Sabre Corp (SABR) 2002 Q1 法說會逐字稿

Good morning and welcome to the Sabre Holdings Corporation conference call to discuss the first quarter results for 2002. At this time our participants are in a listen only mode. Later we will conduct the question and answer session and instructions will follow at that time. If any one to be enquires this during the call, please press the star followed by the zero on your touch-tone phone. As a reminder, this conference is being recorded and is been broadcast live over the Internet.

I would now like to turn the call over to Karen Fugate, Director of Investor Relations for Sabre. You may begin.

Hello every one. Thank you for joining us today and here is Bill Hannigan our Chairman and CEO and Jeff Jackson, our CFO. Bill will review highlights for the quarter and Jeff will review our financial results in detail.

Before we get started, I would like to remind all of you that some of our comments from matters such as forecast of personal revenue, earnings, bookings, operating margins, and cash flow. Potential contracts for business and trained information will constitute forward-looking statements. These matters are of course subject to a number of factors such that would cause actual results to differ materially from expectations. Those factors are described in the risk factor section of the company's most recent form of 10-K filing with the SEC. The company had taken no obligations, publicly update or revise any forward-looking statements.

Now I will turn the call over to Bill.

Thanks Karen. Thanks for all for joining us.

This morning I will discuss Sabre Holding's results for the first quarter. Actions we have taken to advance our strategy and our outlook. Jeff will provide financial details around these.

The short story is we met our targets for the first quarter, despite continued volatility in the travel industry. Earnings per share was $0.62 with a 3.1% decline year over year, slightly higher than our projected range of $0.58 to $0.61, primarily due to continued cost management. Let me point out that earnings on continuing operations grew 34% over a year ago quarter. This is pretty significant when we consider first quarter of last year was exceptionally strong with bookings reaching in all-time high.

Other key financial matrixes are as follows.

Full company operating margins are 26%, EBITDA of $150 million and we generated free cash flow of $84m. First quarter revenues were $539 million, down 5.9% from one year ago. This was in line with our revenue guidance, or beat at the low end. We are in the low-end of our revenue range, because our internal planning did not fully account for the effects of an early spring break. A slower ramp up of merchant model transaction revenue's to Travelocity and a slower ramp up in non-air revenue in travel marketing and distribution. We also made faster than anticipated progress in unbundling travel agency contracts, which is revenue-negative, but earnings-positive. Let me point out the bookings for the back end of the quarter were in line with our guidance, but slightly lower than our plans. However the good news is for the first two weeks of April, bookings in Travelocity transactions are back . And we expect the overall improvement in bookings and revenue to continue throughout the year and we will continue to hold a line on cost of course. Additionally we are continuing to execute on our strategy. I will give you a couple of examples. We completed the tender offer to buy the remaining outstanding publicly held shares in Travelocity. Transaction close on April 11. We took this action to combined strength, pursue new revenue opportunities and optimize investment decision. Also late in quarter Travelocity purchase Site59.com, a leading online seller of last-minute merchant model air, hotel and rental car inventory. This acquisition increases Travelocity's merchant model sales capability and diversified its revenues and earnings in the merchant space.

GetThere has broken several records in corporate bookings this year. Most recently, I , we had a record day with 17,195 corporate bookings. We are seeing this records because corporate transactions are up 69% for the quarter and the average corporate option rate is up over 14%. In airline solutions, we saw operating margins improved. We had several wings here including China Airlines, KLM, Royal Brunei, , and Sky west.

Travel marketing distribution has added Jet of top low cost airlines including South West and West Jet to participate only in the Sabre GDS. And Sabre's is continuing to address the top issues of our industry. For example you were aware that several airlines illuminated base commissions of travel agencies in first quarter. This is part of an ongoing shift to performance basis system for ages. We had anticipated these actions would take place some time in 2002. So this month, Sabre will announce an agenda aiming in empowering in travel agency. I want to see Eric expect some by detailing this announcement that I mentioned a couple of the initiatives. Sabre magnified, a suite of revenue and relationship management tools that helps agents create greater revenue opportunities and maximize and the yields. We will also become the first GDS development providing merchant model for hotel offering to travel agency, which we planned to Sabre exclusives. And we will agents access to airline web integrated in the Sabre's air placing system. This is just the sampling of the agenda that we believe agents in the industry will be very enthusiastic about.

