Cheap Tickets lowering 2nd qtr. earnings forecast
By John Duchemin
Advertiser Staff Writer
An unfixed software glitch, understaffed call centers and other operational problems have forced Honolulu discount ticket company Cheap Tickets Inc. to slash second-quarter earnings forecasts and prepare for an uphill fight to regain what could be thousands of lost customers.
Second-quarter net income will be between $1.1 million and $1.3 million, or 4 cents to 5 cents per share, the company said yesterday. That's down from previous estimates of about $5.8 million, or between 21 cents and 22 cents per share. The company said revenue will be $27.5 million to $29 million, or less than a year earlier.
Cheap Tickets had revenues of $29.6 million in the second quarter of last year.
The news came after the close of the market. In today's trading, Cheap Tickets stock (Nasdaq: CTIX) plunged 22 percent to $12.55.
The bad news comes from several directions for the discount travel company, which resells cut-rate airline tickets through its Web site, call centers and retail outlets:
• An outside-vendor software problem at Cheap Tickets' Web site has prevented some customers from booking tickets, and other customers have been unable to see the cheapest available fares.
The glitch with Sabre Holdings Corp. technology has still not been fixed, said Sam Galeotos, company president and chief operating officer. The problem arose when Sabre, the largest travel reservation company and 70 percent owner of rival online travel agency Travelocity, made changes to its operating system, Galeotos said.
• The company's call centers have been overwhelmed by customers in the wake of a national advertising campaign. As many as 15 percent of callers have been unable to get through to sales agents, Galeotos said.
He blamed the problem partly on higher-than-expected staff turnover, "both voluntary and involuntary," in May. A new call center scheduled to open next month should relieve some of the pressure, Galeotos said.
• A new Web site, with improved features and a better search engine, has been delayed until next month as the company irons out unexpected kinks and waits for Sabre to fix the existing problems, Galeotos said.
• A poor economy has cut into airlines' flight volume, forcing a reduction in prices — at the expense of Cheap Tickets, which seems less competitive as a result.
Analysts reacted with dismay to the announcement. Several had predicted the quarter would be a turning point for Cheap Tickets, which was banking on a multimillion-dollar national advertising campaign to attract droves of customers to the new Web site.
"It's disappointing — they were turning away customers," said George Sutton, a Dain Rauscher Wessels analyst, who has a "buy" rating on Cheap Tickets stock and had forecast revenue of $33 million this quarter.
Galeotos said Cheap Tickets would begin a promotional campaign to recoup customers when the glitches are fixed. For now, however, the company has pulled back a recently launched national advertising campaign, he said.
"We have throttled back (advertising) so we aren't investing where we cannot get an appropriate return," he said.
Bloomberg News Service contributed to this report.
