Travelocity Beats Street, Sees Profit by 2001

With an eye toward becoming one of the first online travel services to show a profit, Travelocity.com (Nasdaq: TVLY) reported a stronger-than-expected second quarter Wednesday and declared that it expects to turn a profit by the end of 2001.

The Fort Worth, Texas-based company said it lost $4.2 million (US$) or 26 cents per share during the second quarter — less than the 34 cents per share expected by Wall Street analysts. The loss came on earnings of $46.8 million, more than double the $19.2 million the company generated during the same period in 1999.

$1 Billion in Bookings

The company also said that it booked more than $1 billion worth of travel during the first six months of this year, with more than $600 million in bookings during the second quarter alone.

CFO Ramesh Punwani said the company has $69 million in cash on hand and is aiming for profitability by the end of next year.

“Based on our current business outlook, we expect to have positive cash earnings by the end of 2001, thereby making it unnecessary to return to the financial markets for additional funding,” Punwani said.

The majority of the company’s revenue increase came from advertising income. Ad revenue was up 122 percent, while the amount collected from processing travel transactions was up 16 percent over the same period last year.

Intense Competition

The improved financial results stem in part from several key partnerships and mergers the company recently completed. In March, Travelocity bought Preview Travel for $68.2 million, and the company began an operating alliance with America Online in April. The AOL alliance has shown almost instant results, with bookings from AOL’s Travel Channel up 72 percent during the second month.

Travelocity has also forged a marketing agreement with Priceline.com and a deal to become the travel channel provider to AT&T’s new wireless Web service.

While the online travel world has rapidly become crowded, there is widespread speculation that a major change is imminent. An April report from Bear Stearns predicted that 80 percent of all online travel sites will fold within five years, leaving just 200 of the 1,000 sites now in operation.

The analysts from Bear Stears picked Travelocity to survive that shakeout alongside top-tier competitors such as Microsoft’s Expedia and Priceline.

Airlines Crash Party

Meanwhile, in a move being closely watched by both members of the online travel industry and regulators, 27 major airline companies hired the Boston Consulting Group to launch their own Web site targeting online travel dollars. The new venture, called Orbitz, is expected to cost up to $100 million.

At the urging of travel agents and others, the U.S. Department of Justice (DOJ) has begun a preliminary inquiry into whether the planned site could violate antitrust laws.

Forrester Research says that online travel will explode in coming years, predicting that businesses alone will book $29 billion worth of online travel by 2004, compared to $3 billion last year.

Travelocity CEO Terrell B. Jones said the potential for growth in the online travel world is enormous, with just five percent of all travel currently booked online. “Our fundamentals remain strong,” Jones said, adding that the company will continue to aggressively pursue alliances and partnerships that expand its customer base.

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