Now let's turn to out look.

For 2002, we are reiterating previous projections. Earnings in the range of $1.93 to $2.03 and revenue growth in the range of 1% to 5%. For the second quarter, we are reiterating our expectations for earnings per share to be between $0.55 and $0.60 and we expect revenue for the second quarter to be down 3% to 8% from a year ago. Again we were working to return the range of typical for Sabre 2003 and beyond and we expect to see a full recovery in the travel market. Mean while, Sabre is continuing to from reality. We remain confident on strategy and well positioned to long-term.

And now let me turn over to Jeff.

Thank you Bill.

The results of excluding special items were recorded in the first quarter. Those consist of the amortization of certain intangibles, stock compensation expense, and other transaction fees relating to acquisition. Those totaled $21 million. A gain of $18 million from the sale of our former corporate office facility and a gain a $4 million resulting from the sale of France Telecom, formerly shares, one of our joint venture partner.

Now let me look at revenue in further details.

Sabre marketing and distribution at revenues for the quarter $424 million, a year over year decline of 9%. Reasons for this decline include air-booking stamp 14%, which was in line with our guidance. Hotel and car bookings were soft in January and February, were more in line with our expectations in March. We also have less subscriber revenues in plan. Some of these resulted from waiver of agency short file key lingering from September 11th and related to troubled economies in Latin America. Our key stands in acceleration of our strategic initiative in agency contract. Although on bundling lowers travel agency revenues, it is net positive for Sabre's earnings, because it is more than offset by decline in higher devices for payment.

Now let's turn to Travelocity.

During the quarter Travelocity's revenue grew to $74 million, an increase of 1% year over year. Transaction revenues were $51 million, a decline of less than 1% year over year.

Now I will break that down to air and non-air. Air transaction revenue was down 10.6% year over year. This decline was due to several factors.

First, lower than expected transaction in the first half of the quarter due to continued weakness in the travel industry. Second the timing as an early spring break, which is normally a soft booking period and finally weaker than planned merchant air bookings primarily due to discounting of fairs and delays in certain airlines agreements, which are now in play. Non-air transaction revenue growth was 35%, which was above our expectations, including non-air transaction revenue cruise and vacation revenue were up 144% year over year and sale to were on the tap what they were for the full year of 2001.

Advertising revenue was million to the quarter, down 24%. This decline was consistent with what we expected and due to an industry wide slow down in on line advertising. Other revenue was $10m up 99% year over year. A point of clarification about Travelocity's other revenue. As you know Travelocity has been very successful in the joint venture different regions of the world in Europe, Japan, and Asia. Travelocity's first quarter external guidance including anticipated losses from the joint ventures as operating expense. At the Sabre level, these losses will be accounted for revenue to be consistent with other Sabre business unit. Travelocity achieved earnings at the high end of range of $0.12 per share before special items and this equates the $0.03 per share for Sabre.

Although we saw some softness in the transaction this quarter, Terry Johnson and his team has taken important steps in addition to Travelocity for future growth. I will remind you some of these initiatives. First we have broad marketing agreement with many major domestic and International carrier that now account for more than 90% of Travelocity's air booking. Second, Travelocity continues to follow revenue diversification set in the higher margin merchant in non-air sale. Recent acquisition of Site59.com, just Travelocity access not only to lucrative package business, but also provides the access to expensive offerings in the high margin merchant hotel business. Further the merchant model for vacation, the Travelocity vacation brand continues to grow. We are ramping up in Hawaii and in Orlando where the Disney agreement will provide more availability of vacation packages in the Orlando area. Travelocity will launch additional destination in the second quarter.

