Sabre Corp (SABR) 2002 Q4 法說會逐字稿

Good morning and welcome to the Sabre Holding quarter call to discuss the fourth quarter results for 2002.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance 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 being broadcast live over the Internet.

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

Thank you . Hello everyone. Thank you for joining us today. I'm here with Bill Hannigan, our Chairman and CEO, Sam Gilliland, President and CEO of Travelocity.com, and Jeff Jackson, our Chief Financial Officer.

Bill will review highlights for the quarter and the year. Sam will provide an update on Travelocity.com, and Jeff will review our results in more detail.

Before I get started, I would like to remind all of you that some of our comments on matters such as our forecasted growth in revenues, earnings, bookings, operating margins and cash flow, potential contracts or business, and trend information will constitute forward-looking statements. These matters are of course, subject to a number of factors that could cause actual results to differ materially from our expectations.

Those factors are described in the risk factors section of the company's most recent form 10-Q filing with the SEC. The company undertakes no obligation to publicly update or revise any forward-looking statements. In addition, non-GAAP financial measure reconciliation information is available on our website at www.sabre.com/investor. Now I'd like to turn the call over to Bill.

Thank you, Karen. And thank you all for joining us. Just last month we updated you on our financial outlook. Today the financial results are very much in line with what we said on December 13, so much of today's call is a recap.

This morning I will summarize Sabre Holdings financial results for the fourth quarter and full year 2002 and the company outlook for the full year 2003 and first quarter. Sam will provide an update on Travelocity.com and Jeff Jackson will thoroughly review the financial and operating details of 2002.

To sum it up, 2002 was not the recovery year the industry had anticipated. The stall put pressure on the top line TSG wide, but with aggressive cross management, 3 of our 4 companies ended 2002 exceeding their operating earnings plans. Total TSG adjusted net income grew 10% year over year, while revenue declined 4% year over year. We took a number of strategic steps that position us for the long term. The Travelocity.com buy in, the purchase of , actions to accelerate the merchant model channels, and technology initiatives such as the ATSE platform all set the stage for us to emerge even stronger. Also important is the fact that we ended the year with an even stronger balance sheet. Our cash balance was 667 million as we began 2002. Our cash balance is now 912 million. With expected free cash flow of greater than 250 million in 2003, we would end this year with a cash balance of greater than 1.1 billion dollars. However, we don't necessarily expect it to play out that way. We continue to explore strategic acquisition opportunities in the travel commerce arena and other capital structure alternatives, such as stock repurchases and dividends are always a consideration.

Let's look at the 2002 company results. Starting with fourth quarter, total company revenue was 447 million, up 6% from the year ago quarter. Earnings per share on a GAAP basis were 1 cent compared to a loss of 52 cents. Earnings per share, excluding special items, were 15 cents, compared to 3 cents in the year ago quarter. As we described last month, the fourth quarter earnings were primarily impacted by worse than expected travel demand, combined with venture capital write downs of just under 7 million dollars. For the full year, the company revenue was just over 2 billion dollars, a decrease of approximately 4% over 2001. Earnings per share for 2002 on a GAAP basis were $1.50, compared to 24 cents a year ago. Earnings per share, excluding special items, was $1.79, compared to $1.72 a year ago, a 4% increase year over year. Jeff will cover the results by business unit in a few minutes, but now let's turn to the outlook for 2003. We are reiterating our projections, the projections we provided on December 13. Revenue growth in the range of 4 to 9% year over year, GAAP EPS in the range of $1.54 to $1.64 representing 3 to 9% growth, and EPS, excluding special items, in the range of $1.78 to $1.88. full year EBITDA is expected to exceed 475 million dollars and our free cash flow, as I stated earlier, is projected to be greater than 250 million dollars.

