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Travelocity pays $43 million for Site59

Travelocity acquires Site59, the last-minute travel company, for $43 million in cash, according to the companies.

Travelocity has acquired last-minute travel company Site59.com for $43 million in cash, according to the companies.

Site59 obtains low-cost, last-minute fares from travel suppliers such as airlines and hotels, which allow the company to mark up the tickets and set its own profit margin. This is sometimes referred to as a "merchant model."

Fort Worth, Texas-based Travelocity is expected to use Site59's merchant-model inventory to better compete with rival Expedia, which recently surpassed Travelocity in gross bookings and as the No. 1 online travel agency.

Expedia has posted big gains from cutting a slew of these merchant-model relationships--especially with airlines.

"Site59 is a small player and this will not solve all of Travelocity's problems," said Forrester Research analyst Henry Harteveldt. "But it's a step in the right direction.

The move by Travelocity comes as airlines such as Delta Air Lines, American Airlines and United Airlines are refusing to pay commissions to travel agents. Without commission checks coming in, online travel sites are forced to rejigger their strategies for making money, Harteveldt said.

"You can't just sell airfare anymore," Harteveldt said. "Online travel sites have to be market makers. They have to offer vacation packages and other forms of travel."

Travelocity is itself the focus of a controversial takeover bid by computer reservation company Sabre, which is offering $28 per share. Some Travelocity shareholders had complained that Sabre's earlier offer of $23 per share was too low.