Bear Stearns Initiates Coverage of the Internet Travel Industry.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--April 17, 2000

Is There Trouble Ahead for Travel Agents?

Will the Majority of Travel Websites Fail?

Can Hotels and Airlines Profit from the Web?

Bear Stearns Unveils a Comprehensive Report

Addressing Key Industry Issues

Bear Stearns initiated coverage today of the Internet Travel industry, calling it an industry with great potential and unveiling a wide-ranging report on e-travel entitled, "Point, Click, Trip--An Introduction to the Online Travel Industry."

Commenting on the industry, Bear Stearns senior managing director and leisure analyst Jason Ader said, "There is no doubt there is tremendous growth potential in Internet Travel. The question is, Who will profit from it and who will be hurt by it?" The report, which was released at the e-Travelworld conference, identifies and dissects the categories and players in the e-travel space and provides a road map for investors hoping to profit from the expansion of the industry. In addition, it provides predictions on how the battle to succeed in the industry will shake out.

Travel Agents--An Endangered Species?

As customers turn to the Internet to make their travel plans, the role of the travel agent will diminish. According to Bear Stearns' analysis, 25% of all travel agents could eventually lose their jobs as Internet Travel expands. "If I were a travel agent, I would be very worried right now," commented Ader. "Their commission fees have already been diminished and now the Internet is threatening to steal their customers." According to industry research, in the first half of 1999 approximately 1,800 travel agencies went out of business due in part to their inability to generate revenue. According to the report, in order for traditional travel agents to survive they should fill a certain niche, such as luxury travel or adventure travel, and they must focus on customer service. "People need someone to complain to when something goes wrong," commented Bear Stearns vice president Marc Falcone, who also worked on the report. "And we all know it is much more satisfying to yell at a person rather than a computer screen."

E-Travel Sites--Only the Strong Will Survive

According to the report, it will not be easy for e-travel sites to succeed. Bear Stearns estimates that there are approximately 1,000 Internet sites related to the travel industry. Of those, the analysts predict, only 20% will survive. Sites that have begun to establish brand identity, such as Travelocity (TVLY), Expedia (EXPE) and Priceline (PCLN), will be well positioned to succeed in the e-travel space. Other less-known sites will need to develop value-added content or obtain a unique customer base in order to survive. The analysts predict that the vast majority of sites in existence will either be swallowed up by larger more established players or just dwindle away. "The sites which are in the greatest jeopardy are low value-added, `me too' sites that offer neither unique content nor customers and will therefore be cruelly bypassed in the consolidation process," commented Robert LaFleur, Bear Stearns associate director, who also contributed to the report.

Discount Ticket Sites--Feeling the Airline Squeeze

It is only a matter of time before sites promoting huge discounts on the Web will be frozen out by the airlines, according to the report. Websites such as CheapTickets.com will be in jeopardy as airlines develop ways to distribute inexpensive tickets through their own channels. At that point, the report predicts, many bargain-ticket Websites will lose their supply flow. "It will be difficult for sites to generate revenue if they can no longer obtain the product they are trying to sell," added LaFleur.

Joining Together to Fight off Competition

Most airlines and hotels are developing partnerships within their industries to form consortiums designed to take advantage of distribution opportunities provided by the Internet. The analysts, however, are skeptical of whether these endeavors will be entirely successful. Questions are raised in the report concerning the ability of industries to band together to control supply without certain members undercutting the system.

Broadband Enhances the Online Shopping Experience

As broadband technology develops and becomes widely available, the Internet Travel industry should get a boost, according to the analysts. Broadband will allow e-travel sites to enhance their content and provide shoppers with an unparalleled opportunity to virtually experience a trip before actually spending money. "We believe customers will value the opportunity to take a virtual tour of an exotic location, walk through hotel rooms and sit in their chosen airline seat from the comfort of their own home or office," said Ader.

Keys for Companies Hoping to Succeed Online

It is clear to the analysts that while there is a tremendous amount of growth potential in the industry, success will only be experienced by a few. The companies that do succeed, according to the report, must have a certain number of characteristics, including:

-- A Successful Business Model--Category killers such as Travelocity.com and Expedia, or companies with innovative business plans, like the Hotel Reservations Network (ROOM), are in the best position to win the online travel battle. Companies that possess both characteristics, such as Priceline.com, are even better positioned.

-- A Strong Niche--Specialized travel, such as adventure travel, safaris, student travel or senior travel will allow an e-travel site to stand out and become a valuable acquisition target or partner for more established sites.

-- An Established Management Team

-- Strong Financial Backers

-- Strong Branding Strategies--Travel Websites must establish brand identity through effective advertising and portal distribution.

-- The Promise of Profitability--Patience is wearing thin among investors with profitless Internet companies. According to the analysts, investors are looking for companies that can demonstrate an ability to become profitable sooner rather than later.

"Because traditional valuation methods do not necessarily hold true in the new-economy Internet world, investors should focus on these criteria in order to determine which companies offer the best growth opportunities," concluded Ader.

To obtain a copy of "Internet Travel--Point, Click, Trip" or to speak with the analysts, please email Christina Conde at [e-mail] or Russell Sherman at [e-mail].

Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide investment banking and securities trading and brokerage firm, and the major subsidiary of The Bear Stearns Companies Inc. (NYSE:BSC). With approximately $23.2 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers global clearing services to broker dealers, prime broker clients and other professional traders, including securities lending. Headquartered in New York City, the company has more than 10,200 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles, San Francisco and San Juan; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Shanghai, Singapore and Tokyo. For additional information about Bear Stearns, please visit our Web site at http://www.bearstearns.com.

Any recommendation contained in this report may not be suitable for all investors. Moreover, although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. Bear Stearns may make markets and effect transactions, including transactions contrary to any recommendations herein, or have positions in the securities mentioned herein (or options with respect thereto) and may also have performed investment banking services for the issuers of such securities. In addition, employees of Bear Stearns may have positions and effect transactions in the securities or options of the issuers mentioned herein and may serve as directors of such issuers.

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