Tech Industry

Net travel firms feeling airline-industry woes

The online travel industry is bracing itself for waning demand for airline tickets after last week's terrorist attacks, which already have dealt a severe blow to the nation's airlines.

The online travel industry is bracing itself for waning demand for airline tickets after last week's terrorist attacks, which already have dealt a severe blow to the nation's airlines.

Analysts foresee an American public more apprehensive about flying. But others say it is too early to tell what the calamity's effects will be on the $14.5 billion industry.

According to Internet research group PhoCusWright, online sales of airline tickets make up about 10 percent of total tickets sold.

Several of the online travel agencies reported Monday that bookings of airline tickets were up slightly compared with last week's dismal numbers. U.S. bookings fell 74 percent between the time of last Tuesday's attacks and Friday, according to reservations system Amadeus.

Tuesday, online travel agency Expedia said bookings had plummeted since the attacks, with travelers making new reservations at between 35 percent and 40 percent of the levels for the same days in the prior week. The company said that on Monday, bookings were running at about 45 percent of the levels on Sept. 10, the day before the attacks.

"We realize that in the short term, sales may be depressed," Richard Barton, chief executive of online travel agency Expedia, told CNBC on Monday. "But the early signs are encouraging...We think the sales levels will return to normal."

When the markets opened Monday, investors fled the online travel sector. Most of the top companies saw their market values slashed by about a third.

Priceline.com fell $1.99, or almost 40 percent, to $3.01 on the Nasdaq. Travelocity, which is backed by reservations giant Sabre, fell $9.46 to $12.56, a loss of almost 43 percent. Expedia fell $12.25, or nearly 34 percent, to $24.

Analysts, predicting a bleak future for Web travel stocks, lowered their expectations. Bailey Dalton, an analyst with C.E. Unterberg Towbin, said, "We have no ability to predict when traveler confidence will return."

Meanwhile, the airlines themselves on Monday were facing stiffer challenges than just falling stock prices.

The top five U.S. carriers slashed the number of scheduled flights by about 20 percent. Continental Airlines said it would lay off 21 percent of its work force, or about 12,000 employees. The airline also said it might be forced to file for bankruptcy next month unless it receives federal assistance.

Last week, the U.S. House of Representatives did not adopt a measure that would have loaned the industry $12.5 billion and handed over another $2.5 billion in direct aid.

Members of the airline industry are scheduled to meet with U.S. Transportation Secretary Norman Mineta on Tuesday. The White House has indicated that it supports a bailout for the industry.

Expedia Chief Financial Officer Greg Stanger said the airlines have different problems than the companies in the online travel industry, which may be better able to weather a downturn in the travel business.

"The difference between the (airlines) and us is that we are a virtual business and don't have fixed assets that we need to pay for in the event that inventory is not sold," Stanger said. "We have no inventory risk. Therefore, the sorts of things you're looking at as far as reducing staff, cutting back payroll, they are not the sort of issues we're facing."

Some of the Web travel concerns also may outlast the downturn because they have ventured beyond selling airline tickets: offering cruises, hotel rooms, rental cars and other travel packages.

Legg Mason analyst Thomas Underwood said Expedia is the best-positioned to survive a downturn in the travel industry because of its strong presence in the hotel business, $200 million in cash, and lack of debt on its balance sheet.

But USA Networks, which in July tendered an offer for Microsoft's controlling interest in Expedia, may now want out of the deal, Underwood said.

"While we have received no indication from Expedia or USA Networks that USA's purchase of Expedia will not proceed as planned, we do believe that the risks of the purchase not occurring have increased dramatically, as they have for every travel deal that has not closed," Underwood said.

To help bolster demand for airline travel, some in the industry speculate that airlines will offer deeply discounted prices over the Internet.

"At times like this, carriers come out with aggressive pricing," said Michael Stacey, Travelocity's senior vice president of marketing. "We anticipate discounts."

However, the problem of low customer demand could be a problem outside of the industry's control, said John Hommeyer, chief marketing officer at online travel agency Hotwire.

"I don't think fare sales are the answer to get people flying again," Hommeyer said. "The answer is security. It all comes down to whether people feel safe when they fly."

Reuters contributed to this report.