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Online Travel Companies Get the Last Laugh


After the Internet bubble burst, pundits hurled plenty of dot-bomb epithets at Brent Hoberman. None of it fazed the energetic, 34-year-old chief executive and co-founder of London online travel service Lastminute.com PLC (LMIN). Sure, the stock cratered, plunging 97% from its $8.77 peak on Mar. 14, 2000, the date of its initial public offering, to a nadir of 25 cents on Sept. 19, 2001. But Hoberman never gave up his dream of building Europe's largest e-travel business -- and never dropped the dot-com suffix. "The best motivation for our staff was to see new sales records every day," he says. "Any pessimism was wiped out by that."

Hoberman might be forgiven for gloating these days. In 2002, Lastminute.com sold $462 million worth of flights, hotel rooms, vacation packages, and even concert tickets over the Internet and pocketed a tidy $65 million in revenues from commissions and other fees, a 107% increase from the previous year. The five-year-old company is now on the brink of breakeven, and analysts expect it to turn a modest profit for the year as a whole. The reaction among investors? Lastminute.com shares have tripled since the start of 2002, to $1.50, making it one of the best performers on the London Stock Exchange. "Travel and the Internet turn out to be a perfect match," says analyst Robin Chhabra of London brokerage Evolution Beeson Gregory Ltd.

No kidding. Online leisure travel sales advanced 70% in Europe last year, to $7.3 billion, out of a total travel market topping $180 billion, and should grow 50% in 2003, says research director Jaap Favier of Forrester Research Inc. in Amsterdam. That makes it the fastest-growing segment in e-commerce -- and a beacon of hope for the troubled travel industry, which saw overall European revenues fall 6% last year.

Lastminute.com's closest rivals are faring just as well. Expedia Inc. (EXPE), based in Bellevue, Wash., sold $440 million worth of products outside the U.S. in 2002 -- much of that in Europe -- up a sizzling 146% from the year before. It's the most profitable among its peers. London-based eBookers PLC (EBKR) should post 2002 sales of $468 million, up 79%, when it announces results on Mar. 24, predicts Chhabra. And newcomer Opodo.com, a collaboration between nine European airlines aimed at grabbing back business from the independents, is gaining ground, though it still lags well behind the others.

Why such a surge now, especially amid weak economies and geopolitical anxiety? It's largely a reflection of Europe's fast-growing Net penetration and the ensuing rush to online shopping. Also, e-travel has strong appeal in uncertain times, as penny-pinching consumers comparison shop for the best prices. "We work bloody hard to make sure our deals are the best," says Simon Breakwell, senior vice-president for international at Expedia Europe, who also claims his service has the widest selection and is the easiest to use. Indeed, the shift to online sales -- now just 4% of travel spending in Europe -- will likely increase no matter what happens to overall travel bookings.

That's not to say online travel is crisis-proof. "If the travel industry fell 40%, everybody would be hit hard," Hoberman says. "But if it fell 20%, we'd see that as an opportunity." To guard against a downturn, online bookers are broadening their horizons. Lastminute now serves eight European countries and has affiliates in four others. Some are snapping up smaller rivals to stoke revenue growth and gain greater leverage over suppliers. Meanwhile, eBookers, which started out as a bricks-and-mortar travel agency, is hedging its bets by buying tour operators. It also runs a low-cost call center in India that allows customers to plan more complex trips with the aid of a flesh-and-blood agent. "It adds another dimension to our product," says CEO Dinesh Dhamija.

This being the Internet, of course, companies also continue investing in new technology. The latest capability, pioneered by Expedia, is a "dynamic packaging engine" that lets customers design their own tours by picking and choosing among airlines, hotels, cars, restaurants, and activities -- with package prices better than the sum of its parts. For conventional travel agents, already reeling as financially strapped airlines pare back commissions, such innovations promise to make life even more miserable. But for online brokers -- and the hardy few investors who own their stocks -- the flight is looking mighty smooth. By Andy Reinhardtin Paris


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