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No 2000/5 - Paris, Monday, August 28, 2000

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  Travelocity and Lastminute have the funds to last to break-even point  

At the recent launch of's consumer magazine, its CEO, Terell Jones, said that the company would not need to look for any additional funding before it reaches break-even point.

Furthermore, Jones claimed, with great confidence, that would be profitable by the end of next year. To meet its marketing costs until then, has $69m cash at its disposal.

Over the past few months, the company has entered into a very positive spiral: reduced cash burn (estimated, nonetheless, at $15m for the last quarter), increased revenues and lower costs. Travelocity has therefore been able to finance the launch of its printed magazine entirely through its own funds.

Travelocity's marketing aim is now to work on its gigantic subscriber base of 21 million registered members in order to increase its ratio of lookers-to-bookers. In its first phase the site concentrated on attracting visitors, at no matter what cost. It is now entering a second phase in which the aim is to increase customer loyalty. The third phase will be profitability - just like any normal company! has some extremely good reasons to believe that it can successfully make the transition:



  • Its turnover has reached a record level of $1.1bn for the first 6 months of the year, which represents 94% of the total turnover achieved in 1999. In addition, turnover increased by 21% between the first and second quarter this year.

  • Revenue generated by the site was $46.8m for the second quarter of this year, an increase of 31% compared to the first quarter, meaning that between the first 2 quarters, its revenue has increased faster than its turnover (31% as compared to 21%) - proof of how well its business plan is working.

  • Advertising revenue increased by 122% from the first quarter of this year.

  • The average number of users booking on the site has gone from 212,000/month to 486,000/month as compared to the same period last year. Even more interestingly, the conversion rate of lookers-to-bookers went from 2.8% during the second quarter in 1999 to 4.7% in the first quarter of 2000 and to 6.9% during the last quarter.

    The increase of this ratio is, moreover, the most reliable indication that a site is doing well. It shows that users who have reserved once are happy to come back to the site and book plane tickets or hotel rooms again. And this repeat business is what enables travel booking sites to generate profitable margins in the medium term.

Travelocity's announcement echoes a similar one made recently by Martha Lane Fox, CEO of, who says that the's cost structure is under control and that the company has the necessary funds to cover its costs until its reaches break-even point in 2002 (estimated at 2003 before Lastminute purchased Degriftour).

These 2 simultaneous announcements highlight a new factor, however: eTourism sites are starting to give financial markets the dates when they expect to become profitable. Up to now, this was often situated somewhere in the distant future, with the priority being given to capturing market share.

But the moment of truth is not far off for the eTourism market. Now that has given the signal, the financial market will no doubt be asking other sites to forecast their profitability dates too. Woe betide those who say that they need to raise more capital to continue developing!

The next question will be to find out whether these websites will be able to stick to their promises (not so sure for, as steadily increasing competitive pressure on prices may well jeopardize some of the companies' forecasts.

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