ORBITZ INC - 10-Q Quarterly Report

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý-Yes o-No

Indicate by check mark whether the registrant is an accelerated filer o Yes ý No

As of May 7, 2004 the registrant had outstanding 13,105,402 shares of Class A common stock, $0.001 par value, and 27,269,809 shares of Class B common stock, $0.001 par value.

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Condensed Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003		3
Consolidated and Combined Statements of Operations for the three months ended March 31, 2004 and 2003 (Unaudited)		4
Consolidated Statement of Equity for the three months ended March 31, 2004 (Unaudited)		5
Consolidated and Combined Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (Unaudited)		6
Notes to Unaudited Condensed Consolidated and Combined Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	37
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Submission of Matters to a Vote of Security Holders	38
Item 5.	Other Information	38
Item 6.	Exhibits and Reports on Form 8-K	38
SIGNATURES		39
Exhibit Index		40

See accompanying notes to condensed consolidated and combined financial statements.

ORBITZ, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated and Combined Financial Statements
(unaudited)

Orbitz, Inc. and Subsidiaries (collectively referred to as Orbitz, the Company, we, us and our) is an online travel company that enables customers to search for and purchase a broad array of travel products, including airline tickets, lodging, car rentals, cruises and vacation packages through its website, orbitz.com. We sell these travel products both individually and as part of packaged trips to leisure and corporate customers located primarily in the United States. We also offer access to travel news and other information of interest to travelers on our website.

We generate the majority of our revenues from payments from the travel suppliers whose services we sell, from the distribution and reservation services we utilize and from customers who purchase travel on our website. We also generate revenues from other sources, such as from companies that advertise and sell travel-related products on our website. Additionally, we license components of our technology to selected airlines as a platform for their websites and provide ongoing website hosting services to these airlines.

Orbitz, LLC was formed on February 24, 2000 as a Delaware limited liability company. The original investors and founders of Orbitz, LLC were Continental Airlines, Delta Air Lines, Northwest Airlines, and United Air Lines. American Airlines joined as an investor of Orbitz, LLC on May 9, 2000. Collectively, these five investors are referred to as the "Founding Airlines."

Orbitz, Inc. was incorporated in the state of Delaware on May 4, 2000 and was initially owned by the Founding Airlines. Orbitz, Inc. joined the Founding Airlines as a member of Orbitz, LLC.

On December 18, 2003, we formed a wholly owned subsidiary, O Holdings Inc., a Delaware corporation, and contributed 3,700,000 Class C Units in Orbitz, LLC to O Holdings Inc. In addition, on December 19, 2003, immediately prior to the closing of our initial public offering ("IPO") pursuant to an agreement among us and each of the holders of Class B common stock, our Founding Airlines or their affiliates contributed all their membership interests in Orbitz, LLC to us in exchange for an aggregate of 8,180,000 shares of Class A common stock, an aggregate of 27,262,980 shares of Class B common stock and an aggregate of 434,782 shares of redeemable Series A non-voting convertible preferred stock. As a result of the foregoing transactions, Orbitz, LLC is 99% owned by us and 1% owned by our wholly owned subsidiary, O Holdings Inc. We act as the sole manager of Orbitz, LLC. This transaction is referred to as the "IPO Exchange." Additionally, concurrent with the IPO Exchange, all shares of Class C common stock were converted to shares of Class A common stock.

On December 19, 2003, we consummated an IPO of our Class A common stock. We sold 4,000,000 shares of Class A common stock at an offering price of $26.00 per share and received net proceeds of $93.8 million. The Founding Airlines sold an aggregate of 8,180,000 shares in the IPO; however, we did not receive any proceeds from the sale of these shares.

Our interim condensed consolidated and combined financial statements are unaudited and should be read in conjunction with the audited consolidated and combined financial statements for the year ended December 31, 2003 contained in our Annual Report on Form 10-K ("Annual Report"). In our opinion, all adjustments necessary for a fair presentation of such condensed consolidated and combined financial statements, consisting only of normal recurring items, have been included. Interim results are

not necessarily indicative of results for a full year. The interim condensed consolidated and combined financial statements and related notes are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in our audited consolidated and combined financial statements.

The accompanying financial statements present the condensed consolidated financial position, results of operations and cash flows of Orbitz, Inc. and Subsidiaries and the combined financial results of Orbitz, Inc. and Orbitz, LLC as further discussed below. All intercompany transactions have been eliminated in all periods presented.

Before the IPO Exchange, the financial statements presented the combined financial position, results of operations and cash flows of Orbitz, Inc. and Orbitz, LLC. Subsequent to the IPO Exchange, the financial statements present the consolidated financial position, results of operations, and cash flows of Orbitz, Inc., O Holdings, Inc., and Orbitz, LLC.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates, including those related to allowances for doubtful accounts, asset lives and reserves for credit card fraud losses, debit memos, net deferred tax assets and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and such revisions could be material.

See Note 2 to the Consolidated and Combined Financial Statements in our Annual Report for a summary of all significant accounting policies. Other than our policy for accounting for investments discussed below, there have been no new policies or changes in our significant accounting policies during the three months ended March 31, 2004.

We classify marketable debt securities included in short-term and long-term investments as available-for-sale. The securities consist of investment grade, interest bearing corporate and government securities and are stated at fair value, with net unrealized gains or losses on the securities recorded as accumulated other comprehensive income (loss) in shareholders' equity. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the securities. There were no realized gains or losses in the quarter ended March 31, 2004. We did not hold marketable securities during 2003.

We have two stock-based compensation plans, which are more fully described in Note 10 to the Consolidated and Combined Financial Statements in our Annual Report. We account for these plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Under APB No. 25, compensation expense is based on the difference, if any, on the measurement date, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the equity award.

A new measurement date for stock awards occurred as a result of the restructuring transaction discussed in Note 10 to the Consolidated and Combined Financial Statements in our Annual Report. Total compensation expense related to this new measurement date is approximately $33,502,000. We began to record this compensation expense for all vested awards on consummation of the IPO Exchange. We recognized $26,474,000 of this charge in the year ended December 31, 2003 and $1,453,000 in the three months ended March 31, 2004. We will recognize compensation on unvested stock awards of $5,575,000 on a go-forward basis over the remaining vesting periods. Stock-based compensation on unvested awards may be reduced by forfeitures of stock awards.

