Galileo caught between old and new economies

During a conference call discussing the third-quarter earnings for Galileo International Inc., company executives said the computer airline reservations giant has lost market share to Internet players and is in the process of retooling its business model.

A new Internet network for its travel agency associates and a major play in the corporate travel arena will form a double-pronged push for the company next year, according to Galileo President and CEO James Bartlett.

Bartlett also addressed a possible sale of the Rosemont, Ill. company, which was first announced Friday (see story). "As always, we recognize our fiduciary responsibility is to enhance shareholder value," Bartlett said.

Galileo has been repurchasing its stock, which it believes is undervalued at the current price of $18.50 per share. Through the first three quarters of the year, Galileo has repurchased 21.6 million of its shares at a total cost of $781.9 million.

The company continued to make money, reporting third-quarter net income of $38.8 million, or 43 cents per diluted share. Those numbers, however, are down from $54.2 million and 58 cents per share in last year's third quarter.

Chief Financial Officer Cheryl Ballenger attributed that drop to a migration toward Internet bookings. Galileo traditionally has made its money off commissions for processing reservations made through brick-and-mortar travel agencies.

As Internet sites like Travelocity.com, Expedia.com and those of individual airlines continue to grab market share, Galileo has found its core business eroding.

Global bookings, driven primarily by a decline in the U.S. market, fell 3.3% below Galileo's 1999 third quarter totals.

During the conference call, Bartlett said Galileo will unveil an Internet-based network for its travel agencies next year, and added that he hopes to have half of Galileo's customers using that network by this time next year.

The company also plans to bring an updated corporate travel booking system to market early next year.

Ballenger said corporate travel offers the potential for rapid growth, and Galileo will commit its resources to gaining a significant portion of that market (see story).

"We absolutely intend to go out there head-to-head with [current corporate travel leader] Sabre BTS," she said.

Sabre Holdings Corp. in Fort Worth, Texas last week completed its purchase of chief corporate travel rival GetThere Inc. in Menlo Park, Calif.

Sabre has folded its business travel division into GetThere, which will operate as an independent company.

GetThere President Gadi Maier said his company intends to release a best-of-breed corporate travel offering that merges the GetThere and Sabre systems next year.

Maier said GetThere's early entrance in the business-to-business travel market will give it a clear advantage as companies like Galileo make a play in that space.

"I think the market's a lot further along than people would like to believe," he said. "About 70 of the top 100 businesses have a corporate booking tool and there are significant barriers in both time and money to switching to a whole new system."

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