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Expedia Pushes Hotels, Package Deals

Executives at online travel company Expedia are continuing to put a good deal of emphasis on the hotel room reservations side of the business as the meltdown among U.S. airlines continues.

Speaking at an investor and analyst conference today in New York City, incoming CEO Erik Blachford, who will replace retiring Expedia founder Richard Barton effective March 31, said that hotels "are a key component" of the company's travel packages business, which also is being promoted heavily.

The presentation came on the day following a steep decline in airline stocks thanks to the looming war in Iraq and reports that American Airlines was shopping around for bankruptcy financing, Delta was warning of cash losses and United was asking for more time to file a bankruptcy reorganization plan. Standard & Poor's even said it will kick American out of its flagship 500 stock index because its market capitalization and share price have sunk so much.

The Air Transport Association, which represents major airlines, is predicting that a war in Iraq would result in passenger traffic falling more sharply than in the 1991 Persian Gulf War. Nearly 10 percent of daily flights would be canceled, the organization said.

Meanwhile the owner of Expedia's rival Travelocity.com -- Sabre Holdings Corp. -- just cut its profit forecast for the first quarter, saying war concerns and economic and political problems in Latin America have reduced its travel business..

All of the general online travel sites, including Priceline.com and even the airline-backed site Orbitz, have been building up the hotel and vacation package sides of their business as air travel in the United States went into a tailspin after the terrorist attack of Sept. 11, 2001.

"The Internet has changed the rules of hotel marketing," Blachford said. "There will be a need to let consumers shop across all hotels in a local area as the economy turns around - and it will one of these days -- average daily rates and occupancy rates are going to go up."

Blachford said that currently only 5 to 10 percent of hotel rooms in the United States are sold online, so there is plenty of room for growth. "This is a sustainable, long-term business," he said.

In fact, Bellevue, Wash.-based Expedia, which is majority-owned by Barry Diller's USA Interactive , has said that in the fourth quarter of 2002, its merchant revenue rose 184 percent year-over-year to $97 million on increased revenue from Expedia Special Rate hotels, the addition of the Classic Custom Vacations business in March of 2002 and growth in its packages business.

"We see ourselves as a tool to let hotels compete more efficiently in their local markets," Blachford said.

Hotels in Expedia's partner program can get a look at competitors' prices via an Expedia extranet, and can adjust pricing based on marketing intelligence, he said, stressing that unlike the airline business, many hotels are individually owned and operated franchises.

"Our special rate partners see more revenue in their competitive markets," he said.

Looking forward, Blachford said that Expedia is working now on using its travel packaging capability to include cruises - rolling in hotel stays, air fares, ground transportation and cruise ship vacations.

"The opportunities are enormous because cruise companies have terrific content, pictures of rooms, deck maps, etc," he said in what he called the "coming soon" part of the presentation.

Meanwhile Sabre, which also is expanding its hotel offerings on Travelocity, said it now sees a profit of 32 cents to 36 cents per share in the first quarter, down from a prior forecast of 41 cents to 46 cents.

Travelocity.com is Sabre's best-known product among consumers, but the company makes its profit and the bulk of its revenue from its reservations system used by travel agents, and that's where revenues are declining.

"Whether it is passengers boarded, tickets sold, vacations sold, cruises sold, trips on the corporate side, whatever, we have a demand problem in our industry," Sabre CEO William Hannigan was quoted as saying.