Additionally, we recorded $133,000 of stock-based compensation expense in the three months ended March 31, 2004 related to issuances of stock options with an exercise price below fair market value on the measurement date and $169,000 and $499,000 related to issuances of restricted stock to certain executives for the three months ended March 31, 2004 and 2003, respectively.

The following table illustrates the effect on net income (loss) if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock awards granted to employees (in thousands):

		Three Months Ended March 31,
		2004			2003
Net income (loss) as reported		$	1,860		$	(2,386	)
Add stock-based compensation expense included in reported net income (loss)			1,755			499
Less stock-based compensation determined under the provisions of SFAS No. 123			(2,441	)		(1,106	)

Pro forma net income (loss)			1,174		$	(2,993	)

Less dividends and accretion on redeemable Series A non-voting convertible preferred stock			(141	)

Pro forma net income available to common shareholders		$	1,033

Basic earnings (loss) per share:
	As reported	$	0.04

	Pro forma	$	0.03

Diluted earnings (loss) per share:
	As reported	$	0.04

	Pro forma	$	0.02

The fair value of options granted was estimated as of the grant date, using the Black-Sholes method. The following assumptions were used to calculate the weighted average fair values for grants in the quarter ended March 31:

	2004		2003
Dividend yield		—	%		—	%
Volatility		51.5	%		—	%
Expected life		5 years			5 years
Risk-free interest rate		2.6	%		2.6	%
Weighted average fair value	$	11.39		$	1.58

FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement.

Emerging Issues Task Force Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement 128," (EITF No. 03-6) clarifies what is meant by a "participating security" under SFAS 128, provides guidance on applying the two-class method for computing earnings per share and requires affected companies to retroactively restate earnings per share amounts presented. Companies that issue securities that are entitled to participate in dividends with common stocks will report lower earnings per share under EITF No. 03-6, which is effective for reporting periods beginning after March 31, 2004. We do not expect the adoption of EITF No. 03-6 to have a material impact on our earnings per share.

In November 2001, we entered into a 10-year computer reservation system and related services agreement with Worldspan that expires in October 2011. This agreement, as amended, requires that we guarantee certain levels of minimum net air and car segments to be booked each calendar quarter through Worldspan's computer reservation system. The agreement provides that these minimum levels will be waived if we cure any shortfall within the quarter or if we elect to book 100% of net air and car segments through Worldspan for that quarter. In the event that we fall short of the minimum net segments without curing the shortfall, we would be required to pay $1.78 for each segment below the specified minimum. To date, no such shortfall has occurred.

On January 10, 2004, NCR Corporation ("NCR") filed a complaint in the United States District Court for the Western District of Pennsylvania, alleging that our commercial Internet operations infringe 13 patents, including business method patents, allegedly owned by NCR. We have filed both an answer and counterclaims against NCR. While we believe that this lawsuit is without merit, we are exploring settlement possibilities with NCR. If we are not able to resolve this matter by agreement with NCR, we will vigorously defend this action. As of March 31, 2004, we have recorded a reserve for our potential loss related to this matter within accrued expenses on the accompanying condensed consolidated balance sheet. We do not expect the ultimate outcome of this matter to have a material adverse effect on our financial position or results of operations.

In addition to the matters discussed above, we have certain contingencies resulting from litigation, government regulation and claims, some of which are incidental to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the views of legal counsel and the nature of the contingencies to which the Company is subject, that the ultimate disposition of these contingencies either cannot be determined at the present time or will not materially affect our results of operations or financial position.

We derive revenue from our Founding Airlines from ticket distribution and customer support services. Additionally, we provide Booking Engine Services and other services to certain of our

Founding Airlines. For the three months ended March 31, 2004 and 2003, the Company received total revenues from its Founding Airlines of approximately $13,648,000 and $12,748,000, respectively. Receivables outstanding from the Founding Airlines were approximately $3,460,000 and $3,232,000 at March 31, 2004 and December 31, 2003, respectively.

As discussed in Note 3, we have an agreement with Worldspan, which was previously owned by Delta Air Lines, Northwest Airlines, and American Airlines, or their respective affiliates. On July 1, 2003, these airlines sold their interest in Worldspan and therefore, it ceased to be a related party. Worldspan pays us incentives for air and car bookings made on our website through the Worldspan reservation system. We recognized revenues from Worldspan for the three months ended March 31, 2003 in the amount of $8,342,000. Worldspan was not a related party in 2004.

The Founding Airlines provide Orbitz with access to the fares and rates generally available to the public and also provide certain in-kind marketing support to the Company. In return, we rebate to the Founding Airlines a portion of the booking incentives received from the reservation system provider. Such rebates amounted to $3,130,000 and $2,799,000 for the three months ended March 31, 2004 and 2003, respectively, and are included as a component of cost of revenue in the accompanying consolidated and combined statements of operations. The related payables outstanding to the Founding Airlines totaled approximately $3,130,000 and $2,810,000 at March 31, 2004 and December 31, 2003, respectively.

On August 1, 2001, we entered into an alliance agreement with Hotwire, which was previously owned by our Founding Airlines or their respective affiliates, among others, to offer reciprocal co-marketing links between our website and Hotwire's website. On November 5, 2003, the Founding Airlines sold their interests in Hotwire and therefore, Hotwire ceased to be a related party. For the three months ended March 31, 2003, we recognized other revenues of $1,536,000 from Hotwire, primarily for advertising on our website. Additionally, we recorded sales and marketing expense related to our alliance agreement with Hotwire of $168,000 for the three months ended March 31, 2003. Hotwire was not a related party in 2004.

We have an outstanding loan to the Chairman, President and Chief Executive Officer of the Company, evidenced by a promissory note and stock pledge agreement executed in 2001. The loan is secured by a pledge of 83,333 shares of common stock of Orbitz. The note accrues interest at a rate equal to the applicable Federal Rate, and is adjusted and compounded semi-annually. As of March 31, 2004 and December 31, 2003, the amount outstanding, including accrued interest, was $269,000, and is included in other long-term assets on the accompanying condensed consolidated balance sheets.

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur based on the effect of unvested restricted Class A common stock and the exercise of stock options with an exercise price of less than the average market price of our common stock.

