict whether or when we will achieve profitability in future periods. If our business does not expand enough to increase our revenues sufficiently, or even if our business does expand but we are unable to manage our expenses, we may not achieve or sustain profitability.

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          Our growth cannot be assured. Even if we do experience growth, we cannot assure you that we will grow profitably.

          Our business strategy is dependent on the growth of our business. For us to achieve significant growth, consumers and travel suppliers must accept our website as a valuable commercial tool. Consumers who have historically purchased travel products through traditional commercial channels, such as using local travel agents and calling suppliers directly, must instead purchase these products on our website. Similarly, travel suppliers will also need to accept or expand their use of our website and to view our website as an efficient and profitable channel of distribution for their travel products.

          Our growth will depend on our ability to broaden the range of travel products we offer. For the year ended December 31, 2002 and the six months ended June 30, 2003, we derived 76% and 69%, respectively, of our revenues from airline ticket sales. Our business strategy is dependent on expanding our revenues from lodging, car rentals, cruises, vacation packages, corporate travel and other travel related products. Key components of this strategy include the growth of our hotel business, particularly our Orbitz Merchant Hotel program, and the dynamic packaging product that we are developing. See "—Our business plans call for the significant growth of our hotel business, and we may be unsuccessful in managing or expanding that business." We cannot assure you that our efforts will be successful or result in increased revenues, higher margins or profitability.

          Our growth is also dependent on our ability to broaden the appeal of our website to business and other travelers. Although we launched an Orbitz for Business service directed at corporate users in September 2002, we have limited experience with corporate travel, and our ability to offer products and services that will attract a significant number of business travelers to use our services is not certain. If any of these initiatives is not successful, our growth may be limited and we may be unable to achieve or maintain profitability.

          Our growth is also dependent on our ability to enhance our relationship with suppliers, particularly through our Supplier Link program. This program allows us to bypass global distribution systems, or GDSs, the traditional computerized reservation systems, and approximately 30% of our total paid air transactions for the month ended June 30, 2003 were processed using Supplier Link. We cannot assure you that a large number of airline suppliers will be willing to enter into, or remain in, a Supplier Link relationship with us, or that these direct links will enable us to increase our revenue or lower our operating costs. Even if we are successful at attracting and retaining airline suppliers to our Supplier Link program, we may face technical or economic constraints that prevent us from maximizing the number of bookings we can fulfill using this technology. See "—The terms of our agreement with Worldspan may limit the growth of our Supplier Link business."

          Our plans to pursue other opportunities for revenue growth and cost reduction, which we describe in "Business—Strategy," are at an early stage, and we cannot assure you that our plans will be successful or that we will actually proceed with them as described.

          Adverse changes or interruptions in our relationships with travel suppliers could affect our access to travel offerings and reduce our revenues.

          We rely on charter associate agreements or other participation or commission agreements with our airline suppliers, and these agreements contain terms that could affect our access to airline inventory and reduce our revenues. In particular, our charter associate agreements with our Founding Airlines, which accounted for approximately 73% of our air supplier transaction fees during the six months ended June 30, 2003, become freely terminable by each of the Founding Airlines beginning in September 2005. Most of the remaining relationships we have with airline suppliers are freely terminable by the supplier, or will become so within the next year. None of these arrangements is exclusive and airline suppliers could enter into, and in some cases may have entered into, similar agreements with our competitors.

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          In addition, we are dependent for lodging and car rental inventory on arrangements with our lodging and car rental suppliers under which these suppliers provide us inventory and compensate us on a commission basis. These arrangements are short-term in nature and in some cases unwritten.

          We cannot assure you that our arrangements with travel suppliers will remain in effect or that any of these suppliers will continue to supply us with the same level of access to inventory of travel offerings in the future. If our access to inventory is affected, or our ability to obtain inventory on favorable economic terms is diminished, it could have a material adverse effect on our business, financial condition or results of operations.

          We will continue to be controlled by our Founding Airlines or their affiliates, who may have strategic interests that differ from those of our other stockholders.

          Our Founding Airlines or their affiliates will continue to hold a majority of our voting power and their designees will continue to comprise a majority of our board. Our Founding Airlines may have strategic interests that are different than ours. Upon completion of this offering, our Founding Airlines or their affiliates will beneficially own, in the aggregate, approximately    % of our outstanding common stock (or approximately         % of our common stock if the underwriters' option to purchase additional shares is exercised in full), and, through the exercise of certain supermajority voting rights accorded to them in our corporate governance documents, will control approximately         % of the voting power of all shares of voting stock (or approximately         % of the voting power if the underwriters' option to purchase additional shares is exercised in full).

          In addition, our Founding Airlines have indicated that they intend to file a Schedule 13G with the Securities and Exchange Commission following the completion of this offering to report their Orbitz holdings as a group. As a result, under a "controlled company" exception to Nasdaq's proposed independence requirements, we would be exempt from an obligation to maintain a majority of independent directors on our board and instead could continue with a majority of directors affiliated with our Founding Airlines. In addition, directors affiliated with our Founding Airlines could continue to oversee the director nomination and executive compensation functions.

          For the foreseeable future, to the extent that some or all of the Founding Airlines or their affiliates vote similarly, they will be able to exercise control over all matters requiring approval by the board of directors or our stockholders, and this power may be expected to continue even if our Founding Airlines or their affiliates own a minority economic interest in Orbitz. As a result, they or their affiliates will be able to:

•

control the composition of our board of directors, including the right to select six of the nine members of our board (one of whom is our chief executive officer) and the ability to nominate the remaining three directors and vote their shares to elect (together with the holders of Class A common stock) them;



•

control our management and policies; and



•

determine the outcome of significant corporate transactions, including changes in control that may be beneficial to stockholders.

          In addition, our corporate governance documents and our stockholders agreement with our Founding Airlines or their affiliates provide them 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 stockholders of a publicly-traded company. In particular, our corporate governance documents and the stockholders agreement with our Founding Airlines or their affiliates provide that:

•

Orbitz cannot issue common stock or other securities without the vote of two-thirds of its directors and, for issuances of securities with voting rights greater than one vote per

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share, without the further approval of the holders of three-fourths of the voting power of the Class B common stock then outstanding entitled to supervoting rights;

•

Orbitz cannot enter into any transaction involving any merger, acquisition, consolidation, reorganization or issuance of securities as a result of which our Founding Airlines or their affiliates would own less than a majority of the voting power of the successor or surviving entity, without the approval of the holders of two-thirds of the voting power of the Class B common stock then outstanding entitled to supervoting rights; and



•

Orbitz cannot sell substantially all of its assets without the approval of the holders of two-thirds of the voting power of the Class B common stock then outstanding entitled to supervoting rights.

          These restrictions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by preventing a sale of Orbitz. The terms of our certificate of incorporation are more fully described in "Description of Capital Stock."

          We are controlled by the Founding Airlines and conflicts of interest with and among them could impede our business strategy and hurt our business.

          The Founding Airlines and their affiliates will be able to act in each of their own interests, which may conflict with, or be different from, the interests of other stockholders who do not maintain a commercial relationship with Orbitz. For the foreseeable future, we expect a majority of our directors will be senior employees of our Founding Airlines. The Founding Airlines compete with each other in the operation of their respective businesses and can be expected to have individual business interests that may conflict with those of the other Founding Airlines. Their differing interests could make it difficult for us to pursue strategic initiatives that require consensus among our Founding Airlines. In addition, our certificate of incorporation and stockholders agreement expressly provide that holders of our Class B common stock may have other business interests and may engage in any other businesses, including businesses similar to ours, except for restrictions on specified investments that expire two years after the consummation of this offering. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects. The terms of our certificate of incorporation and stockholders agreement are more fully described in "Description of Capital Stock" and "Certain Relationships and Related Party Transactions—Stockholders Agreement," respectively.

          Our relationships with our Founding Airlines have subjected Orbitz to significant litigation and regulatory scrutiny, which may continue.

          As an enterprise founded and controlled by horizontal airline competitors, we may be subject to ongoing regulatory scrutiny of our business to a degree that is not likely to be experienced by our competitors.

          Within the past year, we have been reviewed or investigated by a number of federal and state regulators. In July 2003, the Antitrust Division of the Department of Justice completed an investigation of us and our Founding Airlines that it commenced in 2000 and concluded that our business has not harmed consumers or reduced competition. In December 2002, the Department of Transportation issued the results of a review of our business and operations, and did not find evidence that Orbitz' operations had an anti-competitive effect on the marketplace for air travel. Our business and operations were under longstanding informal review by a working group of Attorneys General from various states, the last of which ended their inquiry in July 2003 without taking action adverse to us. In late 2002, a commission created by Congress to study the economic status of travel agents and impediments to the flow of travel information concluded its review, which included

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an examination of Orbitz' impact on traditional travel agents and consumers, without taking action adverse to us.

          We remain at risk that other or similar regulatory investigations could commence in the future. At any time, the outcome of investigations and other regulatory scrutiny could lead to compulsory changes to our business model, industry agreements, conduct or practices or our relationships with our Founding Airlines and governmental or additional private lawsuits against us, any of which could materially harm our revenue, impair our ability to provide access to the broadest range of low fares and impact our ability to grow and compete effectively.