Second quarter will be a transitional period to merchant model hotel. We will see upside going forward and we fully expect to meet our objectives in the merchant model revenues in 2002.

Now moving on to GetThere. The GetThere business had revenues in line with our expectations of over $12 million in the first quarter, an increase of 7%. Corporate revenues grew 93%, or $3 million as a result of volume, price, and growth in several product expansion areas. Although plan is to grow on a year-to-year basis with will move away from low margin settlement, and the loss of TWA business in the supplier area. The airline solution segment, which includes the product and services in airline reservation businesses recorded revenues of $62 million for the quarter, almost 8% growth year over year. We were pleased with the first quarter revenue growth. We still expect revenue growth flat to slightly better for the full year.

Now we will move to details in matrix according to the financial results in the quarter. Starting with and booking. Our forecast for bookings in the first quarter was down mid-to-low teens and we are right in line. Actual total global booking process seen in 14% down in the quarter. Breaking that down further, US bookings declined by 18%. International booking ended the quarter down 8%. Air bookings were down 14%, a significant improvement from last quarter. Non-air bookings were down 13% for the quarter. Looking at bookings break down by channel for the quarter, the traditional travel agency channel booking totaled $98 million. It is decline of 16% for the quarter. Sabre on line consumer booking totaled $9 million, a decline of 8 % from the quarter and Sabre online corporate channel booking broke into millions for the first time to total $1.1 million with year over year growth of 28%.

Now I will update on share.

It is truly a year to provide a year to date number because it would only reflect few months. However, looking at on trailing six months basis, from September 2001 to February 2002, and comparing with the comparable period from the prior year. Shows that we are at 38% level booking share. As we suspected our North American share was down for the period due to pressure in the on line channel as resulted. However, if you would break the North American market into online and traditional, we gain share in the traditional channel and most of the progress made by within a first few months of operation and I will remind you that not all share has created .

Now I will give you the detail on our business.

Travelocity has gross travel booking of $783 million was 6% lower than first quarter last year with the result of recover in travel industry. But grew 24% sequentially. During the quarter, Travelocity membership grew by about $2 million number to $33.8 million, the highest in the industry. Average monthly unique bookers were 613,000 in the first quarter compared to 661,000 a year ago and 538,000 in the first quarter of 2001. Travelocity's visitors as defined by media matrix including portal partners reached $13.6 million from March, which is up 25% month over month and the highest in the industry. The conversion rate was 5.1%.

Now I will talk about matrix for the GetThere business. In the first quarter, GetThere saw record trip growth increase of September 11 level. Total trip increased 39% year over year. The significant portion of that growth attributed to the momentum from our distributor partnership. We now had distribution agreement with five largest corporate travel agency. Corporate trip transaction grew 69% year over year and 67% of the last quarter. Prior trip transaction grew 32% year over year and 33% over last quarter, an adoption rate continue to grow. Total adoption reached 14% and adoption rate for top 10 customers ended the quarter as 46%, 10 points above last quarter's number and in the international front, GetThere business also gained traction. Several US corporations wants to GetThere in the European operations and we have readily achieved the adoption rate of greater than 6%. GetThere grew international, announced an agreement to provide GetThere's online corporate reservation systems as a preferred offering for small and median size clients and get their signed several international customer including Nokia.

Now I would turn my comments to expenses for the quarter.

Expenses from continuing operations for the quarter were down 13%. This is due to several factors. First the cost cutting initiatives we implemented late last year including the cost savings we received through outsourcing agreement with EBS. Second, low incentives and data processing expenses due to lower booking volume and third lower that planned spending this quarter. Every business units was under planned and expensive. Our forecast for second quarter in the full year anticipates to some, but not all these savings will continue. Overall we made significant progress on controlling expenses and we are realizing the savings we anticipated from our cost cutting savings announced last year. Cost management will continue to be a large focus even traditional opportunities to cost down.