For the first quarter of 2003, we expect revenue growth to be negative 2 to positive 2% year over year. I'd like to point out that our full year revenue plan a ramp up in the second half of the year, primarily due to Travelocity.com's expected growth in merchant sales. We expect earnings per share on a GAAP basis to be in the range of 41 to 46 cents for the quarter. Excluding special items, we expect earnings per share for the quarter to be in the range of 47 to 52 cents. The projected year over year decline in earnings for Q1 reflects flat or near flat revenue growth at the start of the year combined with technology and product investment at full speed as we entered the year.

These investments support new functionality and capability in the online arena. Speaking of the online arena, at this point I'd like to ask Sam Gilliland to talk about what we're doing at Travelocity.com to take one of the all time great dotcom's to the next level. Sam.

Thanks, Bill. It's clear that 2002 was a disappointing year. Having said that, we have not wavered from the aggressive plan required to drive the business forward through a greater focus upon hotel offerings, enhanced packaging, better shopping capabilities, et cetera.

Therefore, in the fourth quarter we deployed two new capabilities that will help drive both revenue and earnings growth in 2003. The first, our new technology, the air shopping engine we've rolled out in the fourth quarter, allows us to display more flights, more airline options -- and I should emphasize, more viable options than our competitors -- enhancing our already industry leading air shopping and pricing capabilities.

The second was the introduction of our new merchant model hotels technology which leap frogged all competitors improving both the business model and business process. We've already received accolades from numerous hotel chains for this industry leading approach.

And while it's good for hoteliers, it's also good for us. Because we can load new hotels by the tens and hundreds of properties at a time rather than one by one, we have accelerated our entry into this market. We have now contracted with over 2,000 hotel properties and have operationalized close to 1,300.

We will contract with another 3,000 hotels this year and plan to have close to 4,000 operationalized by year end. That will represent tremendous progress in just 14 months as compared to the time it took our competitors to hit similar milestones.

But it also represents a pretty steep ramp over the course of the year. A ramp that will be evident in our revenue and earnings. But it's this type of innovation that differentiated Travelocity.com historically and that coupled with business model innovation will differentiate us going forward.

And leads me to 2003 and beyond. We'll focus upon continued innovation, strong execution and a better business model. And these efforts in 2003 will lead to significant improvements in the two areas or levers that drive any business -- volume and rate.

To be sure, we'll spend more money on advertising this year while in the process drive down our cost per visitor. Thus driving considerable volume improvement. That's a significant part of our plan.

Regarding the second big lever -- rate -- we have either already launched or plan to launch in 2003 a number of significant initiatives aimed at improving rate. I'll get into more details on volume and rate improvements in just a minute.

Now, I've indicated on numerous occasions that our e-commerce engine -- our storefront -- is very healthy. Site traffic and customer conversion continues to be strong. We ended the year as the leader in air sales and vastly improved our air content offering in the back half of the year.

And given that air transactions represent the launch point for the majority of travel transactions online, that translates into a huge opportunity for step function types of improvements. We'll implement new capabilities and convert more of our business to higher yielding merchant transactions.

Therefore, simply attaching more value -- hotel sales as an example -- to every transaction. Now, with that as an introduction, I'd like to get a bit more specific on our 2003 projections. The greater than 40 percent revenue growth guidance that we provided for Travelocity.com represents just over 120 million in incremental revenue in 2003.

That growth will be derived from the following areas: increased visitors to the store, or site traffic and converting a greater percentage of those visitors to purchase travel on the site. Together, these will drive more than 17 points of that revenue growth or about $54 million.

Improvement in yield per transaction will drive about 11 points of revenue growth or almost $33 million. This will come primarily from selling a greater percentage of merchant offerings.

Implementation of the $5 booking fee will drive a little less than 12 points of revenue growth or more than $30 million, and as a matter of fact, we implemented our service fee earlier this morning.

Now let's get, let's go a step further, take an April look at a few of the lines of business and I'll cover a few key assumptions. Starting with air, our biggest revenue line, we'll further improve upon our air revenues in 2003 in several ways, through increased site traffic via more deal-based advertising campaigns, through improved conversion rates that we've already seen since the introduction of our new P cubed technology, and finally through improving our returning on performance-based compensation from the airline.

