Travelocity.com, Inc.

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Travelocity.com, Inc.

15100 Trinity Boulevard
Fort Worth, Texas 76155
U.S.A.
Telephone: (817) 785-8000
Fax: (817) 785-8003
Web site: http://www.travelocity.com

Public Company Incorporated: 1996
Employees: 1,380
Sales: $301.8 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: TVLY
NAIC: 454110 Electronic Shopping and Mail-Order Houses; 514191 On-Line Information Services

Travelocity.com, Inc. operates a leading online travel Web site where travelers can take control of their bookings and reservations and research information about potential destinations. The site provides reservation information for more than 700 airlines, more than 50,000 hotels, and more than 50 car rental companies. It also offers more than 6,500 vacation packages as well as tour and cruise departures. Internationally, Travelocity.com operates Web sites for customers in Canada in both French and English, as well as in the United Kingdom and Germany. During 2001, it finalized arrangements to launch Travelocity Europe in partnership with Otto, a German direct marketing firm. Also during 2001, the company logged more than $3.1 billion in gross travel bookings and posted revenue of $301.8 million.

Steady Growth Following Launch: 1996–98

Travelocity.com was launched in March 1996 as a joint venture of two travel companies, Sabre Interactive and World-view Systems Corp. Sabre Interactive was a unit of AMR Corp., the parent company of American Airlines, while Worldview was a partnership formed by publisher Random House and Ameritech, a regional Bell operating company (RBOC). Sabre was the leading travel reservation system used by travel agents. Its principal business was to develop and install travel agents’ computer reservation systems. Sabre booked Travelocity.com’s airline reservations, while Worldview provided travel-related content for the site.

At first Travelocity’s strategy was to offer compelling content and sell airline tickets. Destination information provided at the site included hotel recommendations, restaurant reviews, entertainment listings, weather reports, video clips, photos, maps, news, chat forums, and other information about specific destinations. Travelocity provided this information on its Web site directly from World view’s databases. After Sabre Interactive bought out Worldview’s interest in Travelocity in February 1997, Worldview remained the featured content provider for the Travelocity Web site.

In its first three months of operation, Travelocity reported 1.2 million visits and had 144,000 people register at the site. Registration was required to make a purchase through Travelocity. The site soon added more features, including hotel reservations, car rentals, and vacation packages. It was able to provide street maps for specific U.S. attractions through an agreement with Vicinity Corp. The Travelocity site was refined to make it easier to use, and by the end of 1996 it offered travel information for more than 200 destinations internationally and had more than 400,000 registered members. During 1996, Travelocity was selected to be the travel content provider for Time Warner’s experimental online service, Road Runner.

Travelocity grew steadily during its first two years in business. Together with Expedia, an online travel site launched by Microsoft Corp. in October 1996, it was one of the leading travel sites on the Internet. While purchases were made online, tickets were delivered either to a local travel agency or through Travelocity’s own travel agency, the Travelocity Service Center. Sabre and Travelocity built 12,000 customized Web sites for travel agents to help them handle online bookings. This helped position Travelocity as an ally, rather than a competitor, to travel agents. Travelocity was a key component in Sabre’s strategy to capture the biggest possible share of overall travel bookings, both on and off the Web. For 1997, Travelocity handled more than $100 million in gross travel bookings, a significant percentage of the estimated $900 million booked in online travel reservations that year.

Merger Results in Dramatic Growth: 1999–2000

In October 1999, Travelocity announced it would merge with Preview Travel, another leading online travel service. The new combined company was called Travelocity.com, Inc., and was headquartered in Fort Worth, Texas. The merger made Travelocity.com a category leader in online travel services. It also had the effect of making Travelocity.com a public company, with access to public equity markets, because Preview Travel was already a public company.

Following the merger, which was completed in March 2000, Travelocity was separated from its parent company, Sabre. Sabre retained a 70 percent ownership interest in Travelocity, while Preview shareholders owned the remaining 30 percent. Sabre also continued to be Travelocity’s principal technology partner, handling its online transactions. In the future Sabre would also provide technology for other online travel services, including Priceline.com and Hotwire.