Now I will provide some additional information in operating income in margin. Operating income from continuing operations including special items is $141 million for the quarter and an increase of 22% over the last year. Operating margin was 26% for the over all business, an increase of six points. The improvement is attributable to expenses we took on December. The spring spending in the first quarter drove the improvement in Travelocity and gets their margins. Travelocity reduced operating expense by $4.8 million, an improved operating margin by over seven points. Gross margin for Travelocity is 65%. GetThere reduced operating expense by $6.5 million and improved operating loss of year over year by $7.3 million.

Now a few other items. Net interest increased year over year by $40 million due to the reduction of debt on our balance sheet from $869 million to $395 million. Our cash and marketable securities down with $818 million at the end of the quarter. This balance does not reflect cash required in many shares of Travelocity for our recent equity offering. If we include these transactions, we still have over $700 million in cash in marketable securities on the balance sheet at the end of April. Our EBITDA for the first quarter was $150 million. We still expect full year EBITDA to be greater than $500 million. Free cash flow for the quarter was $84 million and we expect full year cash flow to be greater than $220 million.

Before I turn back to Karen for questions, I would like to talk briefly about our outlook of second quarter and a full year.

As Bill mentioned, we reiterated our guidance for the full year earnings per share in the range of $1.93 or $2.03. However because of the dilution with the equity deal, we expect pressure in the high-end of that range. The dilution impact will be $0.06 for the year or $0.02 for the quarter. Our revenue projection total company growth of 1% to 5%. This revenue range reflects a booking presumption of down 7% from 2001 level. For the second quarter, we expect revenue to be in the range of down 3% to down 8% on a continuing operation basis and earnings per share to be in the range of $0.55 to $0.60.

Now I will turn back to Karen.

Thank you. Operator we will like to open up the question.

Thank you. We will now begin the question and answer session. If you have a question, you will need to press the one on your touch-tone phone. You will hear an acknowledgement that you have been placed in queue. If your question has been answered and you wish to be removed from the queue, please press the pound sign. Your questions will be queued in the order that they are received. If you are using the speakerphone, please pick the handset, before pressing the number. Once again if there are any questions, please press the one on your touch-tone phone.

Our first question comes from David Togut of Morgan Stanley. Please state your question.

Thank you, your operating margin in the quarter was very high at 26%. I realize some of these come from factors that are in sustainable. But, how do you think about the margins as you look at over the next year or so given the cost cutting actions taken in the shape of the airlines bookings recovery you are looking for?

Sabre Holdings Corp.) We had operating margins across the portfolio last year of 15.9, and our expectation for all of 2002 was more than in the 20% range and certainly it is different by business units you are looking in the mid 20 s for Travelocity by the back end of the year, just north of 10%, GetThere will continue to be a negative 50% for the year and airlines solutions head into double-digits as well. So we think about the seasonality in our business David, where you see operating margins in Q4 and in particular Q1 has the volumes. My expectation is that 26 through the year will look at way towards 20 certainly of in Q1. I would like to think it is more 21 and 20, but again significant improvement over the 59 over 15.9 of last year.

This is a quick follow up. What are some of the anecdotal signs you have seen on by airline bookings trends perhaps over the last couple months and just giving your conversions would be carriers, How would you expect this to evolve in terms of capacity doing out about?

I think that we have all seen capacity reentering the network the same time. The airlines are working hard to increase their yields, and so certainly they will be thoughtful about where they do it. The good news is the competition out there is going to capacity in other competitors. The competitors will. It continues to be a bit volatile frankly as far as the event line or the regression is not volatile, but they are actually booking datas when you look it daily, weekly, and monthly pretty much what we expected at the after the results set down in Q1. We talked about the fact that we miss the bet as far as the impact of the holiday week essentially, so we have that depression at the back end of Q1 and came back towards the front-end of Q2. Bookings were down 14% which was like with our guidance was. But our expectations, not our expectation, but our forecast internally was putting that more towards 13 and which we have that place out over the coming weeks. Now again the positive sides of last couple of weeks with based on timing on spring rate.

Thank you.