Before the December 2003 IPO Exchange, ownership in the enterprise was reflected primarily through membership in Orbitz, LLC, with only a small number of outstanding shares in Orbitz, Inc. The financial statements of Orbitz, Inc. and Orbitz, LLC were presented on a combined basis; accordingly, there was no single capital structure upon which to calculate historical earnings per share information. In addition, management has determined that presentation of actual earnings per share of Orbitz, Inc. for 2003 and prior periods is not meaningful and therefore, has elected to present only pro forma net loss per share for those periods.

Pro forma net loss per share is calculated based on the weighted average number of shares outstanding assuming that all units held by members in Orbitz, LLC had been converted to shares in Orbitz, Inc. as of the date such units were issued and the automatic conversion of Class C common stock to Class A common stock that occurred immediately prior to the IPO. Pro forma net loss to common shareholders reflects charges for dividends and accretion on the preferred stock as if it had been outstanding at the beginning of each period presented.

Actual earnings per share and pro forma net loss per share is calculated as follows for the three months ended March 31 (in thousands, except per share amounts):

		Actual 2004			Pro forma 2003
Net income (loss)		$	1,860		$	(2,386	)
Dividends and accretion on preferred stock			(141	)

Net income available to common shareholders		$	1,719

Pro forma dividends and accretion on preferred stock						(141	)

Pro forma net loss attributable to common shareholders					$	(2,527	)

Earnings per common share:
	Basic	$	0.04

	Diluted	$	0.04

Weighted average number of shares outstanding:
	Basic		39,990

	Diluted		42,754

Pro forma net loss per common share—basic and diluted					$	(0.07	)

Pro forma weighted average number of shares outstanding—basic and diluted						35,639

Anti-dilutive securities not included in the calculations above
	Options		72			1,522
	Convertible preferred stock		435			435

	Total		507			1,957

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.

We are an online travel company headquartered in Chicago, Illinois 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:

In presenting our condensed consolidated and combined financial statements in conformity with generally accepted accounting principles in the United States of America, we are required to make judgments, estimates and assumptions that affect the amounts reported therein. Certain of the estimates and assumptions we are required to make relate to matters that are inherently uncertain, as they pertain to future events. While we believe the estimates and assumptions used were appropriate, actual results could differ significantly from those estimates under different assumptions and conditions.

Note 2 to the Consolidated and Combined Financial Statements in our Annual Report and Note 2 to the Condensed Consolidated and Combined Financial Statements contained herein describe the significant accounting policies and methods used in the preparation of the consolidated and combined financial statements.

The critical accounting policies that require particularly subjective and complex judgments that could have a material effect on our reported financial condition or results of operations are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. There have not been any material changes to our critical accounting policies.

First quarter ended March 31, 2004 compared to first quarter ended March 31, 2003

The increase in air revenues was primarily driven by a $5.8 million increase in consumer service fee revenues resulting from an increase in both business and leisure air transactions and a $1.00 increase to our per ticket service fee implemented in late June 2003. Supplier transaction fee revenues increased by $1.0 million due to higher air transactions, offset by an 11% decrease in the average supplier transaction fee per ticket. We benefited from an industry-wide rebound in consumer bookings, as well as the continued migration to online booking of air travel.

Also contributing to the increase in air revenues were Supplier Link revenues, which rose by $1.6 million, offsetting the $0.7 million decrease in reservation system booking incentives, which reflects

the trend of shifting more air transactions to our Supplier Link program. Supplier Link represented 40% of air transactions in the quarter ended March 31, 2004 compared to 27% in the quarter ended March 31, 2003. We expect our Supplier Link mix to stay fairly constant until our next implementation of a major carrier, which is expected to occur later in the year. We receive a higher margin on Supplier Link transactions because we do not pay GDS rebates to our airline charter associates on these transactions, but we recognize lower revenues because we do not receive GDS inducement payments.

The increase in other travel revenues of 141% is due primarily to an $8.0 million increase in hotel revenues, mostly related to our Orbitz Merchant Hotel ("OMH") program launched in March 2003. OMH revenues represented 49% of all hotel revenues in the quarter ended March 31, 2004, compared to less than 1% in the quarter ended March 31, 2003, and, on average, rooms sold under this program generate more than three times the amount of revenue per transaction compared to rooms sold through other channels. Growth in hotel revenue outpaced growth in hotel transactions by nearly three times due to the more favorable economics of OMH bookings. Although we recently resolved our dispute with Travelweb, we expect that it will have an impact on our results for the second quarter of 2004, as our implementation of a number Orbitz merchant hotel properties did not begin until early May 2004, and will not generate additional revenues until any incremental hotel stays have been completed by the Orbitz customer. Additionally, favorable economic conditions have begun to cause hotel occupancy rates to increase generally, and we are beginning to see lower availability of merchant hotel rooms during peak demand periods, which could also impact future results.

Other travel revenues also benefited from a $1.2 million increase in rental car revenues and a $1.1 million increase in vacation package revenues, driven by increases in bookings volume. In mid-February, 2004, we launched our attractions and services product, under which consumers can purchase theme park passes, museum and sight-seeing tours, airport transportation and similar products. Revenues from this product line were not significant in the three months ended March 31, 2004.

Other revenues increased primarily as a result of a $1.5 million increase in advertising revenue. Additionally, we experienced increases of $0.5 million from commissions for sales driven by sponsoring links on our website and $0.3 million from our credit card loyalty program.

Gross profit rose 58% to $50.2 million for the first quarter of 2004, versus $31.7 million in the same period of 2003. The gross margin was 72% in the first quarter of 2004, compared with 64% in the first quarter of 2003, primarily because we shifted our mix into higher margin non-air products and incurred lower per transaction fraud, customer service and fulfillment costs. Cost of revenues increased 13% in absolute dollars to $20.0 million for the first quarter of 2004 from $17.8 million for the same period of 2003, primarily attributable to a $0.9 million increase in credit card processing fees resulting from higher transaction volumes in the Orbitz Merchant Hotel program and a $0.6 million increase in costs associated with our credit card loyalty program. We record a liability for the maximum value of all points earned under the credit card loyalty program; the actual value of points redeemed under the program could be less than the amount recorded.

Sales and marketing expense increased primarily due to a $7.3 million increase in online advertising expenditures intended to direct traffic to our website and increased marketing expenditures related to promoting Orbitz for Business. We expect to see greater marketing leverage as a percentage of revenues for the balance of the year as we continue to drive productivity in online marketing and see growth in our OMH and dynamic packaging business. We also experienced a $1.6 million increase in salaries and benefits related to additional personnel.

