Suits are gray, bottom lines are black at PhoCusWright Investor Conference

Black was back (although the suits were gray) among the public companies presenting at the PhoCusWright Investor Conference last week.
If companies weren’t already profitable, profitability was imminent. And the dot-com was dot-gone. Terry Jones, president and CEO of Travelocity, after presenting Travelocity as a profitable entity—a quarter ahead of schedule—summed it up the most succinctly. “Five years ago, we said Travelocity was an Internet travel company,” he said. “Today Travelocity is a database-driven, transaction and marketing company.”
As has happened in any other online travel gathering over the past year, the subject of Orbitz came up. The basic reaction: “Bring it on.” The fledgling site will have to face two formidable and newly profitable competitors who have established significant market share, have spent hundreds of millions on marketing and whose systems have improved significantly in the last several months.
“They have a big mountain to climb,” said Richard Barton, president and CEO of Expedia, in response to a question about Orbitz.
Sam Galeotos, CEO of Cheap Tickets, wove the two main themes of the day into his opening remarks when he described Cheap Tickets as “an Internet-related company that makes money.” It is a pioneer in selling non-published airline fares, that is, negotiated fares to which agencies can build in their own profit margins rather than relying on the commissions airlines set for them. Cheap Tickets is a multi-channel operation, with call centers and some store fronts. A first quarter marketing push has added two million registered subscribers to its roster, bringing the total number up to 11 million. Recognizing the current dot-com phobia, he pointed out that Cheap Tickets pre-dates the Internet, but has successfully built a business online. He pointed out that U.S. travel is growing faster than the U.S. economy and the leisure travel sector is the fastest growing e-commerce segment. The company has recently diversified its product line to add cruises, cars and hotels. It is about to release a new platform that includes a new booking engine, new fare search logic (built in tandem with Sabre) and CRM capabilities. He said the company anticipates a 25% to 30% growth in gross bookings and is profitable for its ninth consecutive quarter.
Industry veteran Peter Sontag, chairman and CEO of 800 Travel Systems, Inc., and the Web site, said the company was on a “clear path to profitability.” He said the company was unaffected by the Northwest zero-commission policy for online agencies because of the 800Travel’s Live Agent technology connecting site visitors with live agents. He said that technology allows 800Travel to offer travelers alternative routings and also facilitates the booking of more complex travel—international travel, multi-leg tickets, vacations (the company last year bought Prestige Travel Systems, which sells cruises and vacation packages)—which are more lucrative products.
Tony McKinnon, president and CEO of Amadeus, North America, already a profitable and established company, but, as a GDS (global distribution system), one fighting the stereotype (only now beginning to fade) that it is a legacy technology company, emphasized the company’s growth. It is taking a global approach to growth, not only in its core GDS business (travel agencies still generate 71% of the bookings that go through Amadeus) but in other e-commerce initiatives. Although it operates globally, it is a European-based company, which means its home market is one that, thus far, appears unaffected by the economic uncertainty in the U.S. The GDS business in general in Europe is on the upswing. It is behind several European online ventures, a market that shows great potential. Its U.S. investments and partnerships include,, Sam’s Club and, globally 36 airline sites and 11 hotel sites. And, it predicted hefty numbers in 2001; a 6% to 7% growth in bookings and a 16% to 20% growth in revenues.
Neil Wilson, CEO of Datalex, an Irish technology company, pointed out that his company had been profitable for the first 13 years of existence, but is seeing losses currently because it has been on a major acquisition drive, acquiring nine companies so far. Meanwhile, it is seeing its seventh straight quarter of positive revenue growth. Its target clients are tour operators and integrated travel groups, brick-and-mortar travel agencies, airlines, technology intermediaries and hotels. It sees leisure travel as a major growth area over the next three years. Its software is the booking engine that drives the Orbitz site, other clients include airline sites such as Delta, American and British Airways. Other suppliers turning to Datalex are Amtrak and Far & Wide a rollup of about 20 vacation package brands. He was careful to point out that Datalex is not an “Internet brand” but nonetheless “recognizes the impact of the Internet giving consumers more control” over their travel shopping and purchasing. Its average contract has increased from $250,000 plus to $750,000 and up, with some valued at $1 million and more. Its Far & Wide contract is a three-year, $5 million contract: its Singapore Airlines contract is for $2 million. It has also developed an integrated computer reservations product for the resort market and has identified more than 2,000 potential customers for that product. It is continuing to look at additional acquisitions.
