Online travel market prospers amid tough times

8th May 2001

Miraculously, the tech stock quake of 2000-2001 did limited damage to online travel. Market leaders such as, Expedia and” adroitly avoided the disasters that afflicted other verticals - but not without a struggle.
Like all e-commerce businesses, they endured significant hammering to their stock price, and worse, to their image with many investors. Online travel agencies suffered a triple blow because of the gloom surrounding even further commission cuts. More and more, they found themselves defending rising customer acquisition costs amid lackluster ad campaigns, falling ticket revenue and frustrating browser-to-buyer conversion ratios.
As if the market wasn`t tough enough, Priceline braved its own set of problems: customer service complaints, punishment from The Better Business Bureau, high-profile executive turnover, closings of several non-travel businesses and substantial negative press have plagued the company since last fall.
However, it wasn`t difficult for online travel leaders to regain their footing. Expedia, which is 70% owned by Microsoft, secured $60 million in financing from Technology Crossover Ventures and Microsoft last August. The company has accelerated its road to profitability by adopting what had become industry vernacular - the merchant model - where it contracts for unpublished inventory with suppliers and resells to consumers at a margin. The very definitions of “retailer” and “wholesaler,” borrowed from the traditional travel marketplace, are under siege in the new economy.
Priceline, seemingly on the brink of disaster, adopted a reorganization plan and raised US$50 million in financing from overseas partners Hutchinson Whampoa Ltd. and Cheung Kong (Holdings) Ltd. The company shed major pieces of its business, jettisoned William Shatner and renewed its focus on customer retention in the travel space.
And the granddaddy of online travel, Travelocity, has received aid from its influential parent company, Sabre Inc. With a little belt-tightening and refocusing, all three expect to be profitable this year: both Expedia and Travelocity announced positive cash flow for the quarter ended March 31, 2001. Travelocity announced profits excluding special items and Microsoft had positive earnings before non-cash charges. Priceline expects profits by second quarter 2001. Will revenues hold to forecasts during these recessionary times?
There were certainly several online travel casualties. Those without roots and sustainable business plans took a hard hit, and publicized shutdowns include Savvio;, a joint venture of and United Airlines;; eGulliver; Whiplash; Wal-Mart Travel; and, among several other retrenchments and fire sales.


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