Technology and development costs increased in absolute dollars in the first quarter of 2004 as compared to the first quarter of 2003, due mostly to a $1.0 million increase in salaries and benefits related to additional personnel and a $0.4 million increase in professional service fees.

The increase in general and administrative costs is due primarily to a $1.1 million rise in legal fees due to litigation activity related to Travelweb and other matters, and an increase of $0.7 million for increased insurance expenses.

In connection with the April 2002 Restructuring described in our Annual Report, all options to purchase Class C nonvoting common stock were automatically converted to options to purchase Class A common stock. This conversion was deemed to be a new grant for all options outstanding at

the restructuring date, resulting in non-cash stock compensation expense totaling $33.5 million. We recorded $26.5 million of this expense following the IPO Exchange for all of the affected options that were vested at the IPO Exchange date. The remaining expense of $7.0 million is being recorded as the options vest over 2004, 2005 and 2006. This charge accounted for $1.4 million of the total stock-based compensation expense for the quarter ended March 31, 2004 and none of the stock-based compensation expense for the quarter ended March 31, 2003.

Prior to the IPO Exchange, no provision for Federal or state income taxes was recorded, as the primary operations of the Company resided in Orbitz, LLC, which was treated as a partnership for tax purposes. All operating losses of the partnership were allocated to the Founding Airlines, pursuant to the limited liability company agreement. Following the IPO Exchange, all operating income or loss is allocated to Orbitz, Inc., which is taxed as a C Corporation. We did not record a provision for income taxes for the three months ended March 31, 2004, as the Company has net operating loss carryforwards sufficient to offset taxable income and has a full valuation allowance related to its net deferred tax assets.

Historically, the majority of our financing was provided through contributions from our Founding Airlines and their affiliates and through lease arrangements on our equipment. Our Founding Airlines and their affiliates invested an aggregate of $214.8 million in us through August 31, 2002.

In December 2003, we raised net proceeds of $93.8 million in an IPO. The Founding Airlines sold an aggregate of 8,180,000 shares of Class A common stock in the IPO, and now own 68% of our outstanding stock and control 95% of the voting power of our common stock.

The Founding Airlines and their affiliates have no obligations to make further investments in us, and we do not anticipate that they will do so. Depending on the nature of the financing, our ability to raise capital from other sources may require the consent of two-thirds of our board of directors and the consent of the holders of three-fourths of the voting power of the Class B common stock then outstanding entitled to supervoting rights.

During the next 12 months, we intend to continue our marketing campaigns focused on the retention of existing customers and the acquisition of new customers. In addition, we plan to continue to invest in expanding our product offerings, improving our website and improving the infrastructure supporting customer service and customer care. We believe that our available cash and anticipated future cash flows will be sufficient to fund currently anticipated liquidity needs for the next 12 months and beyond. However, any projections of future cash inflows and outflows and any projections of the future state of the economy and travel industry conditions, which may have a direct effect on our cash inflows, are subject to substantial uncertainty. If we determine that we need to raise additional capital in the future, we may seek to sell additional equity or borrow funds. The sale of additional equity would result in dilution to our shareholders. We cannot assure you that any of these financing alternatives will be available in amounts or on terms acceptable to us, if at all. If we are unable to raise or borrow any needed additional capital, we could be required to significantly alter our operating plan, which could have a material adverse effect on our business, financial condition or results of operations.

Cash and cash equivalents and total investments were $200.6 million at March 31, 2004, an increase of $17.9 million from $182.7 million at December 31, 2003. This increase was primarily due to cash flows generated from operations.

Deferred revenue was $24.0 million at March 31, 2004 compared to $11.9 million at December 31, 2003. The increase of $12.1 million was mainly due to an $8.4 million increase in deferred revenue related to our OMH program and $2.4 million in deferred revenue related to the annual volume resetting of our Worldspan contract.

We generated cash flows from operations of $18.8 million and $0.6 million for the quarters ended March 31, 2004 and 2003, respectively. This was our sixth consecutive quarter of positive cash flows from operations. The growth in cash flows generated from operations when comparing the quarter ended March 31, 2004 to the quarter ended March 31, 2003 is primarily due to cash received on prepaid hotel reservations in advance of our payments to the hotels and to our improved profitability.

Net cash used in investing activities was $46.9 million and $2.4 million for the quarters ended March 31, 2004 and 2003, respectively. Our investing activities consist primarily of the purchase of available-for-sale securities, which we began following our IPO. We invest mostly in investment grade, interest bearing corporate and government securities.

Cash flows from financing activities amounted to $1.2 million and $126,000 for the quarters ended March 31, 2004 and 2003, respectively. These amounts primarily related to proceeds from the exercises of stock options.

We do not have any off-balance sheet arrangements, other than the operating leases discussed in our Annual Report.

Summary Disclosures about Contractual Obligations and Commercial Commitments

There have been no material changes that are outside the ordinary course of our business to the contractual obligations and commercial commitments that we reported in our Annual Report.

We do not currently have a borrowing facility in place. All outstanding letters of credit are secured by restricted investments. We have no available letters of credit.

In November 2001, we entered into a 10-year computer reservation system and related services agreement with Worldspan that expires in October 2011. As amended, this agreement requires that we guarantee certain levels of minimum net air and car segments to be booked each calendar quarter through Worldspan's computer reservation system. The agreement provides that these minimum levels will be waived if we cure any shortfall within the quarter or elect to book 100% of net air and car segments through Worldspan for that quarter. In the event that we fall short of the minimum net segments without curing the shortfall, we would be required to pay $1.78 for each segment below the specified minimum.

As a component of an employment agreement with Jeffrey G. Katz, our Chairman, President and Chief Executive Officer, we are obligated to make a one-time cash payment to him, at his option, in an amount calculated by multiplying 83,333 by the difference between $30.00 and the average closing price of our common stock (if less than $30.00) 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 our IPO, or (3) Mr. Katz's resignation or termination by us for any reason. Although he was eligible to receive the cash payment on January 16, 2004, 30 days after the completion of our IPO, Mr. Katz did not elect to exercise the right at such time.

