ROSEMONT, Ill. -- With the acquisition of Trip.com, Galileo International will get an
established Internet travel brand name while it builds its own Galileo.com site into
a marketplace where consumers can book special Web deals directly
from suppliers or agencies.
"We firmly believe Galileo.com will be a success on its own, and
we see Trip.com as adding a world class brand and a large on-line
customer base to our Internet portfolio," James Barlett, Galileo's
chairman and chief executive officer, said in a statement.
Galileo, a provider of CRS and Internet-booking technology to
travel vendors, agencies and other "intermediaries," will be using
the Trip.com acquisition to wrap all of its various Web-related
activities into a single company.
Galileo, which already holds a 20% stake in Trip.com, will pay
$269 million in stock and cash for the rest of the firm and turn
Trip.com into a wholly owned subsidiary that might be partially
spun off through a public stock offering. The acquisition is
expected to be finalized by the end of March.
Galileo will thus "consolidate assets into one company that
focuses and excels in the Internet space with respect to providing
travel services," said David Near, Galileo's senior vice president
of e-commerce and Internet.
He said cost savings are a key driver of the ongoing
consolidation in the on-line travel market. "Galileo will clearly
recognize significant cost-savings opportunities by putting into
one company the activities associated with its Web strategies and
brands."
Officials from both companies said Galileo will benefit from
Trip.com's expertise in marketing and running an on-line travel
site as well as from Trip.com applications such as FlightTracker,
which shows Web-connected travelers the progress and whereabouts of
airline flights in the U.S.
Trip.com will benefit on the technology side, in that Galileo's
structured data architecture could develop Trip.com into a more
powerful site with better performance and response times, the
officials said.
Trip.com, as a private company, doesn't publicize its sales
volume or balance sheets.
A recent report from PhoCusWright, an Internet travel research
and analysis company in Sherman, Conn., estimated Trip.com's gross
bookings at $32 million in 1998 and $70 million in 1999.
Because Trip.com is aggressively attempting to build its
customer base, a knowledgeable source said it would be safe to put
the on-line agency in the same category as others of its kind that
also are spending heavily on building their brands and are at this
point operating in the red.
Trip.com is directed to business travelers, and Near said that
although Galileo.com's focus will depend on what offerings are
listed by suppliers and agents, a "reasonable assumption" could be
made that in the early stages the site will be more
leisure-oriented.
The Galileo.com services are being tested and are expected to be
launched in the second quarter, providing what Near described as an
opportunity for consumers "in a single consistent site to see the
best deals that suppliers and agencies have available on the
Web."
Near said buying Trip.com is not being used as a means for
Galileo to escape building its own consumer brand but, rather, a
means of tackling a "diverse market where travelers shop for travel
in different ways."
As a brand name, Galileo already resonates with the agencies and
suppliers that would be partners in the Galileo.com venture, Near
said.
"Galileo" also is a name that consumers will rapidly associate
with travel, and in an already crowded on-line market where
"travel-everything is already out there," Galileo might be better
able to stand out from the clutter by not having "travel" in the
site's name, Near added.
One-stop shopping is key
What will it take to run a profitable on-line travel service?
Near said successful firms must offer one-stop shopping
opportunities and product offerings that will appeal to consumers
in ways that go beyond price.
"The [Web travel] space is in a very aggressive growth phase,"
he said. "Many of the losses are reflective of investments being
made in customer acquisition costs and in growing the franchise.
The market is spending beyond its ability to generate
revenues."
There will only be a small percentage of Web users who will
continue to put up with having to shop on multiple Web sites, he
said. Since not all Web users are basing their travel purchase
decisions on price, "the market needs to start appealing to the
rest."
"There is an opportunity for Galileo to reintegrate a
disintegrated marketplace," he said.