Cheap Tickets
to reap rewards

The company's founders
stand to make millions on
the latest stock offering

By Russ Lynch
Star-Bulletin

Cheap Tickets Inc.founder Michael J. Hartley and his wife Sandra could receive about $50 million from the upcoming sale of the company's stock.

Hartley is traveling and could not be reached, but his assistant yesterday said he could not say anything beyond what is contained in a preliminary prospectus filed with the Securities & Exchange Commission.

That document registers a possible public sale of 5 million additional Cheap Tickets shares, half of them by the company itself and half of them from the holdings of individual investors, including the Hartleys. At current prices, Cheap Tickets' sale of its own shares would net it more than $100 million in new capital for expansion and advertising.

The sale -- the timing and price of which have yet to be decided by underwriters -- also would pay back handsomely for the Hartleys and other investors who made the business possible.

The Hartleys are listed as intending to offer 1.19 million of the 13.4 million Cheap Tickets shares they own. If the sale does take place and if it were to take place at today's closing price on Wall Street of $43.50 it would be worth $51.8 million to the Hartleys. They would still be majority owners, with 50.9 percent of the stock, down from a 62.4 percent holding.

Also likely to receive about $51 million are two partners in a Texas retail venture capital business, Donald T. Phillips and Cece Smith. Phillips and Smith together are offering to sell 1.18 million of their 2.96 million shares.

They were early investors in Cheap Tickets. When it went public through an initial public offering in March, their group received nearly $5 million in payment for the preferred stock they had been issued in return for their investment. Phillips and Smith would end up holding 7.4 percent of the common stock, down from 13.8 percent.

Also in for a substantial return is Tammy A. Ishibashi, described in SEC papers as Michael Hartley's niece. She is offering 106,000 of her 705,000 shares and that part of her holding would be worth $4.6 million at today's price.

Ishibashi also works for the company. The documents show that Ishibashi, now 32, joined Cheap Tickets in 1990 as treasurer and was promoted to second vice president in November 1993. Since 1995 she has been executive vice president and is responsible for managing the company's retail stores and its complex ticket distribution and payment system, overseeing five departments.

Hartley appears to have discovered a business that is unusual, fast-growing and profitable, after earlier misfires, which included involvement in two airlines that tried to compete with the majors in the California-Hawaii market but failed.

In his early 20s, Hartley ran a commuter airline within Hawaii. He sold that airline and ran a Hawaii-based aviation services business. In the early 1980s he helped found Hawaii Express, offering California-Hawaii service, but had disagreements with the board and was fired. The airline failed in 1983. He then was a consultant to another mainland-Hawaii effort, Air-Hawaii, which started flying in late 1985 and but went bankrupt in the spring of 1986.

Hartley started Cheap Tickets in 1986 working on something new, the ability to sign contracts with major airlines to sell, at discount prices, tickets they knew they couldn't sell. In 1997, Cheap Tickets took that a step forward when it started selling the discount tickets over the Internet. That business has been soaring.

Cheap Tickets, which had a profit of $4.2 million in the first half of 1999 from revenues of $163.1 million, says it sold 842,566 airline tickets in January through June this year, 229,000 of them through the Internet. That represents substantial growth from 415,559 tickets in the first half of 1998, of which only 25,178 were sold through the Internet.