As a result of the merger Travelocity was the third most-visited electronic commerce site in the world following Amazon.com and eBay. The new Travelocity had about 17 million registered members and 8 million monthly visitors. It was the preferred travel provider for all of the major Internet portals, including America Online, Excite, Go Network, Lycos, Netscape, USA Today, and Yahoo!.

Prior to their merger, both Travelocity and Preview Travel were pursuing a strategy of building market share. As a result, both companies sustained losses in 1998 and 1999, with Travelocity reporting a loss of $21 million in 1998 and Preview a loss of $27 million. For 1999, Travelocity and Preview Travel reported combined revenue of $90.9 million and a combined loss of $49.8 million. Competing travel site Expedia went public in November 1999 and, according to Media Metrix, had slightly more traffic than Travelocity during the 1999 holiday season.

Around this time, Travelocity and Preview Travel entered into an agreement with Priceline.com, the name-your-own-fare online service. Together, the three companies agreed to refer customers to each other’s sites and collect referral fees when purchases were made. The arrangement enabled Travelocity and Preview Travel to expand its audience and serve customers who were looking for the cheapest fares. Expedia countered by announcing it would develop its own name-you-own-price plan for airline tickets.

Once the merger between Travelocity and Preview Travel closed in March 2000, the new Travelocity launched a $50 million print and television advertising campaign to gain new customers. The ad campaign positioned Travelocity as the place where people could take control of their travel arrangements. The radio spots noted that Travelocity’s online site listed 45,000 hotels, 700 airlines, and 50 car rental companies. Meanwhile, Travelocity had combined online traffic of more than eight million visitors in February 2000, according to Media Metrix, making it the top online travel site in terms of traffic. Expedia had 5.3 million visitors, while Travelocity by itself had 5.1 million.

By mid-2000, Travelocity completed its integration with Preview Travel and introduced a redesigned Web site. New features included a group shopping tool that made travel planning for groups easier. Also added to the site were customer reviews and a message board. The home page was redesigned, and wireless travel services were offered. At the end of June 2000, Travelocity had 21.6 million registered members, up from 19.2 million at the end of March.

In the second half of 2000, Travelocity and American Airlines Publishing launched Travelocity Magazine, a bimonthly periodical with a controlled circulation of 250,000. The new magazine was part of Travelocity’s strategy to extend its brand, and it enhanced the company’s position as a provider of tools for travelers who wanted to take control of their travel planning. The company sold its ten millionth airline ticket in October 2000.

To serve customer outside of the United States, Travelocity supported Web sites in Canada, the United Kingdom, and Germany by the end of 2000. The company first began serving international customers in September 1997, when it gained the infrastructure to support global pricing and taxation. At first international customers were served by Travelocity’s main online site in the United States, with tickets delivered through Sabre’s international network of more than 10,000 travel agents. The company ventured into the United Kingdom market in mid-1998 and established a customer service center in Cardiff, Wales. It then partnered with a U.K. travel agency to develop a Web site specifically for British customers. Travelocity Canada was established in April 1999, followed by a bilingual customer service center in Ottawa and then English and French Web sites for Canadian customers. Travelocity then launched Travelocity Germany, and in 2000 the company entered into an agreement with Japan Airlines, All Nippon Airways, and 11 other international carriers to launch Travelocity Japan in 2001.

Seeking Profitability in 2001

Travelocity’s gross travel bookings reached $2.5 billion in 2000, more than double that of 1999 and more than 22 percent of the estimated $11 billion spent in online travel during 2000. At the beginning of 2001, Travelocity was the top-ranked online travel provider with 8.72 million visitors in January, equal to an 18 percent market share, according to Nielsen/NetRatings and Harris Interactive. The other top four online travel providers in terms of visitors were Southwest Airlines with 5.1 million visitors; Expedia, with 4.8 million visitors; Priceline.com, with 3.4 million visitors; and Delta Airlines, with 3.0 million visitors.

Company Perspectives:

Travelocity is one of the most powerful one-stop travel sites on the Internet providing secure online reservation capabilities for air, car, hotel, and vacation reservations, plus access to a vast database of destination and other travel information.