In the hotel business, we drove out 30 percent merchant mix during 2002. As you can imagine most of those merchant bookings were drive through hotels.com; however we've also made tremendous progress on our own merchant hotel offering, launched in late October, we're already at about five percent of bookings. We fully expect by year end to see the combined merchant hotel mix at approximately 55 percent.

As a side note, we implemented our merchant content as a part of our air plus hotel cross sell on January 8th, replacing that of hotels.com in some markets, and over time we'll introduce more and more of our own content in more markets.

Moving on to the cruise business, we finished the year as the leading online seller of cruises, with growth in excess of 40 percent y ear-over-year. Our industry-leading cruise shopping technology, and our great selection will drive continued leadership in this business.

In the last-minute category, Site 59 grew by more than 200 percent year-over-year. We've launched several new partners, Marriott.com is one example. Consumer buying is trending toward last minute, and there is a huge opportunity to promote more aggressively on Travelocity.com, and we're already seeing results. We project 80 percent plus growth in 2003 in this area.

Regarding our package business, dynamic packaging and vacations, we'll launch our new dynamic packaging offering in the second quarter as we've indicated before and we expect it to contribute several points of growth to the merchant hotel mix I discussed earlier.

Moving on to the car business, the big opportunity here is add-ons to packages. This is where we'll see growth in these three. We'll also be introducing a dramatically improved car booking path in the second quarter, and we expect it to improve conversions rates much the way conversion rates improved with the introduction of total pricing for cars several months ago.

To conclude, I've been asked by some of you how will you know, what indicators can you look for to know we're on track in 2003. As you know, we have numerous initiatives that have either recently launched or will launch very soon, and those will clearly drive a ramp-up over the course of the year. So your primary indicators will come as you observe us delivering new capabilities, hotel, car, dynamic packaging, et cetera, as we've committed we will. And mid-year you'll begin to see improvements in revenues and earnings as those capabilities come to fruition.

And now I'll turn to Jeff.

Thanks Sam. I'd like to review with you the financial performance of the quarter and the full-year 2002, and I'll start with revenue by business unit. Then I'll go on to discuss our 2003 outlook.

But before I get started, I'd like to remind everyone that we've provided a detailed break out of our special items for the fourth quarter and the full year in our press release and on our website. So let me get started with revenue by business unit. Travelocity.com had revenue in the quarter of seventy--five million. That's growth of 11% year over year. Full year revenues were 308 million, and increase of 2% over 2001. Transaction revenue was 50 million for the quarter, growth of 17% and 215 million for the full year, an increase of 4% over 2001. If I break that into air and non-air, on the airside, transaction revenue was up 2 for the fourth quarter and down 11% for the year. Non-air transaction revenue growth for the quarter was 51% and full year 42%. Total merchant revenue, as a percent of total transaction revenue was 20% for the fourth quarter and 18% for the full year. During 2003, we will begin discussing our progress in merchant sales by breaking out air and hotel in both published and merchant content. Advertising revenue was 15 million for the quarter, an increase of approximately 4%. Full year revenue was approximately 53 million, a 16% decline for 2001. Other revenue for the quarter was 10 million, a decline of 7%. Full year revenue, full year other revenue was 40 million which is an increase of 24%. And now for the get there business. Revenue for the quarter was one million, representing growth of 28%. Full year revenue totaled 51 million, an increase of 20% over 201. On the corporate side, revenue grew significantly and ended the full year at approximately 100% growth and on the supplier side, revenue declined 34% year over year. Travel marketing and distribution had revenue in the quarter of 343 million, an increase of approximately 7%, and for the full year, revenue totaled 1.6 billion, compared to 1.7 billion in 2001. Airlines solutions business segment recorded revenues of 51 million for the quarter, 11% growth and for the full year, had revenues of 205 million, representing growth of 3% on a year over year basis.