At any time from and after December 19, 2008, the holders of the redeemable Series A non-voting convertible preferred stock have the right to require the Company to redeem the shares for cash at the Redemption Price, which is equal to the face value plus an annual accretion factor of 2.0% and any accrued but unpaid dividends. In lieu of paying the redemption price in cash, the Company may elect, in its sole option, to exchange such shares of Series A preferred stock for shares of Class A common stock having a fair market value equal to the Redemption Price. At any time from and after June 19, 2009, the Company has the right to redeem all of the Series A preferred shares for cash at the Redemption Price. Additionally, the holders of Series A preferred stock have the right to convert their shares for shares of class A common stock on a one-for-one basis at any time from and after December 19, 2008. As of March 31, 2004, the Redemption Price was $11,396,000.

Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are certain risks and uncertainties that we believe could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

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:

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

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, and $105.5 million, $18.9 million and $16.9 million for the years ended December 31, 2001, 2002, and 2003, respectively. Although we reported operating income of $1.3 million for the quarter ended March 31, 2004, we may continue to incur additional operating losses in the future, and 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 maintain profitability. We cannot predict whether we will maintain 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 sustain profitability in future periods.

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 booking with 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, 2003 and the quarter ended March 31, 2004, we derived 66% and 61%, 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 have developed. 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 continued 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 had a short period of 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 maintain profitability.

Our plans to pursue other opportunities for revenue growth and cost reduction 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 71% and 68% of our air supplier transaction fees during the year ended December 31, 2003 and the quarter ended March 31, 2004, respectively, are terminable by each of the Founding Airlines upon 30 days notice to us, subject to the restriction set forth in the stockholders agreement that such agreements or similar commercial agreements not be terminated for a period of two years from the date of our IPO. 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.

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 are controlled by our Founding Airlines or their affiliates, who may have strategic interests that differ from those of our other shareholders.

Our Founding Airlines or their affiliates hold a majority of our voting power and their designees comprise a majority of our board. Our Founding Airlines may have strategic interests that are different from ours. Our Founding Airlines or their affiliates own, in the aggregate, approximately 68% of our outstanding common stock, and, through the exercise of certain supermajority voting rights accorded to them in our corporate governance documents, control approximately 95% of the voting power of all shares of voting stock.

In addition, our Founding Airlines have filed a Schedule 13G with the Securities and Exchange Commission to report their Orbitz holdings as a group. As a result, under a "controlled company" exception to Nasdaq's independence requirements, we are exempt from an obligation to maintain a majority of independent directors on our board and instead have a majority of directors affiliated with our Founding Airlines. In addition, directors affiliated with our Founding Airlines continue to oversee the director nomination and executive compensation functions.

For the foreseeable future, to the extent that some or all of our 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 shareholders, 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:

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

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.

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

Our 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 shareholders 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. Our 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 our IPO. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects.

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.

During the last several years, 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 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 an examination of our impact on traditional travel agents and consumers, without taking action adverse to us. In December 2002, the Department of Transportation issued the results of a review of our business and operations, and did not find evidence that our 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.

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 us and pressing legislation or regulation that could be harmful to us. These activities may result in private or governmental litigation against us, 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 shareholders may result in litigation and regulatory scrutiny of our business. For example, we are a defendant in a lawsuit filed by a group of offline travel agents against Orbitz and several of our Founding Airlines alleging anti-competitive conduct. See "Part II, Item 1. Legal Proceedings." Our competitors or other third parties 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.

Our bylaws limit our ability to market, sell and service air travel products in an "opaque" manner and prevent us from displaying our airfares in a "biased" manner. Our bylaws also limit our ability to acquire 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, or arrival or departure times, 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.

Currently, our bylaws permit us to derive revenues from the sale of airline tickets in an opaque manner, but only to the extent such revenues are derived from links to opaque websites or referrals to opaque websites, and only to the extent the revenues we derive do not exceed 20% of our or our controlled affiliates' revenues from the sale of airline tickets. 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:

Currently, 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 72% of the airline tickets sold through Orbitz and 71% of our air supplier transaction fees during the year ended December 31, 2003 and approximately 72% of the airline tickets sold through Orbitz and 68% of our air supplier transaction fees during the quarter ended March 31, 2004. 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, 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 our IPO, 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. Our charter associate agreements with our Founding Airlines are terminable upon 30 days notice to us, subject to the restriction set forth in the stockholders agreement that such agreements or similar commercial agreements not be terminated for a period of two years from the date of our IPO.

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 us or pursuing corporate opportunities that might be attractive to us.

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. Under our agreement, we are obligated to meet quarterly minimum volume guarantees totaling 16,000,000 segments on an annual basis 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 of $1.78 for each segment that we fall short. Our current business plans contemplate the expansion of our Supplier Link program to include additional airlines. However, 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, if we wish to avoid making these segment fee payments to Worldspan. We have modified our Supplier Link agreements in a manner that would limit expansion of Supplier Link in the near term. If we were to make segment fee payments or avoid them by limiting the number of Supplier Link segments processed in a particular year, it could prevent us from profitably growing that business or have an adverse effect on our relations with Supplier Link participants.

Airline "journey controls" may reduce our advantage in the number of low-priced connecting itineraries we can present to our customers.

Some carriers currently employ, or may adopt, "journey control logic" designed to enhance the management of airfares and seat availability for connecting itineraries, based on a traveler's origin and final destination. ITA's software is capable of accommodating journey control restrictions, but only if the particular airline implements procedures to provide availability information to ITA's database and update it regularly. If the carrier does not implement these procedures to keep the ITA database updated, then the journey control logic will cause some fare and flight combinations for connecting itineraries to be rejected by the airline. Orbitz consumers attempting to book a reservation on one of these itineraries will receive an error message indicating that the desired fare and flight combination is not available, which may affect their perception of the reliability of our service. We believe that our charter associate agreements and, as applicable, Supplier Link agreements with participating carriers require them to provide availability data on a timely basis to ITA's database on our behalf. If airlines activate journey control restrictions without coordinating these programs with Orbitz, then our ability to present a large number of low-priced fare and flight combinations on connecting itineraries that can be successfully booked by consumers may be compromised. This could have a material adverse effect on our business and financial results.

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:

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 us, 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 our 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 offers to the general public through any distribution channel. The effect of these arrangements may be to preclude us 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.

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 merchant arrangements with us 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 reduce the amount of inventory they choose to sell through merchant arrangements or increase the negotiated rates at which they provide that inventory to us. 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.

