Cheap Tickets
earnings get
grounded

The company says its
second quarter will
miss expectations

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By Russ Lynch
rlynch@starbulletin.com

Cheap Tickets Inc. said it expects its profit for the second quarter of this year to fall to about one-fourth of what analysts expected.

The Honolulu-headquartered retailer of discount airline tickets and other travel said it now expects to report a profit of between $1.1 million and $1.3 million for the quarter that will end Saturday.

That amounts to 4 cents to 5 cents a share, well below consensus estimates of 21 cents to 22 cents a share, Cheap Tickets said.

In the second quarter of last year, Cheap Tickets had a profit of $4.9 million, or 21 cents a share, and analysts expected it to about match that this quarter.

The company said yesterday that its revenues are up substantially but it has had difficulty turning revenues into profits and has too many bookings that aren't getting completed.

The company blamed technical snarlups in completing bookings on it Web site, an ongoing delay in getting a new and more efficient Web site operating and personnel attrition at its telephone booking centers across the country.

Also playing a part, Cheap Tickets said, was the slowdown in the mainland economy and airline discounting in response to that.

That reduced the price gap between Cheap Tickets' unpublished fares -- the unused seat inventory it sells at sharply discounted prices for several dozen airlines -- and the newly discounted published fares of the airlines.

As a result, the unpublished fares part of the company's business, where it gets its biggest markup, has fallen to about 45 percent of gross bookings, said Sam E. Galeotos, president and CEO. For most of the company's 15-year history those sales have been well over half its business.

Despite the lower margins, the second quarter of 2001 will be the 10th consecutive quarter in which the company has made a profit, Galeotos said.

The company is well on the way to fixing the problems with its on-line booking system and to getting its new Web site up and running, Galeotos told securities analysts in a teleconference yesterday.

A dip in staffing at the call centers made the company miss 10 percent of the bookings it might have had, he said.

"We are adding staff in all the call centers," he said, and Cheap Tickets will soon open its first one on the East Coast, in Tampa, Fla., with a staff of 100 that he said he hopes will soon grow to several hundred.

In the booking process, some initial corrections have already been made with final upgrades to occur in the next two weeks, Galeotos told the analysts.

Cheap Tickets said it expects total gross bookings for the second quarter to be in the range of $235 million to $240 million, which is close to 25 percent higher than the $193 million reported for the second quarter of 2000.

The gross bookings total is the amount of all the travel it books. In a lot of its retail business it only gets a commission of as little as 5 percent.

The rest of the money belongs to the travel provider, such as an airline or cruise line.