Pegasus Solutions, Inc.

views updated

Pegasus Solutions, Inc.

Campbell Centre I
8350 North Central Expressway
Suite 1900
Dallas, Texas 75206
U.S.A.
Telephone: (214) 234-4000
Fax: (214) 234-4040
Web site: http://www.pegs.com

Public Company
Founded: 1989 as THISCO, The Hotel Industry Switch Company
Employees: 1,320
Sales: $190.1 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: PEGS
NAIC: 514210 Data Processing Services; 511210 Software Publishers; 541990 All Other Professional, Scientific and Technical Services

Pegasus Solutions, Inc. serves the worldwide hotel and travel industry with a medley of technological services. Founded in 1989, the company has evolved to become the hotel industry's largest provider of third-party marketing and reservations services. Pegasus is headquartered in Dallas, Texas, and has regional corporate sites in Scottsdale, Arizona; London; and Singapore, as well as offices in ten other countries. The company provides a number of technological solutions to some 60,000 hotel properties worldwide, and to the vast majority of travel agencies. Pegasus' resources for the hotel and travel industry include central reservation systems, electronic distribution services, commission processing and payment services, and marketing representation services. Pegasus' Utell and Unirez representation services are known and utilized in 140 countries around the world. Pegasus' services are primarily business-to-business, with the exception of Hotelbook.com, serving online consumers with access to independent hotels all over the world.

1989: Founded to Create Technology

The company was founded in 1989 to develop the technology to connect hotel reservation systems to the airlines' global distribution systems. A group of about 15 leading hotel and travel company executives recruited John F. Davis III to launch The Hotel Industry Switch Company (THISCO). Davis's business abilities and entrepreneurial experience and success had come to their attention when Davis established ATC Communications and called on them to offer the services of his call center to manage their overflow reservation calls. Under Davis's leadership, the company was given the goal of developing the "switch" technology to link systems of the THISCO member hotels' systems to global distribution systems used by travel agents.

It did not take long for the company to succeed and be recognized. In 1991, President and CEO Davis was selected by Travel Agent magazine as one of their "People of the Year" for solving frequent problems and inefficiencies hotel operators and travel agents deal regularly with by developing the technology to connect the hotels' central reservations systems (CRSs) to the global distribution systems (GDSs).

Finding initial success in the travel and technology niche, Davis developed another service targeted to that same market. He followed up by establishing the Hotel Clearing Corporation (HCC) in 1992. HCC enabled travel agents to consolidate their hotel commissions in one check for a small fee. In addition, in 1994 the company launched the first Internet site for booking hotels in real-time. It was called TravelWeb. Consumers responded well to the new service. A year later Davis created Pegasus Systems as the umbrella under which all three technological travel services operated. Pegasus Systems was the parent company of THISCO, HCC, and TravelWeb.

Going Public: 1997

In 1997 Pegasus Systems had a successful initial public offering of $53.4 million, distancing its ownership from the original small group of investors. Pegasus Systems' public campaign raised $40.5 million for the company and fueled further business growth. The company was listed in the Fast-Tech 50 in both 1998 and 1999.

By 2000 Pegasus became the power behind the popular travel deal web site Hotwire.com, helping provide Hotwire with one-stop direct access to hotels around the globe, up-to-date price deals, and little hassle. The addition of Hotwire opened another distribution channel to reach Pegasus's hotel clients, including Summit Hotels and Resorts, Utell, Sterling Hotels and Resorts, and Golden Tulip Worldwide. Pegasus also continued to unveil new services for the hotel and travel industry, such as a new Customer Relationship Management tool.

2000: Name Change and Growth Spurt

In April 2000 the company changed its name from Pegasus Systems to Pegasus Solutions to better reflect the breadth of services offered by the company. The company's offerings had grown to include marketing services for independent hotels as well as the technological solutions the industry had come to expect and respect.

