Cendant To Buy Cheap Tickets, Round Out Online Travel Portal

NEW YORK— Cendant Corp. has acquired Cheap Tickets, a deeply-discounted travel distributor, in an effort to round out its soon-to-launch travel portal— Trip.com and make headway in the online travel industry. The $425 million cash purchase of Cheap Tickets, based in Honolulu, emphasizes just how serious Cendant is on making this travel portal successful and capitalizing off of the ever-booming online travel industry. In the wake of the company’s recent acquisition of Galileo International for $2.9 billion, which is currently stalled in Europe due to a 30-day regulatory approval process, the company is making even more strides to give its online competition a run for their money. The recent acquisition of Expedia by USA Networks is another example of the consolidation trend that is morphing online travel providers into brick and mortar organizations, which may have been exactly what Cheap Tickets needed to stay afloat in the ever-changing industry. After news of the Cendant acquisition broke on August 13, Cheap Tickets’ stock price rose from $4.48 to $16.33, and according to a recent New York Times article, the discounted online travel distributor was falling behind its competitors and needed a parent company with deep pockets to give it some marketing force. “There has been a lot of consolidation in the industry recently; a lot of websites are being bought by larger companies,” said Sam Katz, Cendant’s Chief Strategic Officer and CEO/Travel Distribution Division. “With Cheap Tickets our focus is on executing the technology and getting the business to profitability.” Katz added that Cheap Tickets currently receives 3.5 million unique visitors a month and that Trip.com and Cendant’s websites receive another 2.5 million unique guests; meaning Cendant’s travel portal could launch in September with an existing user base of 6 million unique visitors- making it the number three most visited travel site, behind Expedia and Travelocity. “The online travel space is huge and it’s growing rapidly. There’s room for a number of successful players, including us,” he said. Cendant began negotiations with Cheap Tickets approximately four months ago, with the intent of adding its discounted rates into its highly anticipated travel portal. “It’s faster than building the technology,” said Katz of the acquisition. Though he would not disclose how the discounted rates would be displayed on the site, whether through a separate link or fully integrated with other rates, he did note that website’s extensive airfare inventory was particularly appealing to Cendant— which until the travel portal was not represented in the airline industry. Katz also noted that the travel portal may concentrate on package sales, which provide suppliers with added profits. “We plan to focus on a merchant model,” he said. “We feel marking up the rates creates a greater profit margin than commissions.” Through discounted packaged rates, suppliers can more easily mark up the prices while still maintaining consumer value. In addition, Cendant has created a separate corporation, Travel Portal Inc., to house its new online distribution services, in an effort to keep management more focused and to avoid earnings losses related to its start-up venture. “We’re keeping the company off the balance sheet mainly because of our earnings per share,” said Katz. “A start-up has losses in the beginning typically, and we wanted to create a structure that separated the financial results of the start-up from the parent company. We want to make sure we’re maximizing our shareholder value.” By keeping the portal as a separate entity, Cendant then has the opportunity to later bring the company public, to buy back the portal, or to sell it- similar to what it did with its online real estate portal Move.com, which was sold to Homestore.com for a gain of $600 million. However, in order for any of this to come to fruition, the portal needs to pass r