          We expect that our competitors will continue to engage in lobbying and other activities, with the objective of generating negative publicity about Orbitz and pressing legislation or regulation that could be harmful to us. These activities may result in private or governmental litigation against Orbitz, further investigations of our business by various governmental authorities or the adoption of laws and regulations that make it more difficult for us to compete effectively, particularly as we implement new initiatives designed to enhance our competitive position.

          The continued involvement of our Founding Airlines on our board of directors and as stockholders may result in litigation and regulatory scrutiny of our business. For example, Orbitz is a defendant in a putative class action lawsuit filed in April 2002 by some offline travel agents against Orbitz and several of our Founding Airlines. The plaintiffs in this case allege anti-competitive conduct and seek treble damages and injunctive relief, including:

•

the dissolution of Orbitz or, in the alternative,



•

that the defendant airlines make all their fares available to offline travel agents, all Founding Airlines or their affiliates sell their stock in Orbitz, and all our airline charter associate agreements be revised.

          Although unsuccessful, offline travel agents also petitioned the Department of Transportation, or DOT, for similar injunctive relief in March 2002 alleging anti-competitive practices. See "Business-Legal Proceedings." Our competitors could file additional lawsuits alleging anti-competitive conduct against us in the future.

          The activities described above may result in significant distractions to our management and could have a material adverse effect on our business, financial condition or results of operations.

          Restrictions on our ability to sell air travel in an "opaque" or "biased" manner may limit our growth.

          Our bylaws limit our ability to market and sell air travel products in an "opaque" manner and prevent us from displaying our air fares in a "biased" manner, or acquiring a company that engages in either activity. "Opaque" refers to the sale of travel where the customer is not able to see one or more items of important information, such as the identity of the travel provider, schedules, availability, fares or prices, until the transaction is completed. "Bias" refers to the practice of favoring one travel supplier over another on the basis of commissions paid, fee overrides or other factors unrelated to price or the customer's choice. Our charter associate agreements contain similar provisions. Under our bylaws, any change in the scope of our business to provide information concerning air travel products to customers in an opaque or biased manner requires the following approvals:

•

on or prior to May 8, 2010, the unanimous approval of each holder of our Class B common stock (1) that is, or within the six months prior to the approval being sought was, a party to a commercial agreement with Orbitz providing for participation in our website, or (2) that owns 7,264,079 shares of Class B and Class A common stock in the aggregate (as adjusted to give effect to any stock split, stock dividend, reclassification, recapitalization or other event); and

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•

after May 8, 2010, the unanimous approval of each holder of our Class B common stock, so long as the holders of our Class B common stock own, in the aggregate, at least 20% of the voting power of all outstanding shares of our capital stock.

          At consummation of this offering, this would require approval of all of our Founding Airlines or their affiliates. These restrictions may limit our ability to expand the scope of our business and improve our margins in ways that are available to some of our competitors.

          Our Founding Airlines are not prevented from selling to consumers through their own websites or third-party websites and may be able to establish new competitors to Orbitz.

          Our five Founding Airlines collectively represented approximately 73% of the airline tickets sold through Orbitz and 73% of our air supplier transaction fees during the six months ended June 30, 2003. Our Founding Airlines offer travel products, including Web-only fares, through their own websites and other distribution channels and offer some features, such as mileage bonus awards redemption, that we do not currently offer. Our Founding Airlines are not barred under their relationships with us from selling directly to consumers, and these parties may continue to operate their own businesses in a manner that could divert customers and revenues from us. Furthermore, each of our Founding Airlines has an ownership interest in Hotwire, one of our Founding Airlines has an ownership interest in priceline.com, and our Founding Airlines may make other investments in travel businesses, subject to restrictions in our stockholders agreement. Our stockholders agreement limits the ability, for the period ending two years after the consummation of this offering, of any holder of our Class B common stock or its affiliates to act in concert with two or more other holders of Class B common stock or their respective affiliates to acquire beneficial ownership of more than 10%, in the aggregate, of a third party that offers the direct sale to consumers of air travel products predominantly through an Internet site. However, nothing in our agreements with our Founding Airlines would prevent them individually or acting in concert with only one other Founding Airline from organizing or investing in a separate company, similar to Orbitz, for the purpose of competing with us or from pursuing corporate opportunities that might be attractive to Orbitz. After the expiration of the two-year period described above, this investment restriction will lapse. Once the charter associate agreements with our Founding Airlines become freely terminable in September 2005, any Founding Airline will be able to terminate their supplier relationship with us.

          None of our other charter associates or other travel suppliers is prevented from selling directly to consumers, organizing or investing in a separate company similar to Orbitz or pursuing corporate opportunities that might be attractive to Orbitz.

          The terms of our agreement with Worldspan may limit the growth of our Supplier Link business.

          We have agreed with Worldspan, a GDS, that we will direct to Worldspan's system all airline and car rental bookings made through our website, with the exception of bookings transacted using our Supplier Link technology. See "Certain Relationships and Related Party Transactions—Agreements with Worldspan." Under our agreement, Orbitz is obligated to meet minimum volume guarantees for air and car transactions for any year in which we utilize Supplier Link technology for either travel product, with a similar, but separate, volume guarantee applicable to car transactions alone that would apply if we were using Supplier Link technology for car transactions. If we do not meet specific quarterly thresholds, we must pay Worldspan a segment fee for each segment that we fall short. Unless we are able to sufficiently increase our number of bookings or modify the terms of the agreement with Worldspan, it will be necessary for us to control the number of Supplier Link segments we can complete in a particular year, and instead direct some of these transactions to Worldspan, in order to avoid making segment fee payments to Worldspan. If we need to limit the number of Supplier Link segments processed in a particular year, it could have an adverse effect on our relations with Supplier Link participants or prevent us from growing that business.

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          We operate in a highly competitive market, and we may not be able to compete effectively.

          The market for travel products is intensely competitive. We compete with a variety of companies with respect to each product or service we offer, including:

•

InterActiveCorp, an interactive commerce company, which owns or controls numerous travel-related enterprises, including Expedia, an online travel agency, Hotels.com, a distributor of

online lodging reservations, and Ticketmaster and Citysearch, both of which offer destination information and tickets to attractions;

•

Sabre Holdings, which owns Travelocity, an online travel agency, GetThere, a provider of online corporate travel technology and services, and the Sabre Travel Network, a GDS;



•

Cendant, a provider of travel and vacation services, which owns or controls the following: Galileo International, a worldwide GDS; Cheap Tickets, an online travel agency; Lodging.com, an online distributor of hotel rooms; Howard Johnson, Ramada Inns, and other hotel franchisors; Avis and Budget car rental companies; and other travel-related brands;



•

other consolidators and wholesalers of airline tickets, lodging and other travel products, including priceline.com, Hotwire, and Travelweb;



•

travel agencies targeting the corporate market, such as American Express, Navigant, TQ3/Maritz, World Travel Partners and Carlson Wagonlit, which compete against our Orbitz for Business service;



•

other local, regional, national and international traditional travel agencies servicing leisure and business travelers; and



•

operators of other GDSs, which control the computer systems through which travel reservations historically have been booked.

          Many of our competitors have longer operating histories, larger customer bases, more established brands and significantly greater financial, marketing and other resources than we do. Some of our competitors benefit from vertical integration with GDSs. In particular, we believe our two primary competitors in the online travel products market to be Expedia and Travelocity, which have each operated their respective businesses for significantly longer than Orbitz and may benefit from greater market share, brand recognition, product diversification, scale and operating experience than we do. In addition, Expedia and Travelocity, unlike Orbitz, have each established exclusive relationships as preferred travel partners for widely used Internet destinations such as America Online, MSN and Yahoo!. These arrangements, and similar relationships Expedia and Travelocity may be able to secure in the future, could provide them with a significant advantage in obtaining new customers. Furthermore, the flexibility of being able to provide biased displays for fares may provide Expedia, Travelocity and other competitors an opportunity to receive additional incentive payments from their suppliers. We expect Expedia and Travelocity will devote significant financial and operating resources to maintain their respective positions in the online travel products market.

          We expect existing competitors and business partners and new entrants to the travel business to constantly revise and improve their business models in response to challenges from competing Internet-based businesses, including ours. For example, firms that provide services to us and our competitors may introduce pricing or other business changes that adversely affect Orbitz' attractiveness to suppliers in favor of our competitors. Similarly, some of our airline suppliers have recently entered into arrangements with GDS providers containing "most favored nations" obligations in which they have committed, in exchange for reduced GDS booking fees, to provide to the GDS and its subscribers, including some of our online travel agency competitors, all fares the supplier

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offers to the general public through any distribution channel. The effect of these arrangements may be to preclude Orbitz from successfully bargaining for superior airline inventory or other promotional advantages, and to reduce the relative attractiveness of Orbitz as a low cost distribution channel for these airlines. If Expedia, Travelocity or other travel industry participants introduce changes or developments we cannot meet in a timely or cost-effective manner, our business may be adversely affected. We cannot assure you that we will be able to effectively compete with Expedia, Travelocity or with other travel industry providers.

