Travelocity.Com - Striving For Profitability

Travelocity faced new competitive pressures from the airlines in 2001, including two new airlines-backed online ticketing services by Hotwire.com and Orbitz.com. In addition, the airlines capped commissions at $10 per ticket for all airline tickets sold online or offline, and some airlines—notably Northwest and KLM—eliminated commissions for tickets sold online. In March Travelocity also stopped booking flights on Southwest Airlines after the two companies experienced customer service problems. It also began charging $10 commissions on flights booked on Northwest and KLM.

Travelocity celebrated its fifth anniversary in March 2001 by launching new services, including a travel club (Travelocity Preferred Traveler) and Goodbuy, a negotiated fare service for 20 airlines and rooms at 2,500 hotels. A new feature, Option Finder, searched for alternate airports and departure dates. For the quarter ending March 2001, Travelocity reported a profit of $618,000 before special items and a positive cash flow. However, special items totaling $26.4 million resulted in a quarterly loss of $22.1 million, compared to $9 million for the same quarter in 2000. Travelocity's stock rallied on the news and increased more than 134 percent from January through the end of April. Travelocity's second quarter was also profitable on a pro forma basis, excluding the write-off of goodwill.

During the year Travelocity added new products and services. An investment in Viator added that company's database of sightseeing tours, attractions, and other destination activities in 33 countries to its offerings. A partnership with American Classic Voyages Co. enabled Travelocity to offer Hawaiian cruises. In July Travelocity launched its Bon Voyage e-mail service, which recommended activities, events, and personalized special offers to its members. A toll-free telephone service was also offered to provide customers with offline support. Internationally, Travelocity announced it would acquire Air Tickets Direct, a U.K.-based online travel agency with a dedicated call center for offline sales support. The company also entered into agreements with British Airways and Lufthansa, and it began offering the entire range of 73 European rail passes.

In the quarter ending September 30 memberships increased to 30.4 million, an increase of 1.7 million over the previous quarter. While the online travel industry was the best performing sector of the Internet economy for the first eight months of 2001, the terrorist attacks of September 11 had a dramatic impact on online travel providers. Online bookings dropped to only 30 to 40 percent of their previous levels. At the beginning of October Travelocity announced it would close its call center in Sacramento, California, and reduce its workforce by 19 percent, or 320 jobs. The company had about 1,700 employees before the cutbacks and planned to institute a hiring freeze. Given the uncertainty of the times, it remained to be seen if Travelocity could achieve profitability.