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Cheap Tickets' Aerial Acrobatics on Web But as the Net travel game heats up, the airline ticket reseller may find itself in a dogfight The name may be Cheap Tickets, but this Honolulu-based online travel-service company is raking in the dough, thanks to skyrocketing Internet sales. The question now: Will the major airlines and big competitors such as Microsoft's Expedia shoot down Cheap Tickets and other travel discounters? CEO and majority shareholder Mike Hartley started Cheap Tickets in 1986 the hard way: reselling discounted seats on a failing inter-island air carrier in Hawaii through classified newspaper ads. The company grossed $250,000 its first year. Last year, the company, which now has four call centers and over 400 employees, posted gross revenues of $171 million. In 1997, Cheap Tickets took its already strong brand name online and opened one of the earliest Internet travel shops. The leap was not a big one -- almost all the company's inventory already moved over phone lines and FedEx. But in retrospect, it now appears that Cheap Ticket's early Web launch and easily recognizable brand has given it a big leg up on rivals. It just posted first-quarter 1999 revenues of $60.5 million, up from $32.4 million in the same quarter last year. The biggest push came from Internet sales, which made up $20.3 million worth of the 1999 Q1 tally as compared to only $2.2 million for the same period last year. And profits jumped to a eye-catching $970,000 for Q1 1999, up from $25,000 for the same quarter last year. UP-FRONT HIT. What's more, the company gained 332,000 new subscribers in the last quarter alone -- compared to 400,000 in the entire previous year. Unlike other travel Web sites, Cheap Tickets screens out armchair travelers by requiring that subscribers cough up credit-card numbers before they can even gain entry to the site. Rivals are swarming -- but results have been mixed. The only competitor that seems to be making any money is 800 Travel Systems (IFLY), which posted 1998 net sales of $76.7 million, a 42% jump from the previous year. Microsoft continues to pour money into Expedia, but there are no indications that it has entered the black yet. And despite 1998 gross bookings of $200.1 million, Preview Travel (PTVL) continues to bleed red ink as the company tries to pick up market share with hefty advertising and marketing efforts, and squeeze more sales out of 7 million registered users. "Preview Travel spent $60 million in advertising last year and sold roughly $200 million in tickets," says Hartley. "I spent $3.9 million in advertising last year and I sold just under $300 million." Still, as the Internet travel game heats up, Cheap Tickets may find itself in a dogfight. Analysts expect the major airlines to start fine-tuning their Web sites and come after the same market as Cheap Tickets. If that happens, who needs a middleman for booking with the Web? "We have some concerns the relationship between the consolidator and the airlines is not going to be as strong as in the traditional world," says Seema Williams, an E-commerce analyst with Forrester Communications. "In the traditional world, the consolidator was the one that was willing to spend the marketing dollars to get rid of those last extra seats. The airlines are going to say, 'We can dump as much of our inventory as we want through online ticketing.'" SOARING STOCK. Hartley says he isn't worried about the airlines. "Their offerings are very limited -- typically less than 20 city pairings. They are released on Wednesday and you need to travel over that same weekend. That's not very convenient," says the CEO, who further argues that airlines gain nothing from discount fares on the Internet. "There will always be a need" for cheap seats, he says. The stock market seems to agree. Since it's IPO on Mar. 19, Cheap Seats stock has soared from an opening round of $15 per share to $44.75 on Apr. 27, with a ridiculous price-to-earnings ratio of 1,491.7 and a market cap of $937 million. According to Hartley, analysts are calling for Cheap Tickets to move $400 million to $450 million in tickets in 1999. "I am not inclined," he says, "to argue with those numbers." By Alex Salkever in Honolulu
EDITED BY DOUGLAS HARBRECHT
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