          In addition, consumers frequently use our website for route pricing and other travel information, and then may choose to purchase travel products from a source other than our website, including travel suppliers' own websites. Many travel suppliers, including our Founding Airlines and other airlines, lodging, car rental companies and cruise operators, also offer and distribute travel products, including products from other travel suppliers, directly to the consumer through their own websites. In many cases, these competitors offer advantages, such as bonus miles or lower transaction fees, that we do not or cannot provide to consumers. In addition, the airline industry has experienced a shift in market share from full-service carriers, such as our Founding Airlines, to low-cost carriers that focus primarily on discount fares to leisure destinations. Some low-cost carriers, such as Southwest and JetBlue, do not distribute their tickets through Orbitz or other third-party intermediaries.

          Our business plans call for the significant growth of our hotel business, and we may be unsuccessful in managing or expanding that business.

          We are dependent on our hotel business as a significant source of growth for our business. We have less experience than our competitors in the area of hotels, and we remain subject to numerous risks in the operation and growth of that business. Our hotel strategy is particularly dependent on our ability to obtain an adequate inventory of hotel rooms to offer under our OrbitzSaver model, which requires pre-payment by the consumer at the time of booking. To procure this prepaid inventory, we currently rely on a third-party relationship with Travelweb and on internal sales efforts under our Orbitz Merchant Hotel program.

          Travelweb was formed by Pegasus Solutions and by several leading hotel chains, including Hilton, Hyatt, Intercontinental, Marriott and Starwood and acts as a reseller of hotel inventory provided by these and other participating chains. Under this relationship, Travelweb sets the consumer prices for this inventory and pays us a commission for each hotel room. Under an agreement scheduled to expire in July 2005, Travelweb has the exclusive right to provide us with lodging inventory for prepaid bookings at any of its participating chains and to set the room rates, and has an obligation to provide hotel room inventory at consumer rates that meet or beat those at which similar accommodations are concurrently offered on Hotels.com, Expedia and other competitors of ours. Our agreement specifies the frequency with which Travelweb must meet or beat competitors' rates, and we believe that Travelweb has not complied with these competitive rate obligations under the agreement. The competitiveness of our hotel offerings may be at risk, and our business may suffer, if Travelweb is unable to satisfy these obligations in future periods.

          Our strategy calls for us to increase the number of hotel rooms we can offer under our Orbitz Merchant Hotel program based on merchant arrangements we make directly with individual hotel properties and independent chains. Under the Orbitz Merchant Hotel program, we receive inventory directly from a hotel at a negotiated rate, and we determine the retail price at which we choose to offer it to the consumer. We believe that acting as merchant under this model will allow us to achieve higher revenues per transaction. However, there are significant risks associated with our Orbitz Merchant Hotel program. Because we did not begin this program until March 2003, we have limited experience with its operation and we cannot assure you that we will be successful in signing up important hotel properties in a sufficient number of domestic or international geographical markets. In addition, we may be unable to achieve our financial objectives for the Orbitz Merchant Hotel program, especially if economic conditions improve or competition increases. Many hoteliers utilize

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merchant arrangements with Orbitz and our competitors as a channel to dispose of excess hotel room inventory at wholesale rates. If economic conditions create increased demand for hotel rooms, hotel managers may increase the negotiated rates at which they provide that inventory to Orbitz. Similarly, heightened competition from our competitors' own merchant rate programs may result in increases in negotiated rates for merchant rate inventory. Either of these events would be expected to exert downward pressure on the margins we can achieve from our merchant hotel business, and could have a material adverse effect on our hotel business.

          A reduction in transaction fees or the elimination of commissions paid by travel suppliers could reduce our revenues. The minimum transaction fees many of our airline suppliers have agreed to pay to us decrease in amount each year over the term of our charter associate agreements.

          For the year ended December 31, 2002 and the six months ended June 30, 2003, 25% and 21%, respectively, of our revenues came from the transaction fees paid directly by travel suppliers for bookings made by our customers through our online travel service. Where we have charter associate agreements with airline suppliers, these agreements obligate the airline to pay us transaction fees that are not less than certain agreed-upon floor rates for tickets sold on the Orbitz website. These minimum transaction fees decrease in amount each year and are scheduled to decline approximately 27%, 28% and 30% on an annual basis each June 1, beginning in 2004, before becoming constant thereafter. It is unlikely that any of our charter associate airlines will choose to pay us transaction fees above the minimum levels specified in our contracts. Furthermore, our charter associate agreements have defined durations, and we cannot assure you that our transaction fees will not be reduced or eliminated in the future or will be competitive with market terms during the duration of the agreements.

          A portion of our revenues are dependent on consumer service fees.

          For the year ended December 31, 2002 and the six months ended June 30, 2003, approximately 20% and 22%, respectively, of our revenues were derived from consumer service fees. We charge our customers a $6 consumer service fee each time they purchase an airline ticket on our website. Although traditional travel agencies and many other online travel companies (including our principal competitors) charge consumer service fees, some other travel websites, including the websites of our travel suppliers, do not charge a service fee and many of our suppliers' sites offer benefits, such as frequent flier miles, that we cannot provide. If we were required by competitive forces to reduce or eliminate our service fee, our revenues could decline as a result.

          If we fail to attract and retain customers in a cost-effective manner, our ability to grow and become profitable may be impaired.

          Our business strategy depends on increasing our overall number of customer transactions in a cost-effective manner. In order to increase our number of transactions, we must attract new visitors to our website, convert these visitors into paying customers and capture repeat business from existing customers. Similarly, our corporate travel offering is dependent on enlisting new corporate customers and attracting their travel booking activity online to Orbitz. Although we have spent significant financial resources on advertising and marketing and plan to continue to do so, there are no assurances that these efforts will be cost effective at attracting new customers or increasing transaction volume. In particular, we believe that rates for desirable advertising and marketing placements are likely to increase in the foreseeable future, and we may be disadvantaged relative to our larger competitors in our ability to expand or maintain our advertising and marketing commitments. Additionally, we have limited experience in marketing to corporate users. If we do not achieve our marketing objectives, our ability to grow and become profitable may be impaired.

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          Interruptions in service from third parties could impair the quality of our service.

          We rely on third-party computer systems and other service providers, including the computerized central reservation systems of the airline, lodging and car rental industries, to make airline ticket, lodging and car rental reservations and credit card verifications and confirmations. Currently, a large percentage of our airline ticket transactions are processed through Worldspan's systems, and a large percentage of our hotel room transactions are processed through Pegasus. Other third parties provide, for instance, our data center, telecommunications access lines and significant computer systems and software licensing, support and maintenance services. In the past, third parties, including Worldspan and Pegasus, have suffered system outages that have adversely affected our ability to offer our travel services or to process booking transactions. Any future interruption in these, or other, third-party services or a deterioration in their performance could impair the quality of our service. We cannot be certain of the financial viability of all of the third parties on which we rely. We work with many vendors in the telecommunications industry, including MCI, Ameritech, AT&T, Sprint and Cable & Wireless. That industry is continuing to experience a severe economic downturn. If our arrangements with any of these third parties is terminated or if they were to cease operations, we might not be able to find an alternate provider on a timely basis or on reasonable terms, which could hurt our business.

          We rely on relationships with licensors for key components of our software. We also hire contractors to assist in the development and maintenance of our systems. Continued access to these licensors and contractors on favorable contract terms or access to alternative software licenses and information technology contractors is important to our operations. Adverse changes in any of these relationships could have a material adverse effect on our business, financial condition or results of operations.

          For all our service providers, we attempt to negotiate favorable pricing, service, confidentiality and intellectual property ownership or licensing terms in our contracts with them. These contracts usually have multi-year terms. However, there is no guarantee that these contracts will not terminate and that we will be able to negotiate successor agreements or agreements with alternate service providers on competitive terms. Further, the existing agreements may bind us for a period of time to terms and technology that become obsolete as our industry and our competitors advance their own operations and contracts.

          Our success depends on maintaining the integrity of our systems and infrastructure.

          In order to be successful, we must provide reliable, real-time access to our systems for our customers and suppliers. As our operations grow in both size and scope, we will need to improve and upgrade our systems and infrastructure to offer an increasing number of customers and travel suppliers enhanced products, services, features and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources before the volume of business increases, with no assurance that the volume of business will increase. Consumers and suppliers will not tolerate a service hampered by slow delivery times, unreliable service levels or insufficient capacity, any of which could have a material adverse effect on our business, financial condition or results of operations.

          Our computer systems may suffer failures, capacity constraints and business interruptions that could increase our operating costs and cause us to lose customers.

          Our operations face the risk of systems failures. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, computer hacking break-ins, earthquake, terrorism and similar events. The occurrence of a natural disaster or unanticipated problems at our facilities in Chicago or locations of key vendors such as Hitachi, ITA, MCI, AT&T, Oracle, Sun, Compaq, Worldspan or Pegasus could cause interruptions or delays in our business, loss of data or render us unable to process reservations. We are particularly dependent on

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Oracle, Sun and Hitachi as providers of computer infrastructure critical to our business. Hardware failure or software error that affects their systems could result in corruption or loss of data and could cause an interruption in the availability of our services. In addition, the failure of our computer and communications systems to provide the data communications capacity required by us, as a result of human error, natural disaster or other occurrence of any or all of these events could adversely affect our reputation, brand and business. In the past, third-party failures and human error have resulted in system interruptions, including a significant outage in July 2003, and we cannot assure you that similar system interruptions will not occur in the future.