Soon after the name change, Pegasus purchased a much larger company called REZsolutions. In the hotel industry, REZsolutions was the biggest third-party marketing and reservations provider. Pegasus acquired REZsolutions for $198 million in cash and stock. The merger enhanced Pegasus' technological capabilities and expanded the company's presence internationally.

As part of the purchase, Pegasus gained access to Utell, a company with a more global reach that was providing reservation services to more than 6,000 hotels. According to Hotel and Motel Management magazine, as a result of the acquisition, "Pegasus emerges as the total-solution provider for reservations distribution, whether electronic or voice, for independent hotels as well as for worldwide chains." The company grew from "two offices and 170 employees" to "39 offices in 25 countries." Pegasus not only gained worldwide exposure, it would soon benefit from an experienced sales force and access to more independent hotel brands. Travel Agent magazine called the company "the invisible hand behind every type of hotel booking."

Acquisition Fueling Global Expansion

Soon after the company's growth spurt, Pegasus made headlines for global expansion into the travel industry businesses in the U.K. and Japanese markets. In addition, Pegasus realigned its business operations into technology and hospitality divisions. The technology group included information technology development, business intelligence, electronic distribution, application-server computing services, and central-reservation-system software licensing and integration. The hospitality group included Pegasus Commission Processing (which had been HCC) and Hotel Representation Services.

The merger with the larger company was not a smooth one. Forbes magazine referred to REZsolutions as a "poorly managed hodgepodge." "The group marketing independent hotels had no idea what the Web-based central reservations systems for the likes of Hilton or Fairmont were up to. The marketing subsidiary, Utell, was positively obese: 2,000 people in 39 offices across 25 countries, managing only 6,400 accounts and miserably at that."

Pegasus saw its stock fall to $7 a share, in contrast to the $40 high enjoyed early the previous year. The company let go of several of REZsolutions' top executives and 100 employees of Utell while working to streamline operations. Pegasus continued its pioneering efforts in developing and implementing new services for the industry.

Growing Recognition: Late 1990s and 2000s

Davis succeeded in getting the larger company back on track, so much so that Travel Agent magazine chose him again as one of its People of the Year in 2000, for "doing the same thing [that he had been recognized for in 1991] but on a larger scale." Davis's growing and frequent recognition in the industry was widespread. In 1999 Business Travel News named him to its "Travel Industry Hall of Fame," and for five years in the 1990s it cited Davis as one of the travel business's "25 Most Influential Executives." In addition, in 1998 Interactive Travel Report named him its "Person of the Year in Interactive Travel." Computerworld cited him as an "Agent of Change" in 1995. In 2001 Davis was inducted into the Hospitality and Financial and Technology Professionals International Technology Hall of Fame

By 2001, what started out as the commission payment service, HCC, was proving to be a successful arm of the business. Pegasus was consolidating $42 million each month in commission payments for customers in more than 200 countries, all done through an electronic network. The company was providing those services to nine out of the top ten travel agencies in the United States. In addition, Pegasus was involved in 70 percent of all electronic hotel reservations generated through travel agents and the Internet.

According to a 2001 Dallas Business Journal article, Pegasus' customers included nine of the world's largest hotel companies, with some 40,000 hotel properties. Pegasus also powered more than 1,000 web sites for securing hotel reservations. The business world recognized Pegasus' strength in the business-to-business category. Forbes ASAP magazine included Pegasus in its list of "Best of the Web: Top B2B Websites" in September 2001.

Company Perspectives:

The company's mission is to maximize revenue and profitability for hotels and travel distributors worldwide by providing the most comprehensive and innovative services and technologies in the industry.

Pegasus garnered additional attention from the mainstream business world when Forbes magazine put the company on its 200 Best Small Companies list. Pegasus was the only company on the list whose business was related to the hotel industry. According to the magazine, Pegasus was "a compilation of profitable, financially strong small-cap businesses." Within the industry, Pegasus' service was gaining recognition and faithful customers. The company's Utell Service was selected as the preferred provider of hotel rooms by nine out of the top 50 travel agencies in the United States. Utell represented independent hotels around the globe.