Our next question comes from Greg Gould of Goldman Sachs. Please say your question.

Thanks. On market share Bill, with some of the wins in Europe over the last several months, can you give us a sense for how much you would expect market share to increase in Calendar 2002 in Europe?

Yes absolutely. Just talked about market share period, continued to make progress motor side and certainly when we compare our results to one of our competitors, a result to came out last night. You see that. As far as what happens especially in the US, the biggest traveling market in the world, Europe specifically as you all know when you look at the market share on the world or 38% , 485 North America, 50% Latin America, 57% Asia Pacific and 14% in Europe, 12% last year and that is the key focus for especially Germany and France, two of five biggest markets in the world. I had a couple more very nice wings in France. Our which might ordered of the language and another when that was worked about, will be worked about another point in the half of share in plans. So we essentially got from nothing in France a few years ago, after having several key wins that will put us more towards, heading towards the France in the 14% and Europe, Middle East, Africa turns into 15% any second now. So good progress in key markets.

And Bill in the US, I think Jeff mentioned that the market shares slipped because of Orbitz early on but then held steady. Can you give us some perspective on how the mix of online and traditional agents, and how your share should trend for the rest of the year in the US?

Yes in the US, I think that the would just talked about the fact that really the impact of Orbitz for the most part was starting in June and ending later in the year and we at least held around our Travelocity relative to in Orbitz in Q1. Now I'm fixing but now I will talk about on line competitors versus GDS share. On the GDS share side, certainly Orbitz uses Worldspan, and Worldspan benefited not necessarily and the economics were all those bookings. This will be benefited by the bookings themselves, a more, probably held competitions. Galileo saw other numbers last night, where they had a good quarter, as the company is good for them, but in the US their bookings were down year over year. I believe that was 23% and out of 17.8. So that would confirm that we made progress continue to make progress in the share side and specifically relative to Galileo.

Okay. Thank you.

Our next question comes from Jim Kissane of Bear Stearns. Please say your question.

Hai Bill and Jeff, can you elaborate on some of the holiday effects late in the quarter, and why that would not come back in the second quarter to get you to the higher end of the range for revenue?

Sure, we does think that you know we had an unusual year this year where we has two spring break over an Easter or falling at the end of the first quarter which affected the year over year comparison and I think it still our bookings are back where we expected them to be as a result of a certain turnaround event phenomena in the early part of April and that is the stand. Then beyond that it is really phenomena related to that holiday and we expect to continue with the gradual bookings trends that we've laid out for the rest of the year. So resume in the second quarter and beyond.

In Travelocity we are seeing the same effect to exact thing, early on in April?

Yes.

And just following up on the comments about Galileo on their numbers last night, given their share declines, do you see any change, any environment or are stepping up to regaining some share here?

Overall we haven't seen that. I mean they are goof competitor and they won some certainly one some and on the aggregator in good shape, I have not seen that many over year, incentives went down. I would expect that based on where bookings went down. But, I would also say math would lead you to believe that incentive pressure has subsided on the on that for the long whole. But that we saw in Q1.

Okay, can you give us a sense of the percentage of TMD revenue that actually comes from subscribers and do you make any money upon that revenue?

We absolutely make money on that revenue. As far as I don't know we haven't broken out the percentage in the past year. I have a right we haven't broken out last June.

Okay. Thanks, good job.

Our nest question comes from Jennifer Dugan of Merrill Lynch. Please say your question.

Thanks. Early in the Quarter, you talked about some of the expenses being deferred in to 2H. Can you tell us a little bit more about the magnitude of that when you think that the cost that is going to send in?

As far as costs being deferred, I am not sure Jennie, as far as we said there other than that we expect as bookings come back, certainly some costs will come back with those bookings, specifically on the data processing side on the incentive side. But our expectation is that we will hold on to savings for the most part in the back end of the year, which goes to due to the transaction model where there is a lot of leverage in one percent of booking when you think about it incrementally. For instance, if typically again the TMD business were looking at margins in the mid high 20s, one percent of bookings on the revenue side would be $14 million to $15 million. But when you think about incrementally, you don't think about margins in the mid , you think about margins more in the high 60% to 70%. So that one percent or getting $9 million to $11million in operating income.