Now I'll move on to the metric supporting the financial results for the quarter and for the year. Starting with TM&D bookings. Total global books processed in the quarter was 85 million, an increase of 1%. And 397 million on a full year basis, which is a decline of 8% year over year. Breaking these comparisons down further, U.S. bookings declined 3% for the quarter and 12% for the year. International bookings ended the quarter with growth of 6% and for the full year down 2. Air booking ended the quarter up 1, but down 8% for the year, and non-air bookings were up 2 for the quarter and ended the year down 4%. Finally, direct bookings were down 1 for the quarter and ended the year down 9%. Our Latin America business continues to be pressured in its top two markets, Brazil and Venezuela of economic and political turmoil. These issues had an impact on our volumes in the fourth quarter and continue to be a problem. For example, in Venezuela, our second largest direct market in the region, bookings are running at about 30 to 35%, our normal volumes in the month of December. Hypothetically, if this were to continue throughout 2003, that would cost us about a point of direct transaction growth for the year. Now for on update on bookings share. Year to date data for the period ending November indicate that we maintained our global leadership position at 37 percent overall.

By region that's 47 percent in North America, 14 percent in , 51 percent in Latin America and 54 percent in Asia Pacific. The fourth quarter was a good quarter for account and booking conversions. We converted significantly more bookings than we lost versus all competitors and in all regions.

And now moving onto Travelocity. Travelocity.com gross travel bookings were 888 million for the quarter -- an increase of 41 percent -- and 3.5 billion for 2002, which represents growth of 12 percent over 2001.

During the quarter, Travelocity.com membership rose by more than 1 million to 38 million members, continuing to be the highest in the industry. Average or monthly unique bookers were 666,300 in fourth quarter compared to 538,000 a year ago.

Moving onto GetThere. GetThere's total transactions process for the quarter was approximately 2 million, an increase of 30 percent from last year. Total transactions for the year were almost 8 million, a growth of 30 percent over 2001.

Breaking that into the two primary categories -- on the corporate side, transactions continue to be the biggest driver of growth for GetThere. Corporate transactions booked in the quarter grew 92 percent and full year growth was 83 percent.

Supplier transactions declined 13 percent for the quarter and grew two percent for the year. The fourth quarter decline was primarily due to the loss of two customers -- America West and National.

Now, I'll turn my remarks to expenses, operating income and margin. All on an adjusted basis for the quarter and for the year. Expenses were down one percent for the quarter and almost 10 percent for the full year.

Operating income increase 30 million for the quarter and 100 million for the full year. Total operating margin for the quarter was eight percent and for the full year 20 percent. For the year by business unit, TM&D reduced operating expenses by more than 120 million. Airline Solutions reduced operating expenses by almost 18 million and achieved a 10 percent operating margin for the year.

GetThere reduced operating expense by 20 million and cut their adjusted operating losses by more than a half from last year. And Travelocity.com ended the year with an operating loss of 12 million, reflecting our continued investment to accelerate the turnaround Sam described in 2003.

A few other comments on financial data. We ended the year with cash and marketable securities balance of 912 million. On 12/31 we had debt on the balance of 436 million. Our EBITDA for the quarter was 36 million and $434 million for the year. And our free cash flow for the quarter was 18 million and 251 million for the full year.

Before we open up the lines for Q&A, I'd like to talk about our outlook by business unit. Travelocity.com is expected to grow revenue by more than 40 percent and improve operating margins to margins greater than 10 percent.

Our GetThere company is expected to grow revenue in the 25 to 35 percent range and once again, cut operating losses in half on an adjusted basis. We also expect to have our first positive operating margin month during the back half of 2003.

Our Airline Solutions business is expected to grow revenue in the 10 to 15 percent range and have operating margins at approximately 10 percent. Our GDS business revenue is expected to be fairly flat year over year. We expect total global bookings for 2003 to be down two to three percent from 2002 levels. And direct bookings are expected to be down three to four percent, year-over-year.