          In these circumstances, our redundant systems or disaster recovery plans may not be adequate. Similarly, although many of our contracts with our service providers require them to have disaster recovery plans, we cannot be certain that these will be adequate or implemented properly. In addition, our business interruption insurance may not adequately compensate us for losses that may occur.

          If we are unable to resolve claims asserted by Amadeus, it could have an adverse effect on our business.

          We rely on search algorithm software developed by ITA to search for low fares. In 2002, we were sued by Amadeus, an international GDS firm that is also a 20% equity holder in ITA. In the suit, Amadeus alleges that Orbitz' use of the ITA software in combination with GDS services from Worldspan (a competitor of Amadeus) constitutes a breach of the terms of the agreement with ITA under which we license components of the search technology we employ. Amadeus is an express third-party beneficiary of our agreement with ITA, meaning that it has rights to enforce some parts of that agreement. Amadeus contends that we have provided Worldspan with a specific type of data in violation of that agreement. Amadeus also contends that we have tortiously interfered with the contract between Amadeus and ITA, claiming that ITA was not contractually free to license its low fare searching software to us in light of our supposed "affiliation" with Worldspan, which was owned by three of our Founding Airlines prior to the sale of Worldspan's business on July 1, 2003. Amadeus seeks an injunction prohibiting Orbitz' further use of the ITA software in combination with Worldspan's services, as well as monetary damages. See "Business—Legal Proceedings." If we are unable to satisfactorily resolve these claims, our business and revenues could be adversely affected.

          Rapid technological changes may render our technology obsolete or decrease the attractiveness of our products to consumers.

          To remain competitive in the online travel industry, we must continue to enhance and improve the functionality and features of our website. The Internet and the online commerce industry are rapidly changing. In particular, the online travel industry is characterized by increasingly complex systems and infrastructures and new business models. If competitors introduce new products embodying new technologies, or if new industry standards and practices emerge, our existing website, technology and systems may become obsolete. Our future success will depend on our ability to do the following:

•

enhance our existing products;



•

develop and license new products and technologies that address the increasingly sophisticated and varied needs of our prospective customers and suppliers; and



•

respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

          Developing our website and other technology entails significant technical and business risks. We may use new technologies ineffectively or we may fail to adapt our website, transaction processing systems and network infrastructure to consumer requirements or emerging industry standards. For example, our website functionality that allows searches and displays of ticket pricing

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and travel itineraries is a critical part of our service, and it may become out-of-date or insufficient from our customers' perspective and in relation to the search and display functionality of our competitors' websites. If we face material delays in introducing new services, products and enhancements, our customers and suppliers may forego the use of our products and use those of our competitors.

          We may not protect our technology effectively, which would allow competitors to duplicate our products. This could make it more difficult for us to compete with them.

          Our success and ability to compete in the online travel industry depend, in part, upon our technology. We rely primarily on patent, copyright, trade secret and trademark laws and provisions in our contracts to protect our technology. We attempt to negotiate beneficial intellectual property ownership provisions in our contracts. However, laws and our actual contractual terms may not be sufficient to protect our technology from use or theft by third parties. For instance, a third party might try to reverse engineer or otherwise obtain and use our technology without our permission and without our knowledge, allowing competitors to duplicate our products. We may have legal or contractual rights that we could assert against such illegal use, but lawsuits claiming infringement or misappropriation are complex and expensive, and the outcome would not be certain. In addition, the laws of some countries in which we may wish to sell our products may not protect software and intellectual property rights to the same extent as the laws of the United States.

          Defending against intellectual property claims could be expensive and disruptive to our business.

          We cannot assure you that others will not obtain and assert patents or other intellectual property rights against us affecting essential elements of our business. From time to time, in the ordinary course of our business, we have been subject to legal proceedings and claims relating to the intellectual property rights of others, and we expect that third parties will continue to assert intellectual property claims against us, particularly as we expand the complexity and scope of our business. We diligently defend our intellectual property rights, but intellectual property litigation is expensive and time consuming, and successful infringement claims against us could result in significant monetary liability or prevent us from operating our business, or portions of our business. In addition, resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties or possibly to cease using those rights altogether. Any of these events could have a material adverse effect on our business, results of operations or financial condition. Please see "Business— Intellectual Property" and "—Legal Proceedings."

          If we do not continue to attract and retain qualified personnel, we may not be able to expand our business.

          Our business and financial results depend on the continued service of our key personnel. The loss of the services of our executive officers or other key personnel could harm our business and financial results. Our success also depends on our ability to hire, train, retain and manage highly skilled employees. We cannot assure you that we will be able to attract and retain a significant number of qualified employees or that we will successfully train and manage the employees we hire.

          We may acquire other businesses, products or technologies; if we do, we may be unable to integrate them with our business, or we may impair our financial performance.

          If appropriate opportunities present themselves, we may acquire businesses, products or technologies that we believe are strategic. We do not currently have any understandings, commitments or agreements with respect to any acquisition. We may not be able to identify, negotiate or finance any future acquisition successfully. Even if we do succeed in acquiring a business, product or technology, we have no experience in integrating an acquisition into our business; the process of integration may produce unforeseen operating difficulties and expenditures

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and may absorb significant attention of our management that would otherwise be available for the ongoing development of our business. If we make future acquisitions, we may issue shares of stock that dilute the interests of our other stockholders, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing other intangible assets with estimable useful lives, any of which might harm our business, financial condition or results of operations.

   
Risks Related to Our Industry

          Declines or disruptions in the travel industry, such as those caused by general economic downturns, terrorism, health concerns or strikes or bankruptcies within the travel industry could reduce our revenues.

          Our business is affected by the health of the travel industry. Travel expenditures are sensitive to business and personal discretionary spending levels and tend to decline during general economic downturns. Since 2001, the travel industry has experienced a protracted downturn, and there is a risk that a future downturn, or the continued weak demand for travel, could adversely affect the growth of our business. Additionally, travel is sensitive to safety concerns, and thus may decline after incidents of terrorism, during periods of geopolitical conflict in which travelers become concerned about safety issues, or when travel might involve health-related risks. For example, the terrorist attacks of September 11, 2001, which included attacks on the World Trade Center and the Pentagon using hijacked commercial aircraft, as well as the war with Iraq in 2003, each resulted in a decline in new travel bookings, including those through our website, and certain travel destinations were adversely affected by the outbreak of SARS in early 2003. The long-term effects of events such as these could include, among other things, a protracted decrease in demand for air travel due to fears regarding terrorism, war or disease. These effects, depending on their scope and duration, which we cannot predict at this time, could significantly impact our long-term results of operations or financial condition. Other adverse trends or events that tend to reduce travel and may reduce our revenues include:

•

higher fares and rates in the airline industry or other travel-related industries;



•

labor actions involving airline or other travel suppliers;



•

political instability and hostilities;



•

fuel price escalation;



•

travel-related accidents;



•

bankruptcies of travel suppliers and vendors; and



•

bad weather.

          Evolving government regulation could impose taxes or other burdens on our business, which could increase our costs or decrease demand for our products.

          We must comply with laws and regulations applicable to online commerce. Increased regulation of the Internet or different applications of existing laws might slow the growth in the use of the Internet and commercial online services, which could decrease demand for our products, increase the cost of doing business or otherwise reduce our sales and revenues. The statutes and case law governing online commerce are still evolving, and new laws, regulations or judicial decisions may impose on us additional risks and costs of operations.

          Federal legislation imposing limitations on the ability of states to tax Internet-based sales was enacted in 1998. The Internet Tax Freedom Act, which was extended by the Internet Non- Discrimination Act, exempts specific types of sales transactions conducted over the Internet from multiple or discriminatory state and local taxation through November 1, 2003. If this legislation is not

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renewed when it terminates, state and local governments could impose additional taxes on Internet-based sales, and these taxes could decrease the demand for our products or increase our costs of operations.

          We are currently reviewing the tax laws in various states and jurisdictions relating to state and local hotel occupancy taxes. Several jurisdictions have indicated that they may take the position that hotel occupancy tax is applicable to the gross profit on merchant hotel transactions. Historically, we have not paid such taxes. Some state and local jurisdictions could rule that we are subject to hotel occupancy taxes on the gross profit and could seek to collect such taxes, either retroactively or prospectively or both.

          In addition, new regulations, domestic or international, regarding the privacy of our users' personally identifiable information may impose on us additional costs and operational constraints.

          Because our market is seasonal, our quarterly results will fluctuate.

