Worldspan lawsuit is the latest in`s troubles

27th Mar 2001

Just when it seemed things couldn`t get any worse for, the Pompano Beach, Fl-based vacation seller that promised to revolutionize the travel industry, Worldspan has filed a law suit, accusing its former partner of misrepresentation and fraud.
In its suit, Worldpspan says that in addition to initial funding of $13.65 million, fraudulently obtained a $4.5 million Worldspan bridge loan last August by misrepresenting its ability to obtain new financing. The Atlanta-based GDS filed the counter suit in response to a suit by charging its former investor with breach of contract for early termination of their agreement.
Worldspan is seeking a declaratory judgment that its termination of the contract was “proper and in accordance with the terms of the Worldspan agreement,” and a “judgment against in an amount to be determined.” Worldspan claims that when it terminated the agreement in January, it was already “public speculation” that the company would declare bankruptcy and principals at had confirmed the rumors. Five days after Worldspan ended the agreement, filed for Chapter 11 bankpuptcy protection.
The countersuit says Worldspan terminated its agreement: “With remaining insolvent, little hope that would ever climb out of its poor financial condition, in default under the Bridge Loan Note and Worldspan convinced that would not perform under the Worldspan agreement.”
For those who have been following, this may not be all that surprising. Although the company had a strong start, mismanagement led to plague of problems from lack of cash flow to layoffs and unhappy franchisees.
When launched in November 1999, it was a promising site with a clicks and mortar model in a scale unseen before in the travel industry.
Its goal was to become a one-stop shopping source for special interest vacations like cruises, luxury resorts and spas, family vacations, skiing, adventure travel, casino gaming and romance. Its business model seemed like a win-win for travel agents, which were to be the main distribution channel and for consumers, who would benefit from the convenience of the Internet combined with personal service.
With former NBC executive Guy Pepper as its charismatic front man, and former Carlson Wagonlit executive Doug Ziemer serving as second in charge, it seemed a sure winner. It even tapped Regis Philbin as its million-dollar spokesman. Although Philbin still serves as a talking head helping to guide consumers through the site, sources at say that Pepper and Ziemer have jumped the sinking ship.
Last April, the company secured backing from Worldspan and Worldspan President and Chief Executive Officer Paul J. Blackney took a seat on Worldspan`s board.
Under the agreement, would provide Worldspan agents with a web-based system that includes a searchable leisure product database. Worldspan subscribers would also be also granted access to`s proprietary multi-media database of streaming videos and virtual tours (something that never came to fruition because laid off it entire video staff).
Worldspan`s 18,000 subscribers would have an opportunity to become franchise travel stores with the promise of receiving enhanced selling tools such, customer relationship management, preferred supplier agreements, sales leads, and a multi-million dollar advertising campaign.
But it didn’t take long before this vacation seller began to see trouble in paradise. Less than a year after its inception, a picture began to slowly emerge as a mismanaged company offering franchisees promises it couldn’t keep.
According to an August article in Travel Agent magazine, agents complained of inflated fees and non-existent service from Some franchisees refused to pay their fees and others and others threatened to take legal action, the article said.
Then, a report published by Gomez in October said some former employees saw the company as one in disarray, with an out-of-control cash burn rate, low staff morale, and bookings that are “way below” expectations. Last summer the company laid off nearly half its employees and later axed 60 workers in October before filing for bankruptcy in January. The site is still up and running and agents are still on hand to sell vacations and to provide customer support by phone or live chat, but the future looks bleak.
This latest suit seems to be just another step in the downward spiral of a once promising dot-com. But this is more than your typical dot-bomb story. With the fate of more than 300 individual businesses and 1,400 travel agents left hanging in the balance—many who never wanted to be part of the franchise in the first place - the consequences may be much more serious.


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