Dinesh Dhamija, chairman and CEO of UK-based, explained the advantages of the European travel market over the U.S.: a population of 380 million, 40% more people. By the end of 2002, Europe will have 155 million Internet users compared to 133 million in the U.S. Europeans get 33 days of vacation annually compared to 13 in the U.S. The down side: Europe is 12 nations with 12 legal systems, 12 auditing rules and ten languages. But, Dhamija added, the European travel business model nonetheless is more profitable than the U.S. for a variety of reasons. Because negotiated fares and rate are common in Europe, intermediaries such as ebookers can build in margins of up to 40 to 50%. And, in Europe, intermediaries have 30 days to pay suppliers instead of 7, as in the U.S., giving intermediaries the benefit of the float. Ebookers has a presence in 11 countries (Italy continues to elude it). It has negotiated deals with 120 airlines that give it fares that are 15% to 75% below published rates. These facts of life mean Europeans do not need to make huge sales to be profitable as is the case in the U.S., according to Dhamija. He said that acquiring customers in the online world is more expensive than in the offline world, but that the superior economics of online fulfillment make up for the higher acquisition costs.
Mel Robinson, CFO of Hotel Reservations Network, coming off a record first quarter, pointed out the potential for the discount hotel room consolidator. He said that 35% of all hotel rooms, or 500 million room nights a year, go unbooked. HRN fills this gap using a model in which it takes no inventory risk and enjoys a 30% gross profit. He said that consumers are just now learning the availability of a discounted hotel product—they are less aware of this market than they are of discounted airline tickets. He called the HRN model “recession resistant,” because both suppliers and consumers want HRN services even more during economic slowdowns. HRN is “laser focused” on lodging, he said.
William J. Hannigan, chairman, president and CEO of Sabre, was also coming off an excellent first quarter. He said that while the volume of Sabre’s air bookings were down 0.3%, overall bookings were up .8%, a reflection of how the industry is booking more non-air items. Sabre’s booking growth was four times greater than that of its largest competitor; its revenue growth was three times that of its largest competitor. Hannigan described Sabre as “engaged in the entire travel value chain” in an effort to help stimulate demand. Sabre acquired its business travel rival GetThere last year and Hannigan said that the online corporate travel space should grow 300%. He said that corporate adoption rates have risen from 1% last year to 9% and that 10 of the top 20 companies using GetThere have mandated its use. Virtually There, Sabre’s private travel domain for individuals, is growing 10% month over month. In response to concerns that the Internet might be diminishing the value of GDS because it allows suppliers to bypass the GDS, Hannigan pointed out that Sabre is already in that space because it hosts airline systems in which consumers book directly. “We believe it is important to lead in all channels of distribution,” he said.
John Davis, CEO of Pegasus Solutions, Inc., described his company as the “leading provider of hotel technology services.” It handles 70% of all electronic hotel bookings and processes about 50% of all hotel travel agency commissions, collecting 5% of the 10% commission travel agents earn on those commissions. TravelWeb, its seven-year-old Web site, is the largest hotel database in the world and Pegasus does backend processing for Expedia, Hotwire,, and, through Sabre, Travelocity. It has just launched a property management system aimed at the 42,000 hotels with 150 rooms or less, which Davis described as a market with “enormous potential.” All hotels need to use this system is a Web browser and they pay Pegasus a processing fee of between $.35 to $.70 for transactions. This means that no matter how a hotel is booked—at a hotel desk, through a travel agency or online, Pegasus is there. Providing hotels with electronic data service and transactions outside the GDS is key to Pegasus’ success; Davis said that only 15% of hotel reservations go through the GDS. Pegasus clearly aims to be wherever there is a hotel booking to be processed.
Mike Wynne, CEO of, described his company as a niche business between hotels and corporations or mega travel agencies who want preferred lodging programs Its RFP Express is an Internet-based product that travel agents, corporate travel managers and hotel managers can use to automate the labor-intensive request for proposal process for setting up preferred hotel programs on a paperless basis. The program results in savings for travel managers and broadens the market reach of hotels, Wynne said. The company derives its revenues from subscriptions charged to both sides of the market plus transaction fees for FRP management. Wynne joined the company in December 2000 with a mandate to put the company on a clear path to profitability. The company’s goal is to break even this year and achieve positive cash flow and earnings in 2002. It’s a company whose revenues are heavier in the third and fourth quarters but it is currently meeting its month-over-month goals. Wynne considers the marketplace large enough to sustain the company’s core business. Because Wynne wants to turn around the company’s cash flow he is taking the admittedly somewhat risky approach of relying on world of mouth marketing—so far the company has what he calls “remarkable” referral growth. Its clients include American Express, Rosenbluth and Choice Hotels.