We expect to have lower operating margins during the, due to continued weak demand, investments in technology, data processing costs associated with the transition to the new air travel shopping engine and rising incentive costs.

We said in the 2003 outlook call in December, that our average incentives per booking, when you include Travelocity.com are expected to grow in the high teens, on a year-over-year basis.

For the first quarter, 2003, we expect year-over-year growth in revenue to be in the range of negative two to positive two percent. Earnings per share on a GAAP basis are expected to be in the range of 41 cents to 46 cents and earnings per share excluding special items, are expected to be in the range of 47 cents to 52 cents.

And as Bill mentioned, the projected year-over-year decline in earnings per share for the quarter reflects the beginning at an accelerate pace in our technology investments to support new functionality and capability in the online arena, combined with flat or near flat revenue growth.

Now I'll turn it back to Bill.

I'll turn it right to Karen to open the floor for questions.

, we'd like to take questions.

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 acknowledgment 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 a speakerphone, please pick up the handset before pressing the numbers. Once again, if there are any questions, please press the one on your touch-tone phone.

Our first question is from Greg Gould from Goldman Sachs. Please state your question.

Morning, it's John Mathis for Greg Gould. Bill, can you talk, and Jeff, maybe can you talk a little bit about how your assumptions for '03 may have changed following what you're seeing in the just completed quarter, and what you're seeing in early January so far.

And then also just one specific area, can you talk a little bit more about potential share shift from controlled bookings to airline controlled? Thanks.

Yes, John, this is Bill, a couple things. We haven't seen anything since the December 13th call that would change our baseline assumptions on industry growth or channel shift for that matter or share shift for that matter.

We, prior to 9-11 of '01, we're, you know, very focused on talking about bookings, volumes, whether it be bookings or passengers boarded or whatever trips, only on a quarterly basis. And we're going to go back to that. We think that's a good discipline.

Now having said that I'll violate it one last time and say that it was nice to see last week that we had two single-day records at get there.

As far as the last part of your question was on channel shift, share shift, I think you, we think of that in terms of channel shift when you talk about going from the tradition travel agency to online sites, whether they be airline owned or Travelocity.com for that reason, for that matter. We expect channel shift in 2003 to be about a four percent number, which is fairly similar to what it was in 2002 when it was at right about five percent.

And Bill, in terms of the DOT and their potential rule changes and also as that relates to participation, can you talk a little bit about your expectations there?

Yes, we're not, as the DOT process is really just getting started as far as the comment phase and the response phase I guess. We don't expect to see anything meaningful out of DOT probably until the mid-summer.

As far as the year offer's concerned, certainly with our fee increase in the GDA business that we announced in December, the 10% discounted offer in exchange for a long term commitment is now more like a 13% discounted offer.

And no traction there, or can you talk act interest level from airlines in stepping up to that participation?

We're having good discussion with several airs, we currently have four signed up. My expectation is that during this period of the DOT in the comment phase, that there is a good chance there will be a lull in any take up on any new offers at the same time.

Okay. Thank you. operator: Our next question comes from Jim Kissane of Bear Stearns, please state your question.

Hi Bill. Bill, can you talk act the traction that you are getting with Sabre exclusives and how we should monitor that, you know, going forward, and also how Sabre's leveraging, Sabre exclusives, you know, Travelocity's own initiatives, as well as a hotel.com deal?