In May 2004, we revised our agreement with Travelweb, under which we receive prepaid inventory from Travelweb founders and other participating chains and properties for display on our website. Travelweb was formed by Pegasus Solutions and by several leading hotel chains, including Hilton, Hyatt, Intercontinental, Marriott and Starwood. Although the founders sold the majority of their interests to priceline.com in May 2004, Travelweb continues to act as a reseller of hotel inventory provided by these and other participating chains. Travelweb sets the consumer prices for this inventory and pays us a commission for each hotel room. Under the terms of our revised agreement, which has been extended through the end of 2005, we are free to enter into direct relationships with any property, regardless of its participation in Travelweb, except that we cannot enter into direct relationships with properties affiliated with one of Travelweb's founding chains without such chain's consent. We are required to display all room inventory provided to us by hotels affiliated with Travelweb's founding chains, and we must engage in good faith efforts to sell such inventory, with specified compensatory payments due to Travelweb to the extent our bookings from Travelweb inventory fall short of the quarterly room night targets. If we are unable to meet these quarterly thresholds, there is a risk that our financial results could be adversely affected by the compensatory payments.

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, 2003 and the quarter ended March 31, 2004, 19% and 18%, respectively, of our revenues came from the transaction fees paid directly by travel suppliers for airline 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 on published fares that are not less than certain agreed-upon floor rates for tickets sold on our 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, and become 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.

For the year ended December 31, 2003 and the quarter ended March 31, 2004, approximately 21% 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. This fee is $10 for all international markets other than Canada, Mexico and the Caribbean. 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. For the year ended December 31, 2003 and the quarter ended March 31, 2004, we incurred sales and marketing expenses of $110.6 million and $32.5 million, respectively. Although we have spent significant financial resources on sales 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 consistently profitable may be impaired.

Interruptions in service from third parties or transitions to new service providers 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, approximately 60% of our airline ticket transactions are processed through Worldspan's systems, and approximately 80% 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 are 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 and other malicious activity, 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 Data Systems, 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 Oracle, Sun and Hitachi Data Systems 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. We are also dependent on external data centers operated by MCI and Savvis, which we do not control. 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 were to experience significant systems failures, it could erode consumer confidence in our services and have a material adverse effect on our business, financial condition and results of operations.

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:

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 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. Additionally, as the architecture of our systems becomes more complex, our ability to efficiently innovate or react to emerging standards may be impaired. 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. For example, NCR Corporation has filed a complaint alleging that we have infringed 13 patents, including business method patents, allegedly owned by NCR Corporation. 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 "Part II, Item 1. 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 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 and may absorb significant attention of our management that would otherwise be available for the ongoing development of our business. Such acquisitions may involve numerous other risks, including: failure to realize expected synergies or cost savings; unidentified issues not discovered in our due diligence process, including product and service quality issues and legal contingencies; potential loss of our key employees or key employees of the acquired company; difficulty in maintaining controls, procedures and policies during the transition and integration process and difficulty in maintaining our relationships with existing travel suppliers or customers. If we make acquisitions, we may issue shares of stock that dilute the interests of our other shareholders and dilute our earnings per share, 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.

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, resulted in a decline in travel bookings, including those through our website. Following the September 11, 2001 attacks, our weekly transactions decreased approximately 50% and returned to pre-attack levels in late October 2001. Similarly, our weekly transactions decreased approximately 20% when the war with Iraq began in mid-March 2003 and returned to pre-war levels in mid-April 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:

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 and the sale of air transportation. Increased regulation of the Internet or air transportation or different applications of existing laws might slow the growth in the use of the Internet and commercial online services, or could encumber the sale of air transportation, 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, exempted 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 renewed, 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. If hotel occupancy tax is applied to the gross profit on merchant hotel transactions, it could increase our costs or decrease demand for our products.

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 products or services purchased 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.

The market price of our Class A common stock may be highly volatile or may decline regardless of our operating performance.

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:

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

If our shareholders sell substantial amounts of our Class A common stock in the public market, 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. As of March 31, 2004, we had 40,375,211 shares of common stock outstanding, including Class A common stock and Class B common stock, which is convertible at any time into Class A common stock. Of these outstanding shares, 12,180,000 shares of our Class A common stock are freely tradable in the public market. The remaining 28,195,211 shares of common stock are restricted securities as defined in Rule 144 under the Securities Act.

We and our directors and officers and substantially all of our shareholders, 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 December 16, 2003, the date of our IPO 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.

Subject to the 180-day lock-up agreement, these 28,195,211 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. 27,480,635 shares will be available for sale 180 days after December 16, 2003, the date of our IPO prospectus pursuant to Rule 144; of these shares, approximately 0.2% would be available for sale under Rule 144(k), which imposes no volume or other limits. In addition, commencing 180 days after December 16, 2003, the date of our IPO prospectus, shareholders holding 27,269,809 outstanding shares of these restricted securities, consisting of the Class B common stock which is convertible into our Class A common stock at any time, 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, 5,797,291 shares reserved for issuance pursuant to outstanding options and 2,472,984 shares available for grant under our existing stock plans as of March 31, 2004, 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. In addition, 434,782 shares of redeemable Series A non-voting convertible preferred stock will be convertible into the same number of shares of Class A common stock at any time from and after December 19, 2008.

Under our tax agreement with the Founding Airlines, we could have exposure if a tax authority were to determine that tax benefits were unavailable to us in connection with the IPO Exchange and the Founding Airlines were unable to satisfy related repayment obligations.

We expect the IPO Exchange to be treated as a taxable exchange of membership units in Orbitz, LLC for capital stock of Orbitz, Inc., resulting in our Founding Airlines or their affiliates recognizing taxable gain. We expect our tax basis in our tangible and intangible assets to be increased by an amount equal to the taxable gain recognized by our Founding Airlines or their affiliates. As a result, we expect the IPO Exchange to reduce the amounts we must pay in the future to various tax authorities by increasing our future tax deductions for depreciation and amortization. We have agreed in our tax agreement with our Founding Airlines or their affiliates to pay them 87% of the amount by which our tax payments to various tax authorities actually are reduced. Such payments to our Founding Airlines or their affiliates could exceed $250 million over 15 years or longer. If, as a result of an income tax audit or examination, a tax authority determines that any significant amount of these tax benefits should not have been available, we might be required to pay additional taxes, interest and/or penalties to one or more tax authorities, as well as any costs associated with such tax audit or examination, after having already paid the tax benefits to our Founding Airlines or their affiliates. If at that time any of our Founding Airlines were insolvent or bankrupt or otherwise unable to repay such tax benefits to us as provided in our tax agreement, this could have a material adverse effect on our financial condition.