          Our business experiences seasonal fluctuations, reflecting seasonal trends for the products offered by our website, as well as Internet services generally. For example, traditional leisure travel bookings are higher in the first two calendar quarters of the year in anticipation of spring and summer vacations and holiday periods, but online travel reservations may decline with reduced Internet usage during the summer months. In the last two quarters of the calendar year, demand for travel products generally declines and the number of bookings flattens or decreases. These factors could cause our revenues to fluctuate from quarter to quarter. Our results may also be affected by seasonal fluctuations in the inventory made available to us by travel suppliers.

          The success of our business depends on continued growth of online travel commerce.

          Our sales and revenues will not grow as we plan if consumers and businesses do not purchase significantly more travel products online than they currently do and if the use of the Internet as a medium of commerce for travel products does not continue to grow or grows more slowly than expected. Consumers and businesses have traditionally relied on travel agents and travel suppliers and are accustomed to a high degree of human interaction in purchasing travel products. The success of our business is dependent on the number of consumers and businesses who use the Internet to purchase travel products increasing significantly.

          Our business is exposed to risks associated with online commerce security and credit card fraud.

          Consumer concerns over the security of transactions conducted on the Internet or the privacy of users may inhibit the growth of the Internet and online commerce. To transmit confidential information such as customer credit card numbers securely, we rely on encryption and authentication technology. Unanticipated events or developments could result in a compromise or breach of the systems we use to protect customer transaction data. Furthermore, our servers and those of our service providers may be vulnerable to viruses or other harmful code or activity transmitted over the Internet. While we proactively check for intrusions into our infrastructure, a virus or other harmful activity could cause a service disruption.

          In addition, we bear financial risk from reservations placed with fraudulent credit card data. Although we have implemented anti-fraud measures, a failure to control fraudulent credit card transactions adequately could adversely affect our business. Because of our limited operating history, we cannot assure you that our anti-fraud measures are sufficient to prevent material financial loss.

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Risks Related to This Offering

          There is no established trading market for our Class A common stock, and the market price of our Class A common stock may be highly volatile or may decline regardless of our operating performance.

          There has not been a public market for our Class A common stock prior to this offering. We cannot predict the extent to which a trading market will develop or how liquid that market might become. If you purchase shares of Class A common stock in this offering, you will pay a price that was not established in the public trading markets. The initial public offering price will be determined by negotiations between the underwriters and us. You may not be able to resell your shares above the initial public offering price and may suffer a loss on your investment.

          The market prices of the securities of Internet-related and online commerce companies have been extremely volatile and have declined overall significantly since early 2000. Broad market and industry factors may adversely affect the market price of our Class A common stock, regardless of our actual operating performance. Factors that could cause fluctuation in the stock price may include, among other things:

•

actual or anticipated variations in quarterly operating results;



•

changes in financial estimates by us or by any securities analysts who might cover our stock;



•

conditions or trends in our industry;



•

changes in the market valuations of other travel service providers;



•

announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;



•

announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;



•

capital commitments;



•

additions or departures of key personnel; and



•

sales of our common stock, including sales of our common stock by our directors and officers or our Founding Airlines.

          Future sales of our Class A common stock may cause our stock price to decline.

          If our stockholders sell substantial amounts of our Class A common stock in the public market following this offering, the market price of our Class A common stock could decline. These sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate. Based on shares outstanding as of June 30, 2003, upon completion of this offering, we will have                            shares of common stock outstanding. Of these outstanding shares, all of the shares of our Class A common stock sold in this offering will be freely tradable in the public market. The remaining              shares will be restricted securities as defined in Rule 144 under the Securities Act.

          We and our directors and officers and substantially all of our stockholders, including all of our Founding Airlines or their affiliates, and our option holders have agreed that, subject to limited exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Goldman, Sachs & Co., dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for our common stock. However, Goldman, Sachs & Co. in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.

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          Subject to the 180-day lock-up agreement, these             restricted securities may be sold into the public market in the future without registration under the Securities Act to the extent permitted under Rule 144.         shares will be available for sale 180 days after the date of this prospectus pursuant to Rule 144; of these shares, approximately     % would be available for sale under Rule 144(k), which imposes no volume or other limits. In addition, commencing 180 days after the date of this prospectus, stockholders holding              outstanding shares of these restricted securities will have registration rights which could allow those holders to sell their shares freely through a future registration statement filed under the Securities Act.

          In addition, 17,404,048 shares reserved for issuance pursuant to outstanding options and 9,417,660 shares available for grant under our existing stock plans as of June 30, 2003, if granted, will become eligible for sale in the public market once permitted by provisions of various vesting agreements, lock-up agreements and Rule 144, as applicable. See "Shares Eligible for Future Sale."

          You will suffer an immediate and substantial dilution in the net tangible book value of the Class A common stock you purchase.

          Prior investors have paid substantially less per share than the price in this offering. The initial public offering price is substantially higher than the net tangible book value per share of the outstanding common stock immediately after this offering. As a result, investors purchasing Class A common stock in this offering will incur immediate dilution of $             per share. The exercise of outstanding options and future equity issuances will result in further dilution to investors.

          We do not expect to pay any dividends for the foreseeable future.

          We do not anticipate that we will pay any dividends to our stockholders in the foreseeable future. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Class A common stock.

          We will have broad discretion over the use of the proceeds to us from this offering.

          We will have broad discretion to use the net proceeds to us from this offering, and you will be relying on the judgment of our board of directors and management regarding the application of these proceeds. Although we expect to use the net proceeds from this offering for general corporate purposes, including working capital and for potential strategic investments or acquisitions, we have not allocated these net proceeds for specific purposes.

          Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs.

          The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission rules implementing that Act have required changes in some of our corporate governance practices and may require further changes. These new rules and regulations will increase our legal and financial compliance costs, and make some activities more difficult, time-consuming or costly. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified independent members of our board of directors and qualified members of our management team.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under "Risk Factors" and elsewhere in this prospectus. You can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continues" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

          Forward-looking statements include, but are not limited to, the following:

•

the statements in "Business—Our Business—Orbitz.com—Reservations" about our plans for future enhancements to the air, hotel and car rental functionality of Orbitz.com, the growth of the Orbitz Merchant Hotel program and other lodging offerings, and the launch of Deal Detector;



•

the statements about the expansion of our Supplier Link technology to other suppliers and the benefits we may receive from suppliers in "Business—Overview," "—Competitive Strengths—Innovative Technology Platform" and "—Technology Services—Supplier Link;"



•

the statements about the growth of the corporate online travel market and enhancements to and investments in our corporate travel program in "Business—Our Business—Corporate Travel;"



•

the discussion of our operating expenses continuing to decline relative to our revenues and our ability to meet our currently anticipated liquidity needs for the next 12 months and beyond, in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview—Operating Expenses" and "—Liquidity and Capital Resources;"



•

the discussion of future growth of the online travel industry, including the chart showing historical and projected travel sales for 2000 to 2005, in "Business—Industry Background—The Online Travel Industry;" and



•

all of the statements in "Business—Strategy" and related summaries about our plans, goals, intentions, expectations and beliefs concerning increasing sales and profitability of non-air travel products (including through our Orbitz Merchant Hotel program and dynamic packaging product), promoting customer retention, strengthening supplier relationships through innovative technology, increase our customer base transaction volume through cost-effective marketing and pursuing new business opportunities (including our corporate travel program and third-party use of Supplier Link).

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USE OF PROCEEDS

          Our net proceeds from our sale of            shares of Class A common stock in this offering are estimated to be approximately $            million, assuming an initial public offering price of $            per share (the mid-point of the offering range shown on the cover of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses, which are payable by us. We intend to use the net proceeds from this offering for working capital and general corporate purposes. We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholders.

          The amounts that we actually expend for working capital and other general corporate purposes will vary significantly depending on a number of factors, including future revenue growth, if any, and the amount of cash that we generate from operations. As a result, we will retain broad discretion over the allocation of the net proceeds of this offering. We also may use a portion of the net proceeds for the acquisition of businesses, products and technologies. We have no current agreements or commitments for acquisitions of any businesses, products or technologies. Pending these uses, we will invest the net proceeds of this offering in short-term money market and money market equivalent securities.

   
DIVIDEND POLICY

          Orbitz, Inc. has never declared or paid cash dividends on its capital stock and Orbitz, LLC has never declared or paid any distributions to its members. We do not anticipate that Orbitz, Inc. will pay any cash dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and growth of our business.

   
CAPITALIZATION

          The following table sets forth our capitalization as of June 30, 2003:

•

on an actual basis;



•

on an "as adjusted" basis to reflect the IPO Exchange in which all the membership units of Orbitz, LLC held by our Founding Airlines or their affiliates will be exchanged for 107,633,299 shares of Class B common stock of Orbitz, Inc. prior to the consummation of this offering; and the automatic conversion of our outstanding Class C common stock into 765,296 shares of Class A common stock effective upon the earlier of one day prior to the consummation of the IPO Exchange or upon the consummation of this offering; and



•

on an "as further adjusted" basis to reflect, in addition to the IPO Exchange and the automatic conversion of our Class C common stock described above, the sale of              shares of Class A common stock offered by us and the selling stockholders at an assumed initial public offering price of $             per share (the mid-point of the estimated price range shown on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          The number of shares of Class A common stock outstanding as of June 30, 2003 excludes 26,821,708 shares of common stock reserved for issuance under our stock plans as of June 30, 2003, of which 17,404,048 shares at a weighted average exercise price of $2.49 per share were issuable upon the exercise of outstanding options as of June 30, 2003.

