Doug: So, what do you think of IFLY and IFLYW ? Tempting ah?
Buy on dips?
800 Travel Takes Off On Internet Strategy, Strong Rev
By KATE BERRY
Dow Jones Newswires
MIAMI -- In the past two weeks, shares of 800 Travel Systems Inc., (IFLY) have
soared after the company reported a huge sales increase and disclosed a new strategy
to sell cheap airline tickets over the Internet.
After reporting a 160% increase in annual revenue on April 1, due largely to an
acquisition, and announcing its Internet plans on April 9, shares of 800 Travel jumped to
as high as 10 this week. Just last month, the shares had traded as low as 1 1/16.
Friday afternoon, the shares were up 1 5/8, or 29.2%, at 7 3/16 on Nasdaq volume of
1.1 million, compared with average daily volume of 286,900. That gives the company a
market capitalization of almost $55 million.
The Tampa company currently sells low-priced airline tickets with toll-free telephone
numbers like 1-800-FLY-4-LESS. It advertises in 260 Yellow Page directories and
plans to have a Web site by year-end selling the low-priced fares.
Last year, 800 Travel posted an operating loss of $262,505, including a noncash charge
of $321,250 for stock, options and warrants issued to compensate management and
lenders. Revenue last year rose about 160% to $8.3 million, from $3.2 million a year
earlier, which includes the acquisition in January of The Joseph Stevens Group, a
reservation center in San Diego.
But whether 800 Travel can succeed as the latest entrant in the realm of Internet travel
remains to be seen.
Mark D. Mastrini, the company's 34-year-old president, said the Web site will differ
from rivals' sites by allowing consumers to link directly to a travel agent via a chat box.
"The interaction with an agent is what's going to make the consumer happy," said
Mastrini, a former vice president of sales and marketing at the now-defunct Braniff
Airlines. "This will eliminate some of the hurdles we've seen in the past, which is that a
lot of people shopping over the Internet are reticent about giving their credit card
numbers out to a computer. They want a real person."
Jesse Shelmire, director of investment banking at First London Corp. in Dallas, said 800
Travel has attracted the attention of small institutional investors because of comparisons
with Preview Travel Inc. (PTVL), the only Internet travel pure-play in the industry.
Preview is a well-funded start-up that came public in November at $11 a share and
traded as high as 38 1/8 this month. Friday afternoon, however, Preview's shares were
off 2 11/16, or 7.5%, at 33 1/4.
Shelmire said he expects 800 Travel to book about $90 million in ticket sales this year,
with $12.5 million in commission revenue and roughly $1.7 million in earnings. That does
not include any revenue from the Internet, he said.
"This is a huge turnaround in two years," said Shelmire, whose firm was the lead
underwriter of the company's January IPO, which was priced at $5. The company has a
float of 1.3 million shares on 7.6 million shares outstanding, which has led to extreme
volatility on heavy trading volume, which Shelmire called "a trader's dream."
He said investors also have taken notice of 800 Travel's board of directors. George A.
Warde, a former chief executive of AMR Corp.'s (AMR) American Airlines and of
Continental Airlines Inc. (CAIA CAIB), was named chairman this week. L. Douglas
Bailey, a former president of Home Shopping Club Inc., the flagship of the Home
Shopping Network, and Carl A. Bellini, a former chief operating officer and executive
vice president of marketing of Revco D.S. Inc., joined the board in November.
"We were probably the best-kept secret in the airline business because people will
always think that nobody can do it any better than Sabre or Apollo," Chairman Warde
told Dow Jones, referring to the two large airline-reservation systems, Sabre Group
Holdings Inc. (TSG), and Apollo Travel Services, which Galileo International Inc.
(GLC) bought from UAL Corp. (UAL) last year.
But industry observers say it's unclear if 800 Travel can achieve strong margins and
maintain low costs by operating a staff of travel agents.
The company has 145 reservation agents in Tampa and San Diego that are able to field
roughly 8,000 calls a day, although they receive about 30,000 calls, company President
Mastrini said. Revenue is generated from commissions on airline tickets, service fees,
promotions with travel service companies and incentives from a contract with Sabre
Group, the travel reservation system developed by American Airlines and
majority-owned by the airline's parent company, AMR.
800 Travel negotiates discounts directly with airlines and consolidators. Nearly 51% of
its tickets are purchased from Continental Airlines and Trans World Airlines Inc.
(TWA).
For now, only 1% of total airline ticket bookings, or roughly $827 million, are bought
over the Internet, according to the Travel Industry Association of America, which
expects that figure to reach 5% by 2000.
And early entrants in on-line travel services have snatched up exclusive deals with the
gatekeepers of the Internet.
Travelocity, a Web-based reservation system owned by Fort Worth, Texas-based
Sabre, had more than $100 million in bookings last year. That includes reservation
systems for subscribers of CompuServe and Prodigy.
Preview Travel, based in San Francisco, has exclusive distribution agreements with
America Online Inc. (AOL), Excite Inc. (XCIT) and Lycos Inc. (LCOS). Preview
reported $80 million in bookings last year and $35.9 million in the first quarter.
Microsoft Corp.'s (MSFT) Expedia had bookings of roughly $100 million last year, or
$3 million a week, according to an industry expert.
In a recent 10-K filing, the company acknowledged that "competitors have significantly
greater financial or marketing resources than the company."
Mastrini said negotiating the lowest-priced tickets is more important to 800 Travel than
linking up with a well-known service provider.
"The deals we're bringing to the Internet have values that the market hasn't seen," he
said. "We've been able to establish the deals on our volume and have proven to the
carriers and consolidators that we have an excellent track record."
- Kate Berry; 305-379-3744
Scott |