We do not expect to pay any dividends to the holders of our common stock for the foreseeable future.

We do not anticipate that we will pay any dividends to holders of our common stock 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.

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 maintain director and officer liability insurance. 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.

We have made statements in this report, including statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company, including those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

You can identify these forward-looking statements by forward-looking words such as "believe," "may," "could," "will," "estimate," "continue," "anticipate," "intend," "seek," "plan," "expect," "should," "would" and similar expressions in this report.

We consider investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. We maintain an investment portfolio of various holdings, types and maturities, consisting primarily of corporate debt. These securities are classified as available-for-sale and consequently are recorded on the condensed consolidated balance sheets at fair market value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income.

At any time, a sharp rise in interest rates could have a material impact on the fair value of our investment portfolio. Conversely, declines in interest rates could have a material impact on interest earnings for our investment portfolio. We do not currently hedge these interest rate exposures.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

On October 16, 2002, Amadeus Global Travel Distribution, S.A. and Amadeus s.a.s., collectively "Amadeus," filed a complaint against us in the United States District Court for the District of Delaware. In the lawsuit, Amadeus alleged that our use of the ITA software in combination with GDS services from Worldspan (a competitor of Amadeus) constituted a breach of the terms of the agreement with ITA under which we license components of the search technology we employ. Amadeus also contended that we tortiously interfered with the contract between Amadeus s.a.s. 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 sought an injunction prohibiting our use of the ITA search technology software in combination with other GDS firms, as well as unspecified compensatory damages and punitive damages of not less than $5 million. The court granted summary judgment in favor of Orbitz and ITA and against Amadeus on February 19, 2004. We are vigorously contesting Amadeus' efforts to appeal the decision.

On October 9, 2003, Travelweb filed a motion in the Circuit Court of Cook County, Illinois requesting a temporary restraining order ("TRO") and preliminary injunction to prevent us from continuing our Orbitz Merchant Hotel relationships with hotel chains that also participate in Travelweb and from entering into new such relationships. The judge declined to rule on the TRO and conducted a hearing on Travelweb's preliminary injunction. On March 31, 2004, the judge preliminarily enjoined us from terminating our agreement with Travelweb, from excluding from display on our site hotel accommodations transmitted to Orbitz by Travelweb, and from implementing new direct agreements with hotels that have agreements with Travelweb. On May 3, 2004, we entered into a negotiated settlement agreement with Travelweb that extends the relationship under modified terms. The parties have released their claims against each other, and the court actions have been dismissed effective May 4, 2004.

On January 10, 2004, NCR Corporation ("NCR") filed a complaint in the United States District Court for the Western District of Pennsylvania, alleging that Orbitz's commercial Internet operations infringe 13 separate patents, including business method patents, allegedly owned by NCR. We have filed both an answer and counterclaims against NCR. While we believe that this lawsuit is without merit, we are exploring settlement possibilities with NCR. If we are not be able to resolve this matter by agreement with NCR, we will defend the action vigorously.

In addition to the matters described above, we are party to various pending legal actions that we believe to be incidental to the operation of our business. We believe that the outcome of these pending, incidental legal proceedings will not have a material adverse effect on our financial position or results of operations.

We cannot predict the outcome or ultimate impact of any legal or regulatory proceedings pending against us or affecting our business. Consequently, we cannot assure you that the legal or regulatory proceedings referred to in this report or any that may arise in the future will be resolved without a material adverse effect on our business, financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

On December 19, 2003, we completed our initial public offering of common stock. We sold 4,000,000 shares and selling shareholders sold 8,180,000 shares of our Class A common stock at an offering price of $26.00 per share. The shares were registered under the Securities Act on registration

statements on Form S-1 (Registration Nos. 333-88646 and 333-111248). The Securities and Exchange Commission declared the registration statements effective on December 16, 2003 and the offering commenced on December 17, 2003. The managing underwriters for the offering were Goldman Sachs & Co. and Credit Suisse First Boston. Pursuant to the registration statements we registered a total of 14,007,000 shares of our Class A common stock, including 1,827,000 shares to cover over-allotments. The underwriters' option to purchase up to 1,827,000 additional shares from us at the initial public offering price less underwriting discount has expired.

The sale of our Class A common stock generated gross proceeds to us of $104 million ($97.5 million after deducting the underwriting discount) and gross proceeds to the selling shareholders of $212.7 million ($199.4 million after deducting the underwriting discount). After deducting legal, accounting and other fees incurred in the offering totaling $3.7 million, the net proceeds to us were approximately $93.8 million.

There have been no material changes to the procedures set forth in our proxy statement by which stockholders may recommend nominees to the Company's board.

We furnished one report on Form 8-K during the quarter ended March 31, 2004. Information regarding each item reported on is as follows:

Date Furnished		Item No.		Description
February 10, 2004		Item 12		On February 10, 2004, we announced our financial results for the quarter and year ended December 31, 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	52-2237052 (I.R.S. EMPLOYER IDENTIFICATION NO.)
200 S. WACKER DRIVE, SUITE 1900 CHICAGO, ILLINOIS (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	60606 (ZIP CODE)

		March 31, 2004		December 31, 2003
		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	147,000	$	173,939
	Short-term investments, including restricted investments of $9,802 and $7,537 at March 31, 2004 and December 31, 2003, respectively		25,725		7,537
	Accounts receivable, net of allowance of $132 as of March 31, 2004 and $168 as of December 31, 2003		14,780		11,031
	Due from related parties		3,578		3,305
	Prepaid expenses		7,857		4,973
	Other current assets		1,434		1,394

	Total current assets		200,374		202,179

Property and equipment, net			15,702		17,146

Other long-term assets:
	Long-term investments, including restricted investments of $965 and $1,265 as of March 31, 2004 and December 31, 2003, respectively		27,886		1,265
	Other assets, net		349		355