Can you talk more about some of the low spending in relation to the budget among several of the Sabre departments? Is there to take cost control?

I think you can see, I think there are three or four different categories of expense. Some will pace back towards our operating plan. There are some capital expenditures and some expense items related to technology and which was started to ramp up, capital expenditures were well below our plan, and that will start to gradually work its way back to our plan. So there are expenses of that nature. I think you are going to see some other expenses will back to our plans. But there are some, which you know

Some which you know there are in the bank and will continue through out the year and I think with out going to every category, we assess those different categories of expansion and we dealt them into what really growth on to our operating and earnings per share fourth quarter.

back as early as the second quarter? ?

No, I think more of it is a gradual ramp up size included. That is more in the third and fourth quarter.

Okay great. Thanks.

Our next question comes from Matt Fassnacht from JP Morgan. Please say your question.

Yes concerning the revenue guidance in the quarter, which I believe, is down 3 to down 8. When comparing that to this quarter down 6 and taking into consideration that just travel in general probably can I get better from here and last year's second quarter comparisons easier than the first. I just wonder what's behind that thinking, is it extreme conservatism or what?

I hope you're right Matt that the industry will come back. It is a range.

And then you said beginning in April, bookings were coming back. What do you expect? Could you tell us where is that, and what are your expectations for second quarter bookings to get you to that revenue range?

Yeah, as far as the holiday season snap-back, see bookings being down year over year in low single digits for a period of days. And that is the of that. That is the fact, but we have gone back to doing bookings numbers on a quarterly basis versus weekly or monthly. As far as Q2 is concerned, our expectation is that bookings where Q2 will be down in the low double-digits. So you are thinking last quarter was 14%, this quarter we are thinking more 12-13%. And again, I hope that ends up being conservative.

Thanks.

Once again if there are any questions, please press the one on your touch-tone phone.

Our next question will come Brian of . Please say your question.

Hai guys, a good quarter. My question is some around the merchant hotel business and give me a little bit more color on what is your plans are there and how you see the relationship between the hotel reservation network and Travelocity playing out as you do this business?

Absolutely, the hotel merchant business is certainly an important business to us across the portfolio, we talked about and put lot more color it put out our initiative targeted towards the industry and travel agencies that includes many . One of them is more announcement around Sabre Exclusives, which we have been talking about the market place in the . It is difficult to be quite about something we have contracts with several 100 players and this will be the opportunity for suppliers to distribute their product via the travel agency. It is a different segment. Then it will be go after at Travelocity, because we are talking about 14 day advance noticed pre pay which protects the hotel from diluting the yields on the corporate side. Now specifically the Travelocity the HRN relationship is an important relationship and when you include the ones in the mix, there are good margins there in the low 20's. HRN has a percent of our hotel revenue for Q1 was around 44-45%. I believe this as a percent of HRN's gross bookings were something like midteens for them for the back-end of 2001 for Q401. Such an important relationship will continue to I expect grow with HRN as we grow the business. Now obviously the other opportunity at Travelocity is sell more GDS. We will GDS bookings, which we do today. making that it is HRN in the past as you see the GDS for and we have the opportunity within Travelocity and our range for HRN to cross sell and up sell and package with whatever content make the more sense for us and for the travelers. That is what you see as really taking advantage of the acquisition of site 59. on the team have terrific marketing capabilities and we think about why acquires site 59 and it was about people in the marketing skills, the important arrangements and relationships with twenty five hundreds travel suppliers and some technology as well that helps to stimulate our efforts in the space. So when you think about site 59, it is about diversifying revenue and earnings in the hotel space specific in Travelocity. Other opportunities with to take private transaction with Travelocity, we can leverage and save exclusives leverage the capability to site 59 team, what we were doing in the Travelocity vacation site, you saw lot of announcements and margins in Travelocity vacation site specifically in the Atlanta area which is very important area for selling for general sales. I do believe that we have the opportunity to do that and our teams are working on that as we speak. So it is all about revenue.