Travelocity began 2001 by predicting it would achieve profitability by the end of the year. During 2001, the company faced new competition from the airlines, which launched two new online ticketing services Hotwire.com and Orbitz.com. The airlines also capped commissions at $10 per ticket for all airlines tickets sold online or offline, and some airlines—notably Northwest and KLM—eliminated commissions for airline tickets sold online. In March 2001, Travelocity stopped booking flights on Southwest Airlines after the two companies experienced customer service problems. Travelocity also began charging customers $10 commissions on Northwest and KLM tickets.

Part of Travelocity’s strategy to achieve profitability was to introduce new services during the year. For its fifth anniversary in March 2001, it launched several new services, including the Travelocity Preferred Traveler travel club, and Goodbuy, a negotiated fare service for 20 airlines and rooms at 2,500 hotels. Option Finder was a new feature that searched for alternate airports and departure dates. For the first quarter ending March 31, 2001, Travelocity reported a pro forma profit of $618,000 before special items and a positive cash flow. However, special items totaling $26.4 million resulted in a quarterly net loss of $22.1 million, compared to a net loss of $9 million for the same quarter in 2000. Nevertheless, Travelocity’s stock rallied on the news and increased more than 134 percent from January through the end of April 2001. Travelocity’s second quarter of 2001 was also profitable on a pro forma basis, excluding the write-off of goodwill.

During the rest of the year, Travelocity added more new products and services. Through an investment in Viator, Travelocity added a database of sightseeing tours, attractions, and other destination activities in 33 countries. A partnership with American Classic Voyages Co. enabled Travelocity to offer Hawaiian cruises. In July, Travelocity introduced its Bon Voyage e-mail service, which recommended activities, events, and personalized special offers to its members. A new specialty content area for golf travel was added, and later in the year a new content area for ski and snowboarding vacations was introduced. The company also increased its offline support, opening a third customer service center in Virginia and improving the technology in all of its customer service centers.

Internationally, Travelocity entered into agreements with Lufthansa and British Airways, and it began offering the entire range of 73 European rail passes. The company announced it would acquire Air Tickets Direct, a United Kingdom-based online travel agency that also had a dedicated call center for offline customer support. Before the end of the year it finalized arrangements with Otto, a German direct marketing firm, to launch Travelocity Europe.

For the third quarter ending September 30, Travelocity reported a pro forma profit of $4.9 million before special items. Membership increased to 30.4 million. While the online travel industry was the best performing sector of the Internet economy for the first eight months of 2001, the terrorist attacks of September 11 had a devastating effect on online travel providers. Online bookings dropped to only 30 to 40 percent of their previous levels. At the beginning of October Travelocity announced it would close its call center in Sacramento, California, and reduce its workforce by 19 percent, or 320 jobs. The company had about 1,700 employees before the cutbacks and planned to institute a hiring freeze.

The economic slowdown of 2001 and the lingering effects of September 11 made the fourth quarter of 2001 a difficult one. Travelocity’s gross travel bookings for the quarter were $630.2 million, down 9.5 percent for the same quarter of 2000. For the year 2001, Travelocity reported gross travel bookings of $3.1 billion, an increase of 27 percent over 2000. While the company was able to report a pro forma quarterly profit of $4.9 million, it recorded a net loss of $24.4 million for the fourth quarter, more than double the loss of the same quarter in 2000. For all of 2001, Travelocity had a net loss of $85 million. While Travelocity did not achieve profitability in 2001, it was able to report pro forma net income of $15.6 million for the year, and membership at the end of the year rose to 32 million.

Principal Competitors

American Express Co.; Cendant Corp.; Expedia, Inc.; Hotwire; Lowestfare.com, Inc.; Orbitz; Priceline.com, Inc.

Key Dates:

1996:: Travelocity.com is launched as a joint venture of Sabre Interactive and Worldview Systems Corp.
1999:: Travelocity.com announces merger with online travel provider Preview Travel.
2000:: Travelocity.com becomes a public company when its merger with Preview Travel closes.