DALLAS -- Hotels.com terminated its distribution agreement with Travelocity as the hotel discounter pulled its hotel inventory off Travelocity.com.

Hotels.com claimed Travelocity breached its contract Aug. 29 by terminating "the exclusivity to which Hotels.com was entitled under the hotel supply agreement."

Hotels.com also claimed Travelocity breached the agreement other times during the past two years. For example, Travelocity did not honor the exclusivity pact for Web portals powered by Travelocity, like Yahoo Travel and AOL Travel, said Bob Diener, president of Hotels.com. Diener added that Travelocity did not honor the exclusivity agreement in "a large number of cities."

Diener said Hotels.com was contracted to be Travelocity's exclusive provider of merchant hotel inventory, in many markets, until December 2004. The provision, enabling Hotels.com to display hotel inventory on Travelocity, was supposed to expire in June 2005, said Diener.

Travelocity's parent, Sabre, said in a Securities and Exchange Commission filing Aug. 29 that Travelocity "exercised its right, pursuant to Travelocity's affiliation agreement with Hotels.com ... to expand the distribution of its own merchant hotel inventory."

Perhaps an indication that the Travelocity-Hotels.com tiff could end up in court, Travelocity president and CEO Sam Gilliland said, "Hotels.com may not like it, but they remain bound to the terms of our agreement, including its confidentiality, even though we have exercised our contractual right to end the exclusivity provision."

Regarding Hotels.com's accusation that Travelocity breached its contract, Gilliland said, "Hotels.com hadn't provided any notice of breach, we're certainly not in breach, and we're hopeful any such concerns can be resolved in a confidential manner, consistent with our agreement."

For the three months that ended June 30, Hotels.com derived some 13.8% of its revenue from the Travelocity relationship. Diener chose not to look at the relationship that way, saying that hotel sales on Travelocity account for 3% InterActiveCorp's overall revenue. Hotels.com is a wholly owned subsidiary of InterActive Corp.

Hotels.com is now turning to sister company Expedia as a partner. The two companies, both owned by InterActive Corp., are "commencing full-scale cooperation and cross-selling initiatives," said Hotels.com.

With Travelocity out of the picture, marketing strategies between Hotels.com and Expedia can be implemented at "a much faster pace," said Bob Diener, president of Hotels.com.

Meanwhile, Travelocity Sept. 2, trumpeted the growth of its merchant hotel program.

The program now includes more than 7,000 hotels, said Travelocity, which exceeds its year-end goal of 4,000 signed and operational merchant hotels.

To contact reporter Jerry Limone, send e-mail to [email protected].

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