Cheap Tickets’
stock soars
in debut

The Hawaii-based discounter's
shares more than double

By Russ Lynch
Star-Bulletin

Shares of Cheap Tickets Inc., a Honolulu-based seller of discounted airline tickets, sold for more than twice the price set by underwriters in an initial public offering today.

The company raised roughly $52 million in the stock issue which the mainland underwriters priced at $15 a share, responding to demand by setting a price higher than the $11-$13 originally estimated. As soon as the stock hit the market this afternoon, it sold for $30 a share.

Cheap Tickets closed today at $31.25, up 108 percent from its $15 at-issue price. More than 6.58 million shares changed hands, according to Bloomberg News. The IPO consisted of 3.5 million shares.

Founder Michael J. Hartley and his wife Sandra will remain majority owners, holding 64 percent of the company. The company, founded in 1986, sold nearly a million tickets last year through call centers and ticket offices in Hawaii and on the mainland and through its Internet site, www.cheaptickets.com.

Cheap Tickets had revenues of $171.1 million last year, consisting of $159.8 million in ticket sales and commissions of $11.3 million. Its net profit for 1998 was just over $1 million, according to documents filed with the Securities & Exchange Commission in connection with the public offering.

The company paid Chairman and CEO Michael Hartley a salary of $244,000 in 1998 and bonuses totaling $50,000. Sandra Hartley, vice president of employee relations, was paid $235,500 in salary and $12,500 in bonuses, according to the SEC filing.

Cheap Tickets said it plans to use about $9 million of the proceeds from the stock sale for advertising and brand development and another $9 million to upgrade its technological infrastructure so it can cope with anticipated growth. Another $4.8 million will be used to redeem preferred stock, a repayment to initial investors.

Most of the tickets it sells are at what the airline industry calls "nonpublished fares" -- tickets available at much lower prices than the scheduled fares.

They become available as seats remain unsold while the flight date is looming. Cheap Tickets uses computers to sort millions of fares, listing them in ascending order by price for its ticket agents and Internet customers to use.

It doesn't need to keep a ticket inventory, since it doesn't buy tickets until it has sold them, according to the company's SEC filings. Cheap Tickets has contracts with more than 30 airlines giving it rights to buy the special-category tickets. The company said its Internet business is expanding rapidly. It reported selling 97,000 tickets on the Internet last year, generating about $25 million in total revenues.

Cheap Tickets trades on the Nasdaq National Market under the symbol CTIX. The offering was managed by William Blair & Co. of Chicago and Dain Rauscher Wessels of Minneapolis.

The Cheap Tickets offering was one of two hot-selling IPOs today. In the other, iVillage Inc., which runs Internet sites with news and information for women, surged $56.12-1/2 to close at $80.12-1/2, after earlier touching $100. Yesterday, the company issued 3.65 million shares, or a 16 percent stake, at $24 each.