Cheap Tickets to close nine stores
Advertiser News Services
Honolulu-based Cheap Tickets Inc., a seller of discount airline tickets and hotel reservations, reported a 75 percent drop in second-quarter profit yesterday because of Web site problems and competition, and said it will close nine of its 10 travel stores.
Kyle Sackowski • The Honolulu Advertiser
Net income dropped to $1.22 million, or 5 cents a share, from $4.9 million, or 21 cents, a year earlier. Sales fell 3.6 percent to $28.5 million.
Michael Flanigan leaves Cheap Tickets at the corner of Atkinson and Kapi'olani. Flanigan is a regular customer of the travel dealer, which plans to close all its stores except for this one. The "For Lease" sign is not for this property.
Sales were hurt by problems with the company's Web site and at its call centers that barred some customers from making bookings of its more profitable discount fares.
Cheap Tickets also faced greater competition from airlines that dropped prices and had increased costs from a new advertising campaign.
"This is a tough environment for companies like Cheap Tickets and Priceline.com that sell discounted air fares," said Jake Fuller, a Thomas Weisel Partners analyst who has a "market perform" rating on the shares. "The spread between their special prices and the average fare is reduced because the airlines are bringing average fares down."
The company said the closing of its travel stores in Hawai'i, Washington and California will save it $2 million annually.
Cheap Tickets said it will shift its resources to call centers and the Internet, which account for about 98 percent of its business.
"By closing our stores, we are able to more efficiently serve these rapidly expanding areas of our business as consumer demand has shifted away from the walk-up travel agency, particularly with the widespread adoption of e-ticketing," said Sam E. Galeotos, president and chief executive of Cheap Tickets.
The company said it will maintain its original travel kiosk in Honolulu because of its location across from the Hawaii Convention Center, and because of its role in the establishment of Cheap Tickets in 1986.
The remaining stores — one each on Maui, in Seattle, Los Angeles, Fullerton and Burbank, Calif., and two each on O'ahu and in the San Francisco Bay Area — will close by Aug. 16. The stores employ a total of about 50 people.
The company said it will take a pretax charge of about $2.5 million, or 7 cents a share, in the third quarter for the closings.
Cheap Tickets will fire 47 people if they aren't qualified for other positions at the company, spokeswoman Dawn Soper Lyon said. Cheap Tickets had 1,350 employees at the end of the quarter.
"Streamlining operations and reducing staff is never easy," said Galeotos. "But however difficult, these actions will enable Cheap Tickets to maintain a more efficient cost structure."
The company forecast third-quarter earnings will be between 15 cents and 20 cents a share before the charge and between 3 cents and 6 cents a share in the fourth quarter. The average estimate of four analysts polled by Thomson Financial/First Call is 20 cents a share in the third quarter and 4 cents in the fourth.
The second-quarter profit met the average First Call estimate. Analysts sliced their average forecast from 22 cents a share after Cheap Tickets disclosed the Web site problem on June 25 and lowered its forecast.
Cheap Tickets said a problem with Sabre Holdings Corp. technology restricting online sales is being solved and that the number of customers making purchases on its Web site is increasing.
Cheap Tickets said it will switch to its own booking hardware and software when it debuts a new Web site this month. The site also will allow customers to book electronic tickets.
The value of travel sold through Cheap Tickets' Web site rose 21 percent to $232.8 million from $193.1 million a year earlier. That lagged behind a 78 percent increase in gross booking value at No. 2 Internet travel seller Expedia Inc. and a 44 percent increase at No. 1 Travelocity.com Inc.
Selling, general and administrative expenses rose 23 percent to $26.4 million.
"While our overall second-quarter financial performance was below desired levels, we still achieved record gross bookings and traffic to our Internet and call center segments," Galeotos said. "Cheap Tickets continues to be profitable and grow, while we continue to take positive steps to increase our competitive position over the long-term."
Shares of Cheap Tickets fell $1.50, or 12 percent, to $10.95. Earnings results were released after the close of U.S. trading.
