IAC’s Classic Custom Vacations Loses its Largest Distribution Partner

Virtuoso

today announced its decision to end its preferred-supplier
relationship with Classic Custom Vacations, owned by InterActiveCorp
(IAC), which also owns Expedia, Hotwire, Hotels.com and other on-line
travel companies.
Virtuoso had been Classic Custom Vacation’s number-one
source of travel agency network sales. Virtuoso principals cited their
desire to offer travelers, travel retailers and travel providers an
alternative to the IAC Travel business model as the primary reason for the
decision to terminate the marketing agreement.

“Virtuoso has a long history with Classic Custom Vacations; for years they
have been one of our top preferred suppliers,” said Virtuoso CEO Matthew
Upchurch, CTC, “but it is impossible to ignore the public statements from
and concerning Barry Diller, chairman and CEO of IAC; Eric Blachford,
president and CEO of Expedia; and Ron Letterman, chairman of Classic
Custom Vacations, regarding their vision of the future of the travel
industry.”

Upchurch referenced the following published statements:

“What makes Diller unique is his willingness to meld the ruthlessness of a Hollywood mogul with the power of the Internet ... Diller throws his weight around much like Wal-Mart Stores Inc.—squeezing suppliers so he can take a bigger slice of the pie.” Business Week, Oct. 10, 2003.

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“Consider the killing he makes on hotels. A customer pays $219 for a room
at the Radisson Lexington New York by going to the hotel’s Web site.
Expedia, by contrast, demands a wholesale rate of about $151 and then
charges the customer $189. The customer saves $30, while Expedia pockets a
25% markup, far more than the 10% travel-agency commission that was
standard before the arrival of the Net.” Business Week, Oct. 10, 2003.

“But Letterman says Classic expects to hit an exponential growth curve
once it gets on-line and develops a consumer-direct brand.” Travel Agent,
June 23, 2003.

“The next step in Expedia technology is dynamic vacation packaging, the
source of some of IAC Travel’s juiciest margins.” Travel Weekly, Oct. 20,
2003.

“We’re in competition with brick-and-mortar travel agents.” Barry Diller,
chairman and CEO of IAC Travel, Travel Weekly, Oct. 20, 2003.

“This is a pretty classic direct-to-consumer brand strategy, something
Expedia would not have had the resources to pursue, at least not for some
time.” Eric Blachford, CEO of Expedia & Classic, Travel Weekly, Oct. 20,
2003.

“The entire hotel industry is watching keenly because in Interactive
(Corp.), it’s facing a challenge it has never seen before: a strong,
adversarial distributor of its product. Diller’s chieftains at the three
travel units are squeezing the hotels like never before…” Business Week,
Nov. 18, 2003.

“In every one of our businesses, we’re playing a role in defining the
economic laws.” Barry Diller, chairman and CEO of IAC Travel, Business
Week, Oct. 10, 2003.

“All said, it’s interesting to have the mega on-line retailers try to
approximate the role and capture the volume of the consultative travel
retailer,” stated Upchurch. “But our models diverge on the accrual of
benefit. With Virtuoso, the agency, agents and suppliers sustain profits
while the customer benefits from value that extends beyond price. We’re
greatly encouraged by the consensus agreement and support we’ve received
from our member travel agencies in making this decision to end a very
lucrative relationship. This is a testament to our belief that true travel
consultants can define their own future.”

“We recognize the viability of the on-line travel agency model,” added
Kristi Jones, CTC, president of Virtuoso. “Many of our travel agency
members are excellent on-line retailers. But the key differential between
IAC Travel’s on-line model and our business model is Virtuoso’s focus on
personal relationships and professional consulting. Whether we sell travel
on-line or off-line, we lead with the ability to make a travel experience
personally relevant. We must preserve and protect the direct relationships
we have with our clients and our suppliers. We use these relationships to
maximize the value on both sides of the equation. IAC Travel usurps these
relationships, and basically, only IAC benefits.”

In the wholesale arena, Virtuoso offers its membership many alternatives.
Virtuoso has fortified and expanded its relationship with Creative Leisure
International and American Airlines Vacations. In addition, Virtuoso has
established new preferred-supplier relationships with Pleasant Holidays,
Island Destinations and GOGO Worldwide Vacations. According to Ignacio
Maza, executive vice president of supplier relations for Virtuoso, “The
alternative roster of travel offerings provides comparable destinations,
properties, experiences, amenities and pricing, all within agreements that
support the travel agent/client relationship.”

  According to Upchurch, Classic may make the argument that elements of the
decision to end the relationship could also apply to other wholesalers and
tour operators with which Virtuoso holds preferred-supplier agreements.
“But no other corporation has consolidated the travel industry as
aggressively, impacted supplier cost of sales as negatively, marketed
directly to the consumer as strongly or been as clear on the ultimate goal
of usurping client and industry relationships from agents as Expedia and
IAC Travel have,” said Upchurch.

“The travel industry will support two types of companies going forward:
one that commoditizes and competes on price and volume, and one that
provides a unique process and/or unique travel experiences, truly tailored
for each client,” said Jones. “Virtuoso’s role remains a valuable one, to
guide and advocate for the discriminating traveler. Affluent travelers
desire the wisdom and life experience of true travel specialists. Price is
everything only when nothing else is offered. Both the commoditized model
of IAC and the `bespoke’ model of Virtuoso have great potential in the
travel industry; we’ve chosen not to blur the lines between the two.”

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