Cheap Tickets (Nasdaq: CTIX), which sells travel tickets through retail outlets, over the Internet and by phone, reported a profitThursday for the tenth consecutive quarter, announcing diluted net income for the second quarter ended June 30th of 5 U.S. cents per share.
However, the quarter did not provide a perfect landing for Cheap Tickets. The company announced it is closing its offline retail travel stores, in order to reduce costs and improve efficiency.
Cheap Tickets said it will focus all of its resources on the company’s online and call center businesses.
Net income for Cheap Tickets was even with the first quarter of 2001, and lower than net income from the year-earlier quarter. Total revenue for Q2 2001 was $28.5 million, up 15 percent over the prior quarter — but down 4 percent from the same period a year ago.
Cheap Tickets said its revenues were adversely affected by a lower-than-expected percentage of non-published airline ticket sales.
“While our overall second quarter financial performance was below desired levels, we still achieved record gross bookings and traffic to our Internet and call center segments,” Cheap Tickets president and chief executive officer Sam E. Galeotos said.
Tossing Bricks
Closing the company’s offline stores is expected to reduce Cheap Tickets’annual expenses by $2 million, the company said.
“As we’re shifting resources and personnel, I believe we’re creating a balanced ‘clicks-and-calls’ model to accommodate Cheap Tickets growth and improve booking capabilities and operating efficiency,” Galeotos said.
The retail closings are expected to result in a one-time special charge in the third quarter of approximately $2.5 million pre-tax, or 7 cents per diluted share.
“The store segment as a percentage of our total revenues has steadilydeclined over the last few years,” Galeotos said.
Who You Gonna Call?
In addition to the airfare wars that hurt Cheap Tickets in the second quarter, the company also suffered technical errors on its Web site and a decline in call-handling ability as its call volume increased, it said.
Cheap Tickets said it has had a problem with its Sabre booking engine, which prevents its lowest fares from being displayed appropriately to consumers on the Cheap Tickets Web site.
Cheap Tickets said it was forced to remove many non-published fares from its Website, but that Sabre is testing a possible solution this week.
Tinker Time
Cheap Tickets also said it had problems implementing a new version of its Website.
The company said it ultimately expects the new site to have a positive impact on conversion rates, usability and customer satisfaction. The new site will add e-ticketing and eliminate the company’s current five-day lead time purchasing requirement.
The new site will also let Cheap Tickets display more of its non-published fares,and will add several customer search engine features, such as the ability tosearch by airline and allowable connections, the company said.
Staying Aggressive
In May, Cheap Tickets announced a strategic alliance with Delta Air Lines, which increased the fares and destinations the airline offers through Cheap Tickets, and provided Delta an equity warrant in Cheap Tickets to purchase up to 1.6 million shares of Cheap Tickets common stock. As part of the agreement, the two companies will jointly market and promote the carrier’s inventory and Cheap Tickets’ distribution network.
In June, Cheap Tickets launched what it called the “most comprehensive” ad campaign in its 15-year history, as part of an “overhauled strategic marketing program.” The Cheap Tickets campaign, produced by ad agency J. Walter Thompson, was designed to “raise awareness of the brand in new and existing markets.”
Last month, the company opened a new call center in Tampa, Florida with more than 200 employees. Call center bookings account for about 60 percent of Cheap Tickets’ gross bookings, the company said.
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I can fully appreciate Cheaptickets wanting to reduce expenses by closing b&m stores if these locations were not profitable for the organization. However, another alternative is to franchise its name and pricing power with properly selected local travel agencies around the country.
Good travel agencies will be able to dramatically expand Cheaptickets’ reach by being physically in local markets. Consumers will be able to look and book online with Cheaptickets and service their bookings through a local store. These stores would not be a drain on Cheaptickets’ cashflow because they would all be independent. In fact, I think that these stores would become a revenue stream for Cheaptickets (or whatever online travel organization begins to use this format) due to franchise fees. The local travel agency would take a haircut on their commission so that both parties could participate.