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Online Travel Agencies Struggle to Move into Profit

The mood of euphoria among online travel agencies did not start to dissipate until the end of last year, but now it has definitely made way for a more sombre outlook. Investors are keen to see e-travel businesses enter profit as quickly as possible, but so far there`s little sign of that.
Instead, the battle over market share is expected to intensify further over the next few years. Stock market sentiment has also changed dramatically and most online travel agents have seen their share prices slump.
Marc Maslaton, chief executive of Munich-based AG, believes that no more than three or four travel portals will survive. This is because established travel industry giants have started to push onto the Net with millions worth of investments.
Newcomers such as London-based plc or Travel24, on the other hand, have decided to hold back on expensive marketing campaigns, but they are seeing the fall-out from this strategy on their balance sheets.
Travel24 doesn`t expect to book an operating profit until the fourth quarter of 2002. For the current year, the portal forecast a group net loss of DM34.6 million, after a loss of DM66.98 million last year. Sales last year came in at DM50.71 million., which - like Travel24 - is listed on the Neuer Markt in Frankfurt, expects to reach positive cash-flow in the fourth quarter of this year, or in the first quarter of 2002 at the latest. But in the first three months of this year, the company saw pretax losses widen further.
Austerity measures have now been put at the top of the agenda. Ebookers plans to reduce cash-burn in the third quarter of this year to less than $1.5 million per month. Travel24 has said it intends to carry out its expansion outside Germany mostly via franchises rather than via costly acquisitions.
Still, the high start-up costs are likely to raise doubts among investors about the long-term solvency of many online travel agencies, particularly since it will be difficult to raise any fresh capital for the online agencies. Travel24 currently still has liquid funds of around DM60 million from its flotation.
In the meantime, the online travel market remains a niche area - and it is growing at a much slower pace than expected.