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            You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the accompanying notes appearing elsewhere in this prospectus.

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DILUTION

          If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the net tangible book value per share of Class A common stock upon the completion of this offering.

          Calculations relating to shares of Class A common stock in the following discussion and tables assume the following have occurred as of June 30, 2003: (i) the exchange of all membership units of Orbitz, LLC held by our Founding Airlines or their affiliates for 107,633,299 shares of Class B common stock, (ii) the subsequent conversion of all shares of Class B common stock into                      shares of Class A common stock and (iii) the automatic conversion of all shares of Class C common stock into 765,296 shares of Class A common stock.

          Our net tangible book value as of June 30, 2003 equaled approximately $49.3 million, or $0.46 per share of Class A common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the total number of shares of Class A common stock outstanding. After giving effect to the sale of shares of Class A common stock offered by us in this offering at an assumed initial public offering price of $          per share (the mid-point of the estimated price range shown on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us, our net tangible book value, as adjusted, as of June 30, 2003, would have equaled approximately $          , or $         per share of Class A common stock. This represents an immediate increase in net tangible book value of $          per share to our existing stockholders and an immediate dilution in net tangible book value of $          per share to new investors of Class A common stock in this offering. If the initial public offering price is higher or lower, the dilution to new investors will be greater or less, respectively. The following table illustrates this per share dilution to new investors purchasing our Class A common stock in this offering.

          The following table as of June 30, 2003 summarizes the differences between our existing stockholders and new investors with respect to the number of shares of Class A common stock issued by us, the total consideration paid and the average price per share paid. The calculations with respect to shares purchased by new investors in this offering reflect an assumed initial public offering price of $          per share (the mid-point of the estimated price range shown on the cover of this prospectus).

          The preceding tables assume no issuance of shares of Class A common stock under our stock plans after June 30, 2003. As of June 30, 2003, 17,404,048 shares were subject to outstanding options at a weighted average exercise price of $2.49 per share. To the extent outstanding options are exercised, there will be further dilution to new investors.

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SELECTED FINANCIAL DATA

          You should read the following selected financial data in conjunction with the combined financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

          The combined statements of operations data reflect the combined operations of Orbitz, Inc. and Orbitz, LLC. We derived the combined statements of operations data for the period from February 24, 2000 (date of inception) through December 31, 2000 and for the years ended December 31, 2001 and 2002, and the combined balance sheet data as of December 31, 2001 and 2002, set forth below, from our audited combined financial statements included elsewhere in this prospectus. We derived the combined balance sheet data as of December 31, 2000 from our audited combined financial statements that are not included in this prospectus. We derived the combined statements of operations data for the six months ended June 30, 2002 and 2003, and the combined balance sheet data as of June 30, 2003, from our unaudited interim combined financial statements included elsewhere in this prospectus. We derived the combined balance sheet data as of June 30, 2002 from our unaudited interim combined financial statements that are not included in this prospectus. In management's opinion, these unaudited combined financial statements have been prepared on substantially the same basis as the audited combined financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the combined financial information for the periods presented. The historical results do not necessarily indicate results expected for any future period.

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(1)

Revenues represent activities of Orbitz subsequent to the limited launch of our website in February 2001. Revenues include significant transactions with our Founding Airlines and certain of their affiliates. See further information about related party transactions at Note 8 to the combined financial statements appearing elsewhere in this prospectus.

(2)

No provision for income taxes is reflected as Orbitz, LLC is treated as a partnership for tax purposes. All operating losses of the partnership have been allocated to our Founding Airlines. Subsequent to this offering, we will be taxed as a C corporation rather than as a partnership and profits and losses will be taxed at the corporate level.

(3)

Pro forma net loss includes approximately $5,689,000 and $1,526,000 of stock compensation expense for the year ended December 31, 2002, and the six months ended June 30, 2003,

respectively, which relates to a modification of our stock awards. A new measurement date for all stock awards occurred in April 2002 as a result of the restructuring transaction (see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview—Restructuring") and recognition of compensation expense related to unvested stock awards will begin upon the earlier of one day prior to the IPO Exchange or consummation of this offering. Compensation expense included in pro forma net loss has been recorded over the weighted average remaining vesting period of the modified options as if this offering occurred on January 1, 2002. Not reflected in the pro forma net loss is the nonrecurring compensation expense of $26,141,000 to be recognized at the time of the offering related to vested stock awards.

(4)

Pro forma net loss per share is based on the weighted average number of shares of common stock outstanding after giving effect to the IPO Exchange and the automatic conversion of our Class C common stock to Class A common stock upon the earlier of one day prior to the consummation of the IPO Exchange or the consummation of this offering.

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(5)

While we believe that earnings before interest, income taxes, depreciation and amortization (EBITDA) is an important financial measure, it is not intended to represent cash flow for the period, is not presented as an alternative to operating income as an indicator of operating performance, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles, or GAAP. We believe that EBITDA is a useful supplement to net income (loss) and other operating statement data to help investors understand our ability to generate cash flows from operations that are available for taxes, debt service and capital expenditures. A reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA for each of the fiscal periods indicated is as follows:

(6)

"Gross bookings" is an operating statistic that represents the total value of travel booked through our website, including taxes and fees, but net of reported cancellations. We believe that gross bookings is a useful measure for investors to analyze the growth of travel bookings on our website.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following is a discussion of the combined operations of Orbitz, Inc. and Orbitz, LLC and should be read in conjunction with the "Selected Financial Data" and our combined financial statements and the related notes contained elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

Description of Business

          We are a leading online travel company that enables our customers to search for and purchase a broad array of travel products, including airline tickets, lodging, car rentals, cruises and vacation packages. At present, we derive substantially all of our revenues from the following sources:

•

Supplier transaction fees: We receive transaction fees based upon contractual arrangements with our charter associates and other suppliers. We also receive commissions from our non-charter suppliers who currently pay commissions to online travel agents.



•

Consumer service fees: Consumers pay a service fee per ticket on air transactions and other additional fees in certain cases.



•

Reservation system booking incentives: We receive booking incentives under our contracts with Worldspan for air and car rental ticket reservations, and with Pegasus Solutions for lodging reservations made on their systems. We are contractually obligated to share with some of our air and car suppliers a percentage of the booking incentives we receive that pertain to travel products booked with that charter associate.



•

Supplier Link: In August 2002, we launched our Supplier Link program through which we establish direct links with an airline's internal reservation system, allowing us to book airline tickets without using a GDS. We receive a Supplier Link transaction fee from the airlines that utilize this service for each ticket booked through our Supplier Link services, net of refunded or exchanged tickets. Total fees received from a Supplier Link transaction are lower than total inducements received from a GDS transaction, resulting in lower revenues per transaction. However, the Company must pay part of the inducement received from a GDS transaction to the charter associates, and as a result, the gross profit from a Supplier Link transaction is higher than that from a GDS transaction.



•

Orbitz Merchant Hotel: We introduced the Orbitz Merchant Hotel program in March 2003. Through this program, we receive revenues from hotel transactions where we serve as merchant of record and determine the price of the room.



•

Other revenues: Other revenues are derived primarily from advertising, Booking Engine Services, sponsoring links on our website and commissions from sales of travel-related products on our site.

Formation

          On February 24, 2000, Orbitz, LLC was formed as a Delaware limited liability company under the name of "DUNC, LLC." Its initial members consisted of Continental Airlines, Delta Air Lines, Northwest Airlines and United Air Lines. On May 9, 2000, American Airlines acquired membership interests in DUNC, LLC. Orbitz, Inc. was originally formed under the name of "DUNC, Inc." and was incorporated in the State of Delaware on May 4, 2000. Pursuant to a series of subscription letters

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dated May 9, 2000, its initial stockholders consisted of American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines and United Air Lines. Additionally on May 9, 2000, DUNC, Inc. purchased an investment in DUNC, LLC and joined the other four airlines as a member of DUNC, LLC. In July 2000, DUNC, LLC and DUNC, Inc. changed their names to "Orbitz, LLC" and "Orbitz, Inc.," respectively.

          From February 24, 2000 through February 19, 2001, we were developing our business, which included technology development and the establishment of our operations. During this period, we did not generate any revenue. On February 20, 2001, we had a limited launch of our website, which generated small amounts of revenue. On June 4, 2001, we launched Orbitz.com to the general public and began generating meaningful revenue.