Great, thank you.

May be that is more than you want ?

Great, thanks a lot.

Our next question comes from Brendan Hartman of CRN. Please say your question.

Good morning. Bill how are you?

Fine.

Quick question on the seasonality, I know recognizing the 2001, is in a good comparison if you go back and look at 2000 it is

not just not total revenues. There doesn't seem to be more than 1 or 2 points of seasonality in terms of you know pretty much 24-26% of total revenue in each quarter. What is kind of a normal way to look at that in (Indiscernible terms of adjusted bookings?

If you are talking about the business, the big swing in this was certainly be the case for GetThere as well is typically in Q4. Q4 is often 15% lower than any other quarter and that's why you see the impact on the operating margin side, which doesn't have volumes. So that is the out . Now it is difficult this year when you compare 2002 over 2001, because it can see with the anniversary effect of September 11 you are still going to see lower in Q4 on a relative basis, but it is going to be positive to Q401, because Q4 was down hopefully, because Q401 was down I believe it ended up being right at about 20% down year over year and if we assume 15%, then expect slightly positive variance that makes sense.

That makes understood and Bill just comment if you would on price, both in the quarter and what you expect the remainder of the year

the year?

In what category?

Just in the bookings. What is your year on year and price for booking people do expect?

Sure, we announced pricing in 12/01, which included a 2.9% increase as it stepped by the airlines on . Amadeus went with a 5% increase. It is certainly important for us to be competitive on the incentive side now. Amadeus was rebating 3% of that 5% at least for the first few months of the year. So I see that it is 2.6% by the way of North American carriers. So that's how what our pricing will be for all of 02, and certainly for the airlines, when you think about especially the pressure on the yield side right now, certainly the travel agency channel is the highest profit channel and now with base commissions going to zero, it is very competitive on the cost side as well. The average ticket in the GDS space for example is $440, which is significantly better than some other channels.

Great. Thanks a lot Bill.

Our next question comes from Paul Keung of CIBC. Please say your question.

Hai Bill.

Hai.

Can you give me some color on incentive fees again sort of time. But in light of the last two months of negotiations, are these incentive fees being recalculated at these lower volume levels? How do you see at the plan? Will there be a change on the . How you are going to negotiate the target that versus may be a year ago within?

I don't see that. I think that as we expected, I think the travel agency expected the base commissions we go to zero this year, and certainly on negotiations in the past have reflected that. That is the travel agency travel management companies want it to be greater in 2002 and hoped that it wouldn't happen, but that's certainly the case, and so expect they would like to see their incentives higher. But we do have multi-year contracts in place and incentives are an important element of their revenue stream. I know you are probably seeing USA today at as special on it and about 10 days ago and something on yesterday were travel agencies continued to drive the service service fee model and the specialty model and I think they would out in the next couple of weeks is all about this area for the travel agency's ability to optimize yields and profits in a performance base of environment and some of the drive we have taken with some of the industry and very excited about the offering.

next question. Are you viewing this , I guess two questions; one is there a cost to it into are you viewing as more as a booking fee type of relationship that you want on scale or is it most of the profit come from sharing in those margins?

There are several elements to it. I just pick up three. There will be four or five. We are working on the timing. But as far as when you look across the portfolio, as we would expect on the numbers and we expect it to not have an impact on our range for 2002 across the entire portfolio. But again I guess where it has gone wrong .

Okay. And the last question is the small, on the corporate front end bookings numbers there, but what kind of initiatives that you expect in the rolling out to increasing fees of functionality if we can get more various types of bookings that can't be done right now on the corporate channel? And what kind of initiatives we feel from the back end, which I think lot of frustrations right now the corporate might have in booking it?

I am not sure about what the latter as far as GetThere is concerned. That is, I don't know being generic in the comment or not.