	Total other long-term assets		28,235		1,620

	Total assets	$	244,311	$	220,945

Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable	$	7,045	$	5,206
	Accrued compensation		3,461		6,309
	Accrued supplier rebates		1,211		899
	Due to related parties		3,130		2,810
	Accrued expenses		31,342		24,932
	Deferred revenue		24,026		11,896

	Total current liabilities		70,215		52,052

Long-term liabilities			7,322		6,924

Redeemable Series A non-voting convertible preferred stock, $26.00 face value; 434,782 shares authorized, issued and outstanding at March 31, 2004 and December 31, 2003, stated at redemption price			11,396		11,323

Shareholders' Equity			155,378		150,646

	Total liabilities and shareholders' equity	$	244,311	$	220,945

		Three Months Ended March 31,
		2004			2003
Revenues, net:
	Air revenues, net	$	43,116		$	35,392
	Other travel revenues		17,699			7,359
	Other revenues		9,442			6,717

	Total revenues, net		70,257			49,468
Cost of revenues			20,017			17,765

	Gross profit		50,240			31,703

Operating expenses:
	Sales and marketing		32,492			22,574
	Technology and development		7,945			6,371
	General and administrative		6,722			4,837
	Stock-based compensation*		1,755			499

	Total operating expenses		48,914			34,281

Operating income (loss)			1,326			(2,578	)
Interest income			534			192

Income (loss) before provision for income taxes			1,860			(2,386	)
Provision for income taxes			—			—

Net income (loss)			1,860			(2,386	)
Less: dividends and accretion on redeemable Series A non-voting convertible preferred stock			(141	)		—

Net income available to common shareholders		$	1,719		$	(2,386	)

Earnings per common share:
	Basic	$	0.04

	Diluted	$	0.04

Weighted average shares used to calculate earnings per common share:
	Basic		39,990

	Diluted		42,754

*Stock-based compensation:
	Sales and marketing	$	40		$	291
	Technology and development		39			—
	General and administrative		1,676			208

	Total stock-based compensation	$	1,755		$	499

		Three Months Ended March 31,
		2004			2003
Cash flows from operating activities:
	Net income (loss)	$	1,860		$	(2,386	)
	Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities:
	Depreciation and amortization		3,550			2,921
	Stock-based compensation		1,755			499
	Changes in operating assets and liabilities:
	Accounts receivable, net of allowance		(3,749	)		(274	)
	Prepaid expenses and other current assets		(2,924	)		(1,049	)
	Accounts payable		1,839			667
	Due to/from related parties		47			(5,920	)
	Accrued liabilities		3,874			2,046
	Deferred revenue		12,130			3,587
	Other liabilities, net		398			516

	Net cash and cash equivalents provided by operating activities		18,780			607

Cash flows from investing activities:
	Purchases of property and equipment		(2,100	)		(3,082	)
	Purchases of investments		(45,482	)		(462	)
	Redemptions of investments		709			1,171

	Net cash and cash equivalents used in investing activities		(46,873	)		(2,373	)

Cash flows from financing activities:
	Proceeds from exercise of stock options		2,033			126
	Costs related to the December 2003 initial public offering		(811	)		—
	Dividends paid on preferred stock		(68	)		—

	Net cash and cash equivalents provided by financing activities		1,154			126

	Net change in cash and cash equivalents		(26,939	)		(1,640	)
Cash and cash equivalents, beginning of period			173,939			56,028

Cash and cash equivalents, end of period		$	147,000		$	54,388

	Three Months Ended March 31,
	2004		2003		$ Change		% Change
	(in thousands)
Air revenues, net	$	43,116	$	35,392	$	7,724	22	%
Other travel revenues		17,699		7,359		10,340	141	%
Other revenues		9,442		6,717		2,725	41	%

Total revenues, net	$	70,257	$	49,468	$	20,789	42	%

		Common Stock
		Class A			Class B									Accumulated Other Comprehensive Income
		Class A			Class B			Additional Paid-in Capital			Unearned Compensation					Accumulated Deficit
		Shares	Amount		Shares	Amount		Additional Paid-in Capital			Unearned Compensation					Accumulated Deficit			Total Equity
Balance—December 31, 2003		12,813,212	$	13	27,269,809	$	27	$	179,001		$	(2,382	)	$	—	$	(26,013	)	$	150,646
Stock-based compensation expense		—		—	—		—		1,585			170			—		—			1,755
Exercise of stock options		292,190		—	—		—		2,033			—			—		—			2,033
Dividends on preferred stock		—		—	—		—		(85	)		—			—		—			(85	)
Accretion on preferred stock		—		—	—		—		(56	)		—			—		—			(56	)
Costs related to the December 2003 initial public offering		—		—	—		—		(811	)		—			—		—			(811	)
Comprehensive income:
	Net income	—		—	—		—		—			—			—		1,860			—
	Unrealized gain on available for sale securities	—		—	—		—		—			—			36		—			—
Total comprehensive income		—		—	—		—		—			—			—		—			1,896

Balance— March 31, 2004 (unaudited)		13,105,402	$	13	27,269,809	$	27	$	181,667		$	(2,212	)	$	36	$	(24,153	)	$	155,378

		ORBITZ, INC.
Date: May 13, 2004		/s/ JEFFREY G. KATZ Jeffrey G. Katz Chairman of the Board, President and Chief Executive Officer
Date: May 13, 2004		/s/ JOHN J. PARK John J. Park Chief Financial Officer

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of Orbitz, Inc. (incorporated by reference to Exhibit No. 3.1 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)
3.2		Amended and Restated Bylaws of Orbitz, Inc. (incorporated by reference to Exhibit No. 3.2 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)
4.1		Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit No. 4.1 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)
4.2		Amended and Restated Stockholders Agreement (incorporated by reference to Exhibit No. 4.2 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)
4.3		Certificate of Designations, Preferences and Rights of Series A Non-Voting Convertible Preferred Stock (incorporated by reference to Exhibit No. 4.3 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)
10.2(a)*		Revised Form of Supplier Link Agreement between Orbitz and certain airline charter associates
10.5(a)*†		Second Amendment to the Amended and Restated Agreement for CRS Access and Related Services, dated as of January 28, 2004, between Orbitz and Worldspan, L.P.
10.11(a)*†		Amendment No. 2 to the Development, License and Hosting Agreement, dated as of January 23, 2004, between Orbitz and American Airlines, Inc.
31.1*		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002