Restructuring

          On April 10, 2002, we entered into a restructuring transaction to, among other things: (1) restructure the capitalization of Orbitz, Inc. and Orbitz, LLC to facilitate ownership by our Founding Airlines or their affiliates and future investors in Orbitz, Inc., (2) designate Orbitz, Inc. as the sole manager of Orbitz, LLC and (3) adopt our 2002 Stock Plan. To accomplish this restructuring, a new wholly owned entity, CANDU, Inc., was formed by our Founding Airlines or their affiliates and issued to such Founding Airlines or their affiliates an aggregate of 20,490 shares of its Class B common stock. CANDU, Inc. was then merged with and into Orbitz, Inc. As a result of this restructuring transaction: (1) Orbitz, Inc. adopted the form of certificate of incorporation of CANDU, Inc. as its certificate of incorporation and (2) the capitalization of Orbitz, Inc. was restructured to give effect to the current capitalization of CANDU, Inc. by converting all outstanding shares of Class B common stock of CANDU, Inc. into shares of Class B common stock of Orbitz, Inc., converting all outstanding shares of common stock of Orbitz, Inc. into Class C common stock of Orbitz, Inc. and cancelling all outstanding shares of Series A preferred stock of Orbitz, Inc. Also in connection with the restructuring, Orbitz, Inc. amended and restated its bylaws and adopted the CANDU, Inc. 2002 Stock Plan as its 2002 Stock Plan, and the limited liability company agreement of Orbitz, LLC was amended to designate Orbitz, Inc. as the sole manager. Pursuant to the certificate of incorporation of Orbitz, Inc., adopted in connection with the restructuring, each share of Class C common stock converts into one share of Class A common stock, $.001 par value, of Orbitz, Inc. upon the earlier of (i) an initial public offering or (ii) one day prior to the IPO Exchange.

          A new measurement date for stock awards occurred as a result of the restructuring transaction. Total compensation expense related to this new measurement date is $33,690,000. Compensation expense of $26,141,000 will be recognized on vested stock awards upon the earlier of one day prior to the IPO Exchange or consummation of this offering and the remaining $7,549,000 will be recognized on unvested stock awards on a go-forward basis from that date over their remaining vesting periods.

          Assuming an offering date of                      , 2003, we expect to recognize the remaining expense as follows:

          These amounts have been and may continue to be reduced due to forfeitures of stock awards prior to the IPO Exchange or the consummation of this offering.

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Charter Associate Agreements

          We have signed charter associate agreements with numerous suppliers, including our Founding Airlines, that provide us with minimum guaranteed transaction fees that decline periodically during the term of the charter associate agreement. Our charter associate agreements with our Founding Airlines are terminable by each of them beginning in September 2005, and our agreements with other suppliers are generally terminable by them within one to two years. Additionally, as part of the agreements, we share with air and car rental suppliers a portion of the booking incentives we receive from the reservation system providers. Air charter transaction fee rates declined 15% and 16%, respectively, in June 2002 and June 2003 and will decline approximately 27%, 28% and 30%, respectively, on an annual basis each June 1 of the next three years and remain constant thereafter until May 2010. Actual transaction fees associated with a particular transaction depend on the relevant charter agreement in effect at the time of the reservation.

          Without an increase in the volume of transactions, the declining charter associate transaction fees will result in decreased revenue for Orbitz. Supplier transaction fees from charter associates represented 23% of net revenues for the year ended December 31, 2002 and 21% of net revenue for the six months ended June 30, 2003.

Revenues, Net

          We launched our website to the general public in June 2001, after a limited launch in February 2001. To date, we have conducted over 19 million travel transactions. A transaction represents an airline ticket purchased through our website or a reservation of lodging, rental car, cruise or vacation package made through our website. In the six months ended June 30, 2003, we sold $1.6 billion in gross travel bookings.

          Our revenues are derived from: (1) airline travel reservation services; (2) lodging, car rental, cruise and vacation reservation services; and (3) other sources of revenue, including advertising, Booking Engine Services, sponsoring links on our website and commissions from sales of travel-related products on our website.

•

Air revenues, net: Revenues derived from airline travel reservation services are the largest component of our revenues, accounting for approximately 76% of revenue in 2002 and 69% for the six months ended June 30, 2003. Our air revenues are primarily derived from supplier transaction fees, consumer service fees, reservation system booking incentives and Supplier Link fees relating to airline travel reservation services.


The significant majority of airline supplier transaction fees are based upon contractual agreements with our airline charter associates, including our Founding Airlines, while the remaining amount is derived from market-based commissions paid by airlines that have not signed charter associate agreements.

Effective in December 2001, we implemented a $5.00 per ticket consumer service fee on air transactions. This fee was subsequently increased to $6.00 per ticket in June 2003. We have charged, and may in the future charge, higher consumer service fees in cases where airlines do not

pay supplier transaction fees. We charge additional fees for all air reservations utilizing paper tickets and for exchanging and re-issuing tickets.

We receive booking incentives under an agreement with our air reservation service provider, Worldspan. The level of incentives received is based on a contractual agreement and depends on the annual volume of travel segments booked through Worldspan.

We receive transaction fees for tickets booked through our Supplier Link services. Such fees are based on contractual agreements with the airlines that utilize this service.

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We recognize airline transaction fees, consumer service fees, reservation booking incentive revenues, and Supplier Link fees, net of estimated future cancellations, when the relevant reservation is booked on Orbitz.com.

•

Other travel revenues: Other travel revenues are primarily derived from supplier transaction fees and reservation system booking incentives relating to lodging, car rental, cruise and vacation reservation services, and revenues from our merchant hotel bookings. Other travel revenues accounted for approximately 13% of revenues for the year ended December 31, 2002 and 17% of revenues for the six months ended June 30, 2003. We recognize supplier transaction fees and booking incentives relating to lodging, car rentals, cruises and vacations when we receive payment or notification of entitlement of payment by a third-party.


Under our Orbitz Merchant Hotel program, we derive revenues from hotel transactions where we serve as the merchant of record and determine the room rate. We have agreements with hotels that supply us with rooms to sell under this program, but we have no obligation to pay for unsold rooms. Revenues for merchant hotel transactions are recorded when the guest completes the stay, at the amount of the rate we charged to the guest less the amount we paid to the hotel.

•

Other revenues: Other revenues are comprised of revenue from advertising as well as revenue from sponsoring links on our website to third-party websites and transaction fees from sales of various third-party travel-related products on our website. Other revenues accounted for approximately 10% of revenues for the year ended December 31, 2002 and 13% of revenues for the six months ended June 30, 2003. Advertising revenues are recognized on display of each advertisement or ratably over the advertising period, depending on the terms of the advertising contract. Revenues for Booking Engine Services, which are hosting services we provide to airlines as a platform for their websites, are recorded monthly as services are provided. Other revenues are recognized on receipt of cash or notification of entitlement from the vendors.

Cost of Revenues

          Cost of revenues consists primarily of vendor fees for call center and ticket fulfillment services, the costs of operating our data centers, the portion of the reservation system booking incentive fees that we share with travel suppliers, credit card processing fees, technology service provider fees and provisions for travel products purchased with fraudulent credit cards.

Operating Expenses

          Our operating expenses consist of sales and marketing, technology and development, general and administrative and stock-based compensation expenses. Sales and marketing expenses consist of advertising and public relations expenses as well as personnel related costs. As we continue to build the Orbitz brand and drive traffic to Orbitz.com, we expect that our advertising expenses will increase in absolute terms. Technology and development costs consist primarily of compensation for personnel, research and development costs and maintenance of our website. Orbitz capitalizes the cost of software developed or obtained for internal use. General and administrative expenses consist primarily of compensation for personnel to support functions such as corporate travel services, executive, finance, legal and human resources as well as other professional services. We expect our technology and development as well as our general and administrative expenses to increase in absolute terms as we continue to grow our business. However, they should continue to decrease as a percentage of revenue.

          Stock-based compensation expenses result primarily from restricted stock granted to certain employees. These restricted shares vest over a period ranging from 9 to 36 months. In addition, we

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are obligated to make a one-time cash payment to Jeffrey G. Katz, our Chairman, President and Chief Executive Officer, at his option, in an amount calculated by multiplying 250,000 by the difference between $10.00 and the average closing price of our common stock (if less than $10.00) for the preceding 20 days on any of the following dates: (1) the first four anniversaries of July 6, 2003, (2) 30 days after the completion of this offering, or (3) Mr. Katz's resignation or termination by us for any reason. We recorded as stock-based compensation expense the maximum potential cost of this agreement over the three-year vesting period which ended in July 2003.

Income Taxes

          Orbitz, LLC is a limited liability company whose members are generally individually responsible for income taxes that result from the operations of Orbitz, LLC. Prior to this offering, the limited liability company agreement of Orbitz, LLC required that the tax losses be first allocated to our Founding Airlines. Accordingly, all tax losses incurred prior to this offering have been allocated to our Founding Airlines and Orbitz, Inc. has not been allocated any taxable income or loss. Following this offering, we will be taxed as a C corporation rather than as a partnership. Subject to certain limitations, Orbitz, Inc. will utilize its net operating losses, if any, incurred from the date of the offering to reduce future taxable income to the extent permitted by the applicable tax laws.

