Priceline gets back to basics

30th Apr 2001

The presidents and CEOs of Travelocity and Expedia could have chosen to listen to the presentations of any one of a dozen online travel companies who appeared before an audience of analysts, investment bankers, institutional investors, fund managers and press attending the PhoCusWright Investor Conference this week.
Which company drew them both to front row seats?—which, despite its highly publicized woes, expects to achieve its first pro forma profit in the second quarter. Travelocity`s Terry Jones and Expedia’s Rich Barton (accompanied by his blue-haired senior vice president of marketing and programming, Erik Blachford, who made good on his promise to dye his hair Expedia blue if Expedia met some aggressive sales goals) sat in rows two and three respectively to hear Priceline’s president and CEO, Dan Schulman.
Apparently, Barton and Jones had not allowed Priceline’s many woes to obscure the fact that it remains one of the top three when it comes to gross bookings and name recognition. Appropriately enough for a company that has learned the hard way to focus on the basics, a shirt-sleeve-clad Schulman delivered what may have been the simplest Power Point presentation of the conference. His few slides were mostly text, in stark contrast to the highly produced graphics and charts that filled the screen behind presenters for most of the day.
One of the first things that he chose to say was that was that “since October, no major managers have left the company,” a poignant indicator of the heights and depths Priceline has seen. He was referring to the company’s highly publicized loss of four key executives last fall—including chief financial officer Heidi Miller, who backed out of a five-year contract after less than a year, and Maryann Keller, the head of Priceline`s automotive services business.
Schulman had tough sell. Priceline has suffered months of continuing setbacks and seen its stock price plunge 97%. But Schulman had no trouble admitting the mistakes the company has made. “We were expanding all over the place,” he said, and the lessons it learned about returning to its origins—travel—to regain its footing.
“We had to focus on our core travel product,” he said.
The company has shelved plans to let consumers name their own price for cellular service and automobile insurance to focus on its main business, airline tickets, hotel and car rental.
“We’d rather than have fewer customers and satisfied customers than lots of customers and dissatisfied customers,” said Schulman, who joined Priceline in May.
For many consumers, Priceline meant great deals on airfare and a model that put them in the cockpit. But for others, the mere mention of Priceline conjured images of redeye flights, daylong layovers, multiple connections and connections with prop planes.
And while Schulman attributed much of this to “urban myth,” last year the company did receive about 300 consumer complaints and was expelled from the Connecticut Better Business Bureau, although it was later reinstated. And the publicity surrounding the revelation that shareholder and celebrity spokesman William Shatner never actually used the Web site to buy discounted airline tickets didn’t help. A Priceline spokesman says considering the company sold six million airline tickets and a couple million hotel rooms and rental cars the number of complaints it received was small.
But Priceline had other major problems stemming from an over-ambitious strategy extending to markets where its innovative model failed. In September, Walker Digital`s WebHouse Club, a licensee of Priceline that allowed consumers to name their own price for groceries and gas, and Perfect Yard sale, which facilitated the sale of used goods over the Internet, both folded.
Priceline then embarked on an ad campaign with Shatner thanking their customers for their business in 2000 and welcoming them backing 2001. Schulman said they spent more money on the ads than they normally would have in a fourth quarter—seasonally its slowest quarter. But it was probably a smart move for the company in regaining consumer confidence. Today 30% of Priceline’s customers are returning customers.
Starting the New Year fresh, Priceline dropped Shatner’s quirky but effective ads in January for a new, hipper campaign with Sarah Jessica Parker as its celebrity voice. To improve the customer experience, the company has placed filters on its technology to eliminate long layovers. Now layovers are no longer than three hours and 85% are within two hours, Schulman said. All flights booked through Priceline now depart between 6 a.m. and 10 p.m., and the customer agrees to make up to one connection each way. Consumers can opt to make two or more connections or fly on a non-jet plane to increase chances of a carrier accepting their bid. Priceline’s average response time to offers is now four minutes.
In March, Priceline entered one of the hottest sectors of the online travel market, last-minute travel. In addition to its advance-purchase travel products, Priceline now offers domestic travelers a choice of last-minute options, including last-minute airline tickets. Priceline now allows its customers to buy an e-ticket as late as 6 p.m. EST for U.S. travel the next day on a full-service, name-brand airline. With its new last-minute hotel rooms offering, customers can book a hotel room as late as 6 p.m. EST for use that same night. For last-minute rental cars, a consumer can rent a car and have it ready for pick-up in as little as 4 hours.
This places in a potentially profitable position. In a recent published survey of Internet users, PhoCusWright reported that one-quarter of all U.S.-based Internet users, representing 25 million people, are last-minute travelers—people who took unplanned, last-minute trips at least 100 miles from home in the last six months.
Priceline also has been rebuilding its financial health. In February Priceline reduced its debt by $280 million and significantly reduced its dividend expense, while Delta will be entitled to increase its stake in Schulman says this move will help the company achieve its goal of reaching profitability despite an operating loss of $332.3 million.
Priceline last year saw revenues of $1.2 billion—a 156% increase over 1999. It will release its first quarter 2001 results May 2 and has been reaffirming the guidance when it reported fourth quarter financial results in February. At that time, Pricelinesaid it expected first quarter 2001 revenue to be approximately 15% to 20% above the previous quarter and that it expected a 1st quarter 2001 pro forma net loss per share of between $0.05 and $0.07. It has also repeated its guidance for the second quarter and that is that it expects second quarter 2001 revenue to increase approximately 10% to 15% over the 1st quarter and expects to have pro forma operating profit in the second quarter 2001.


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