Bill it is more generic because when you go, you talked the the travel agency that you sees of booking engine in terms of the large is in the big in the one challenge that every one has not just get there, just trying to enhance the fulfillment to back end integration and the level of bookings that you have been doing in past?

Yes. Certainly for the most part, the fulfillment is the GetThere tool, is the incorporated or integrated with the travel management company from fulfillment perspective. We are for rolling out a new GUI with the next end platform or get there by year-end direct leadings as some added feature functionality will have. I think that you know from an adoption rate perspective one of the questions that we referred is he environment that we're in going to act as a catalyst to really spike the adoption rate and the adoption rate for most part of quarter over quarter has improved by 2 or 3 points from the top look at our top 20 customers when top 10 customers you know Q2 over Q3 was 22 versus 18 % in the top 20 significant sprite Q1 over Q4 or a top 20 were from 32-40% or may be this is in the curve as far as adoption of the GetThere tool.

Okay. Thanks.

The next question comes from Jim Kissane from Bear Stearns. Please say your question.

Just two quick follow-ups, you've given statistics for Virtually There in the past, Jeff can you give us statistics there? And then Bill can you comment how are wrap around products by Virtually There are helping you in all your centers relative to the competition? (Jim Kissane - Bear Stearns)

A. Yeah. Absolutely. When you think about, hopefully one gets you by we've said before, "we're not your father's GDS." When you consider the innovation and capability that Eric and team continue to drive in the GDS differentiates us. So that our customers add even though we continue to our solid business wide. We widen the lead over the number two. It's about the Internet platform, it's about the capabilities such as Sabre Virtually There, which are sticky applications from a travel agency. We have certain data, which shows that end travelers having more positive opinion on the travel agency 93% of time, when they use Sabre Virtually There and that end user was going to change the GDS, for instance they would lose that Sabre Virtually There capability, and certainly at the corporate level it continues to be required by some customers. As for as Sabre Virtually There is considered we were concerned. Last week we set another record and we didn't plug into the script with 325,000 visits and so continues to again a differentiator and the capability in Sabre Virtually There, some of the same things that we're rolling out with our technology in Travelocity around notification of becoming more important to travelers

And market share in Asia, it sounds like it is probably stabilized at this point?

A. Yes. That is right and certainly it is an important market for us. And at a company level, you saw that during the quarter we finished up our JV in Japan with Travelocity as we did and in Europe as well. As far as Asia JV with Travelocity, we have not completed that yet.

Okay. Thanks Bill.

The next question comes from Michael of JM Partners, please say you question.

My questions have been answered thank you.

The next question comes from Matt Fassnacht of JP Morgan, please say you question.

Pertaining to merchant model of Travelocity, you said you expectation for the year. Could you remind us what those expectations are?

For the year, our expectations are that 25% of our revenue will be merchant revenue. And we are tracking to add, Q1 was 13%. Now that 25% does not include again the HRN Warrants will take the 25 to 30%, but 25%. 25% of the transaction revenue will be merchant revenue.

And Jeff earlier, you mentioned about Orbitz and you said something about the timing there, could you elaborate on that?

A. I said it earlier, by the way if you guys were also in another conference call of one our competitors, you think I am very much repeating the call . Anyway as far as the impact of Orbitz, for the most part it was coming out of the gate. They launched in June, so we saw Q3 and then Q4 trailing off the impact of Orbitz, and in Q1, will it be more than held our own against Orbitz at Travelocity from a ticket sold perspective, and widen our lead as a matter of fact.

At this time we have no further questions, are there any concluding remark.

Operator, I think we will conclude this call and I turn over to Bill.

Thank you all for joining us. Certainly we continue to be in a very volatile environment in our industry. Our guys are very focused from an operating perspective. I am securing the earnings as you have seen by our results and I look forward to seeing or talking to all of you in next quarter.

Thanks.

Ladies and Gentlemen, this does conclude today's teleconference. Thank you for participating. You may now disconnect.