Results of Operations

Six Months Ended June 30, 2002 and 2003

Revenues, Net

          Total revenues, net increased 44% from $74.7 million in the six months ended June 30, 2002 to $107.8 million in the six months ended June 30, 2003. Air revenues increased by $13.4 million due to $1.8 million in increased supplier transaction fees and $7.9 million in increased consumer service fees resulting primarily from a 28% increase in the volume of air transactions offset in part by a decrease in average per ticket supplier transaction fees. The remaining increase in air revenues is due to a $4.7 million increase in Supplier Link fees offset by a $1.0 million reduction in Worldspan inducements, which reflects the shift of volume to our Supplier Link services. Other travel revenues increased $12.1 million due primarily to an increase in hotel and car transactions of 263% and 105%, respectively. Other revenues increased $7.6 million primarily as a result of a $3.3 million increase in advertising revenues and a $3.0 million increase from the launch of our Booking Engine Services in April 2002.

Cost of Revenues

          Cost of revenues decreased both in absolute terms from $37.3 million to $36.3 million and as a percentage of revenue from 50% to 34% in the six months ended June 30, 2002 compared to the six months ended June 30, 2003. This decrease resulted from a $2.1 million reduction in credit card fraud costs, due to improved security measures relating to such fraud, offset by an increase in costs related to our credit card affinity program of $1.0 million. During the six months ended June 30, 2003, we revised our estimate of credit card fraud and reversed a portion of our accrual based on the results achieved by our enhanced fraud prevention procedures and the work by our revenue protection group, resulting in decreased fraud costs of $562,000 for the six months ended June 30, 2003.

Sales and Marketing

          Sales and marketing expenses increased both in absolute terms from $32.3 million to $52.6 million and as a percentage of revenues from 43% to 49% in the six months ended June 30, 2002 compared to the six months ended June 30, 2003. This increase was primarily attributable to an increase in online promotional activities intended to direct traffic to our website. The increase was also attributable to new marketing campaigns to promote our new service offerings, such as Orbitz Merchant Hotel.

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Technology and Development

          Technology and development expenses increased in absolute terms from $12.8 million to $13.9 million, but decreased as a percentage of revenue from 17% to 13% in the six months ended June 30, 2002 compared to the six months ended June 30, 2003. The $1.1 million increase in expenses in absolute terms was primarily attributable to the hiring of additional personnel to support our expanded business operations.

General and Administrative

          General and administrative expenses increased in absolute terms from $8.8 million to $9.9 million, but decreased as a percentage of revenue from 12% to 9% for the six months ended June 30, 2002 compared to the six months ended June 30, 2003. The $1.1 million increase in general and administrative expenses in absolute terms was primarily attributable to the hiring of additional personnel to support our expanded business activities.

Interest Income

          Interest income decreased 23% from $0.5 million for the six months ended June 30, 2002 to $0.4 million for the six months ended June 30, 2003 primarily due to a decrease in interest rates.

Net Loss

          Net loss decreased 68% from $16.5 million for the six months ended June 30, 2002 to $5.3 million for the six months ended June 30, 2003 due to the factors discussed above.

Years Ended December 31, 2001 and 2002

Revenues, Net

          The public launch of our website occurred on June 4, 2001. As a result, we had minimal revenues for the period from January 1, 2001 to June 3, 2001. Total revenues, net increased 304% from $43.4 million in the year ended December 31, 2001 to $175.5 million in the year ended December 31, 2002. Air revenue increased $96.1 million, of which $54.7 million was due to the increased supplier transaction fees, reservation system booking incentives and paper ticket fees related to an increase in paid air transactions. Additionally, in December 2001, we implemented a consumer service fee, typically $5 per ticket, on air transactions, resulting in $34.3 million in air revenue for 2002. Other travel revenues increased by $20.7 million due primarily to an increase in hotel and car transactions. The increase in other revenue of $15.3 million was due primarily to an increase of $7.7 million in advertising revenue, the addition of our Booking Engine Services in April 2002, which contributed $3.6 million in revenue in 2002, and an increase of $3.8 million in revenues from sponsoring links.

Cost of Revenues

          Cost of revenues increased from $50.1 million in 2001 to $74.4 million in 2002 but decreased as a percentage of revenue from 115% in 2001 to 42% in 2002. The decrease as a percentage of revenues was primarily attributable to the spreading of our fixed costs of revenues over a larger revenue base in 2002, as well as the increase to incremental margins of $31.6 million from the consumer service fee we introduced in December 2001.

Sales and Marketing

          Sales and marketing expenses increased from $51.5 million to $72.9 million in 2002, but decreased as a percentage of revenue from 119% in 2001 to 42% in 2002. The decrease as a

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percentage of revenues was due primarily to the fact that, prior to the public launch of our website in June 2001, we had no revenues and therefore our sales and marketing activities during the 2001 period represented a higher percentage of revenue. We did not launch our marketing campaign until June 2001 to coincide with the public launch of our website. Additionally, following the terrorist attacks of September 11, 2001, we significantly curtailed our marketing activities until the second quarter of 2002.

Technology and Development

          Technology and development expenses decreased both in absolute terms from $31.8 million in 2001 to $26.5 million in 2002 and as a percentage of revenue from 73% in 2001 to 15% in 2002. This decrease resulted primarily from a reduction in consulting fees incurred to complete the initial development of our website in 2001.

General and Administrative

          General and administrative expenses increased from $14.6 million in 2001 to $19.7 million in 2002 but decreased as a percentage of revenue from 34% in 2001 to 11% in 2002. The decrease as a percentage of revenues resulted from the leveraging of our existing infrastructure offset by a one-time charge of $2.2 million related to our initial S-1 filing and activities related to our restructuring transaction.

Interest Income

          Interest income decreased 57% from $2.3 million for the year ended December 31, 2001 to $1.0 million for the year ended December 31, 2002 primarily due to the downward trend in interest rates.

Net Loss

          Net loss decreased 83% from $103.2 million for the year ended December 31, 2001 to $17.9 million for the year ended December 31, 2002 due to the factors discussed above.

For the period from February 24, 2000 (date of inception) through December 31, 2000 and for the year ended December 31, 2001

Revenues, Net

          The public launch of our website occurred on June 4, 2001, so we had no revenue for the period from February 24, 2000 (date of inception) through December 31, 2000. Revenue for the year ended December 31, 2001 was $43.4 million. The increase in net revenue was driven by the public launch of our website. Approximately $37.8 million and $2.6 million of this increase was driven by the launch of airline and other travel reservations services, respectively. The remaining $3.1 million increase in revenue was driven by the launch of advertising and other products on our website.

Cost of Revenues

          Orbitz had not commenced commercial operations for the period from February 24, 2000 (date of inception) through December 31, 2000 and therefore, incurred no cost of revenues. Cost of revenues in the year ended December 31, 2001 was $50.1 million, driven primarily by information technology costs to support our website of $16.3 million, call center operations costs of $11.4 million, ticket fulfillment operations costs of $6.8 million and the portion of the reservation system booking incentive fees that we share with travel suppliers of $7.4 million.

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Sales and Marketing

          Sales and marketing expenses increased 615% from $7.2 million for the period from February 24, 2000 (date of inception) through December 31, 2000 to $51.5 million in the year ended December 31, 2001. Sales and marketing expenses incurred for the period from February 24, 2000 (date of inception) through December 31, 2000 were primarily related to marketing personnel costs of $1.0 million and advertising production costs of $6.2 million. The increase in 2001 was attributed to the launch of our marketing campaign, which included the cost of direct promotional activities intended to drive traffic to Orbitz.com, and to establish, enhance and maintain the Orbitz brand through online, print and broadcast advertising.

Technology and Development

          Technology and development expenses increased 155% from $12.4 million for the period from February 24, 2000 (date of inception) through December 31, 2000 to $31.7 million in the year ended December 31, 2001. Many of our technology employees were hired in the third and fourth quarter of 2000, so the increase was largely related to full year employee expenses during 2001.

General and Administrative

          General and administrative expenses decreased 36% from $22.8 million for the period from February 24, 2000 (date of inception) through December 31, 2000 to $14.6 million for the year ended December 31, 2001. The decrease was primarily attributed to the higher level of legal costs and other start-up costs incurred in 2000.

Interest Income

          Interest income increased 20% from $1.9 million for the period from February 24, 2000 (date of inception) through December 31, 2000 to $2.3 million for the year ended December 31, 2001 primarily due to a full year of operations during 2001.

Net Loss

          Net loss increased 152% from $41.0 million for the period from February 24, 2000 (date of inception) through December 31, 2000 to $103.2 million for the year ended December 31, 2001 due to a full year of operations in 2001 and the factors discussed above.

Quarterly Unaudited Results of Operations

          The following tables set forth our quarterly unaudited combined statements of operations for the periods presented in both absolute dollars and as a percentage of revenues.

          In management's opinion, the quarterly unaudited combined statements of operations have been prepared on substantially the same basis as the audited combined financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the combined financial position and combined operating results for the quarters presented. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period, and you should not rely on them as such.

          Our business experiences seasonal fluctuations, reflecting seasonal trends for the products offered by our website, as well as Internet services in general. For example, traditional leisure travel bookings are higher in the first two calendar quarters of the year in anticipation of spring and summer vacations and holiday periods, but online travel reservations may decline with reduced Internet usage during the summer months. In the last two quarters of the calendar year, demand for travel products generally declines and the number of bookings flattens. These trends are difficult to

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discern in our results since we have simultaneously experienced a shift from offline to online purchasing and market share growth relative to our competitors.