NORWALK, Conn. -- Priceline.com now has a merchant hotel program to
go along with its name-your-own-price product, having acquired most
of the shares of Travelweb, the Internet hotel distributor launched
by a group of hotel chains.
Priceline, which already owned a 14.3% share of Travelweb,
bought out co-owners Marriott, Starwood, Hilton, Hyatt and Pegasus
Solutions, and has an agreement to buy the 14.3% stake owned by
InterContinental Hotels Group.
The price for the acquired interests was $20.8 million, plus
954,547 shares of stock in 12 months, if Travelweb hits undisclosed
earnings hurdles.
Actually, Priceline's net cash outlay is between $5 million and
$6 million because Travelweb has a cash reserve of $15 million,
said Legg Mason analyst Tom Underwood.
Priceline CEO Jeffrey Boyd said he expects Travelweb will lose
money in 2004, but that in 2005 and beyond he anticipates Travelweb
will be "accretive to our earnings per share."
Priceline eventually plans to sell Travelweb inventory on
Priceline.com, Boyd said, but no launch date has been set.
Meanwhile, Priceline will continue to sell rooms on Travelweb.com,
Lowestfare.com (an online agency owned by Priceline) and through
contracted, third-party affiliates like Orbitz and AAA.
Underwood, who was employed by Priceline in the late 1990s, said
launching a merchant hotel product on Priceline.com will be
complex.
Not only will it be a technological challenge, but such a launch
would require alteration of Priceline's opaque hotel product, he
said. For example, the opaque offering uses a different
hotel-rating system than Travelweb's, and Priceline would have to
reconcile that.
Travelweb was formed by Pegasus and the hotel chains in 2002 to
compete with online travel agencies, particularly Expedia and
Hotels.com, that leveraged their brand power to secure favorable
allotment deals with hotels and marked up rooms as high as 30%.
Also, hotel chains were dissatisfied with the inefficiency of
the Internet merchant model, as online agencies faxed reservations
to the property. Travelweb automated the distribution of merchant
rooms. Today, the online agencies have begun to automate hotel
distribution as well.
"Travelweb built a business with supplier-friendly distribution
terms, and we intend to continue those practices," Boyd said.
A spokeswoman for Marriott said the decision to sell its share
of Travelweb to Priceline was largely due to a belief that
Travelweb had accomplished its mission.
"The industry created Travelweb to make a supplier-friendly Web
site," she said. "We feel it has really changed the way online Web
sites have done business, and we feel they have come around and
they have changed to the Travelweb model. So it is not important
for us to run our own site because we have changed the
industry."
John Davis, chairman and CEO of Pegasus, said the $4.2 million
it received upon the sale of its shares -- plus a "potential"
payout of $4.7 million worth of Priceline stock in one year -- is a
"substantial return on our investment."
Pegasus will continue to process Travelweb's hotel reservations.
Its original three-year agreement was scheduled to end in 2005 but
has now been extended through 2007.
Michael Milligan contributed to this report.
To contact reporter Jerry Limone or Michael Milligan, send
e-mail to [email protected] or [email protected].
Travelweb inks deal as provider for Orbitz
CHICAGO -- Travelweb not only got a new owner last week, it got
a new deal with a key partner, Orbitz.
Under the agreement, Travelweb will remain the exclusive
third-party provider of merchant hotel inventory on Orbitz from
Hilton, Hyatt, Marriott, InterContinental and Starwood through
2005. Travelweb also agreed to pay Orbitz higher commissions in
return for a minimum room-night commitment.
Orbitz said the deal gives it "an adequate supply of merchant
inventory from the major brand-name chains and gives the site
flexibility to work directly with other chain and independent
hotels to continue the growth of the Orbitz Merchant Hotel
program."
Travelweb sued Orbitz last year, alleging that Orbitz was
illegally negotiating merchant deals with properties already
participating in Travelweb.
Orbitz contended that Travelweb did not produce the lowest rate
70% of the time, as their contract stipulated. The agreement ends
the litigation. -- J.L.