RealTime IT News

Travelocity.com Buys Site59 for $43 Million

By Erin Joyce

Looking to expand its hotel listings business, travel site Travelocity.com has acquired last-minute travel package company Site59.com for $43 million in cash.

The Fort Worth, Texas-based Travelocity.com said it would use the Site59.com assets to expand its margins on merchant hotel inventory. By summer, it plans to start offering hotel rooms through standing agreements Site59.com has struck with hotel chains and vacation resorts looking to sell hotel rooms at the last minute.

The Site59.com hotel inventory is expected to complement the inventory Travelocity.com already handles through a long-term agreement with Hotel Reservations Network (HRN) as well as other hotel providers. Site59.com is also planning to expand into selling hotel room bookings separately.

The deal comes as major air carriers try to trim the commissions they have historically paid to travel agents. Delta, for example, recently said it would no longer pay base commissions to agents, prompting Travelocity.com, the number one travel player online, to boost the prices it charges for ticket purchases.

Terry Jones, president and CEO of Travelocity.com, said Site59's relationships with major hotel chains and thousands of vacation and hospitality properties give Travelocity a ready-made opportunity to expand the its merchant hotel opportunities.

"These new capabilities lay the groundwork for significant revenue growth in 2002 and give our members more opportunities to take advantage of great travel deals."

Since it launched in 2000, the New York-based Site59.com has become a niche player in collecting unused travel inventory and packaging it into mini-vacations at last-minute fares. Prior to the acquisition, it had alliances with Travelocity, Orbitz, Yahoo! Travel, American Express and Lastminute.com.

Whether Site59.com plans to alter its no-commission business model now that it's a part of Travelocity was unclear. In prior interviews with atnewyork.com Michelle Peluso, CEO of Site59.com, has said travel agents need not view the do-it-yourself online travel service as a threat to their business margins.

"When a customer comes in an agent's office for last-minute travel, the agent doesn't have a lot of options because last-minute inventory is typically expensive. That means the agent would spend a lot of time and possibly not close the deal. We have a travel agent program with several hundred agents," she said.

"We help the agents protect their customer relationships by allowing them to use their own logos instead of the Site59 name. That helps them offer packages and (still) earn commissions, which can help them serve their last-minute customers."

Site59.com was launched with the backing of the iFormation Group, an investment partnership consisting of The Boston Consulting Group, Goldman Sachs and General Atlantic Partners.

The news comes as fellow travel services company Sabre which actually founded Travelocity and then sold a chunk of its stock, made an unsolicited bid in mid-February to acquire the Travelocity shares that it doesn't already own for $23 a share.

Site59.com officials have said that the company has consistently hit its cash goals since its launch. The revenues will come in handy for Travelocity.com, which is looking to trim its operating losses. For 2001, its loss before Sabre interest and income taxes was $84.5 million, or $1.70 per fully diluted share, compared to a loss of $109 million, or $2.11 per fully diluted share, in 2000.

During 2001, Travelocity.com's gross travel bookings were $3.1 billion, up 27 percent from the prior year, but gross travel bookings during the fourth quarter of 2001 fell by 10.5 percent to $630.2 million.

Revenues for 2001 were $301.8 million, up 50 percent from the $201.3 million it took in during 2000.