Threat or Hype

By eweek  |  Posted 2001-05-28 Print this article Print

?"> Threat or Hype?

Despite his companys complaints about collusion by Orbitz members, Expedias Barton said the perceived threat of Orbitz is much more interesting than the real threat will turn out to be in the end. "We see them as a potential new competitor, and one that has a pretty high mountain to scale to establish a business," he said.

When Wal-Mart Stores entered the travel marketplace with an online offering, everyone thought it would put Expedia and other travel sites out of business, Barton said. Yet, 10 months ago, Wal-Mart bailed out of the online travel business, he said.

Meanwhile, Expedia and Travelocity are beating Wall Streets expectations.

Expedia said that for its fiscal third quarter, ended March 31, pro-forma earnings before noncash items came in at $4.4 million, or 9 cents per share, compared with a loss of $21.4 million, or 50 cents per share, a year ago. Revenue rose 88 percent, to $110.2 million, from $58.8 million a year earlier. Including items such as the amortization of good will and the effects of stock-based compensation, Expedia posted a net loss of $17.6 million, or 37 cents per share, compared with a loss of $66.5 million, or $1.56 per share, a year earlier.

Expedias main areas of revenue are its merchant business, in which it sells customized travel packages, and its agency business, which collects a fee for selling an airline ticket.

The merchant segment grew 42 percent, while the agency business grew 39 percent, Barton said. The remaining revenue came from licensing and advertising, which are shrinking as the ad market declines.

"We are working pretty hard to make people make and take better trips," Barton said.

Like Expedia, Travelocity also reached profitability ahead of schedule, reporting its first quarterly net profit — $618,000 before special items. Travelocity, which also reported positive cash flow in the first quarter, had previously projected profitability for the second quarter. But when special items of some $24.6 million are included, Travelocitys net loss in the first quarter was greater than in the first quarter of 2000 — $22.1 million, compared with $9 million.

"Its really great to have reached that milestone, and reached it early. We really focused on reducing costs," Travelocitys Jones said. "The online travel market is really a dynamic space. Now people have realized this is a business model that works online. Its a complicated product that sells well online."

Travelocity also focuses on customer service to grow its business. It has more than 1,000 customer service personnel in three call centers around the country, Jones said. "We make sure our customers first experience is a good one," he said.

Consumers have come to trust Travelocity, Jones said. "Orbitz doesnt have a brand," he said.


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