2003: Acquiring Competitor Unirez

The company was not done growing. In late 2003 Pegasus Solutions acquired competitor Unirez for $38 million. Unirez was a leading hotel reservation distribution company that delivered lower cost connectivity-only representation services to independent hotels and small groups. At the time, Unirez was a young company, just four years old, with annual sales of $18 million. Its success was partially due to its flexibility and easy-to-use format. With Unirez under its wing, Pegasus could expand the reach of its hotel reservation service, Utell, with its primarily European customers. Formats of the two programs (Utell and Unirez) would eventually be integrated. According to Travel Agent magazine, the acquisition was expected to facilitate the company's "growth in the United States customer base and enhance its technology offerings to small hotel chains and independents worldwide."

In 2004 Pegasus was in the selling rather than buying mode. The company sold its TravelWeb stake to Priceline.com, and extended its services agreement with TravelWeb through 2007. Pegasus also released a web-based property management system, PegasusCentral. Another reorganization was in the works as Pegasus worked to integrate its technology and hospitality divisions into one.

By 2005 Pegasus Solutions was successfully expanding its presence in the Asia-Pacific region. The previous year it had brokered a deal with Ctrip, a leading Chinese online travel service provider. The deal was for electronic distribution, and would help increase the company's business presence in China. Pegasus soon opened an office in central Beijing. At the time Pegasus also had offices in Singapore, Tokyo, and Sydney.

The company received additional industry recognition for its growth and success. Accounting firm Deloitte and Touche listed Pegasus Solutions in its prestigious Technology Fast 500 honor roll, indicating it was among North America's fastest growing technology companies. It was the fourth year in a row Pegasus had made that list. The company's RezView central reservation system received a World Travel Award in 2005 for the third consecutive year as the "World's Leading Hotel Reservation Service."

2005: Exploring Strategic Options

Despite the kudos, the company continued to face increased pressure from similar services including Expedia.com. In mid-2005 Pegasus leaders began to explore corporate strategic options as many of the company's competitors were increasing their reach and scope with acquisitions of other related businesses such as Orbitz and Hotwire. Breaking up the company was a possibility; there were some companies interested in acquiring all or part of Pegasus Solutions.

But Pegasus was still in a growth mode. The company reentered the consumer market by establishing Hotelbook.com, a consumer site linking online customers to a cache of some 5,000, mostly independent hotels, with descriptions of their attributes and amenities as well as detailed information about general travel destinations. The company also had plans to launch a similar site targeted toward consumers of high-end, five star hotels. Pegasus also announced it was getting out of the property management system (PMS) business and sold its NovaPlus and Guestview businesses to competitor MSI.

Being a pioneer and innovator in the travel and hotel industry had kept Pegasus Solutions on the cutting edge of the industry since its inception. What started out as the original switch technology, now connected more than 40,000 hotels worldwide to global distribution systems. Under Davis's leadership, Pegasus Solutions had exerted a major impact on the travel and hotel industry. The future of the company and the industry appeared promising since online hotel booking was still a booming business, with no signs of waning.

Principal Subsidiaries

Utell; Unirez.

Principal Competitors

IAC/Interactive Corp. (Expedia); Sabre Holdings Corp. (Travelocity); Cendant Corporation (Orbitz).

Key Dates:

1989:: Company is founded as THISCO, The Hotel Industry Switch Company.
1992:: THISCO CEO creates Hotel Clearing Corporation (HCC).
1994:: TravelWeb is launched as the first online site for real-time hotel reservations.
1995:: Pegasus Systems is created as parent company of THISCO, HCC, and TravelWeb.
1997:: Pegasus Systems goes public.
2000:: Pegasus Systems acquires REZsolutions and becomes Pegasus Solutions.
2001:: Pegasus Solutions purchases GETS, LLC.
2003:: Pegasus Solutions acquires Unirez.
2004:: Pegasus Solutions sells TravelWeb stake to Priceline.com.
2005:: Pegasus Solutions opens an office in Beijing; launches Hotelbook.com.