Absolutely. I'm going to kick it over to Eric Speck, as a matter of fact, our chief marketing officer to talk about that. speck: Our growth and Sabre exclusives, for those of you who aren't aware, is a merchant offering that's available to the bricks and mortar travel agencies through Sabre. We ended the year with product available in 119 cities in North America. Sold about 41 thousands . And we're looking to significant growth during the coming year. We have consolidated, or operating under the same technology platform in both the Travelocity merchant hotels products and Sabre exclusives, so we have consolidated on all of the technology and back office operations. But by definition, the types of products, types of hotel rooms that are sold in the online, for the types of customers who use Travelocity are a bit different than the demographics being purchased through the bricks and mortar and, therefore, we have a different mix of hotel properties available for sale. We have got about 1400 hotels currently under contract. That's as of the end of 2002. 962 of which are operationalized and booking and available for booking in the system. kissane: How much overlap is there between the Travelocity hotels and the Sabre exclusive hotels? And, you know, Sam talked about the value that you bring to the hotels. I guess that's electronic connections. Can you kind of go into some detail? hannigan: Well, it is, this is Bill, it is leveraging again, the technology infrastructure where we, Sam talked about leapfrogging our competitors by being able to offer single image inventory. Sam, do you want to talk about it?

Yeah, I might just talk to the fact that we have build on this technology that Eric referenced, we have built both an allocation based model and this single image inventory type model. We have within Travelocity deployed that single image inventory model for frequency. Probably 80, 85% of the time that's what the hotelliers are asking us for. And that is because they have much better visibility into the inventory this they are selling in this model and they can look at that inventory within the larger context of all of their inventory. So its been very successful so far, and like I say, we offer a choice, but more often than not we are seeing that choice go towards the single image inventory approach versus the allocation based model. speck: And the single image inventory for Sabre exclusives is in the process of being implemented as well, now that its been released for the Travelocity hotel properties and will be released as an offering for the hotel properties in the first half of this year. kissane: Okay. Great. And Sam, are you more confident today than say, six, nine months ago. gilliland: Well, we have rolled out our product. As I mentioned before we went from zero to five% for our merchant model hotels offering in the course of two months. We have contracted with 200 hotels, we expect that number to be about 5,000 by year end. And we're on track in terms of getting those hotels operationalized as well.

OK. Great. Thanks.

Our next question is from David Togut of Morgan Stanley. Please state your questions.

Thanks. A couple of questions. Bill, could you flesh out your thinking a bit on the acquisition front? It sounds like you're perhaps doing about -- thinking about doing something strategic. And just secondly, would you consider paying a dividend?

Yes, I don't want to flesh out really much, David, what we're doing on the strategic acquisition side other than to say it's in the travel commerce arena.

And when you look at 2002, certainly the buy-in at Travelocity.com and the acquisition are along those lines. So we continue to be very aggressive in this area. We have walked away from a couple of deals just because evaluation didn't meet our expectations or what we were willing to ante up, but continue to be, again, very involved with a couple of good companies.

All of that will play into things like stock repurchase or dividends. Because, certainly, as we sit here today it's important to have the cash on hand for some of these strategic opportunities. And it's always dangerous to put a timetable on M&A, but we will continue to be thinking about the possibilities, the size of the deals and the opportunity that gives us for other things such as stock repurchase and dividends as we got through 2003.

OK. Thank you.

You bet.

Our next question is from Paul Keung of CIBC. Please state your question.

Hi. Good morning. Looking at your outlook for 2003, can you give me some color or how you looked at the economy and the sequential ramp up in bookings as the year progresses? I know you're trying to avoid the quarterly, but maybe -- is there a different way to answer that question so that we can understand how aggressive you are in the ramp for next year?

Yes, let me start, Paul, and then I'll hand it to Jeff. You know, we talked about the demand challenge environment in the past because it was, you know, early in '02 the FAA was talking about 12 percent year over year '03 over '02. By later in Q3 it was looking more like a three percent number and the airlines continue to announce capacity coming out of the system, which is, you know, contrary to what you're hearing on the GDP side.

So, we ended up settling in on the number of zero industry growth and have built our plans around zero industry growth. You know, kind of the interesting thing -- it's almost an aside on the demand challenge front is that certainly with the industry being demand challenged, that's an issue for our biggest and most profitable company.

But our other three companies aren't demand challenged and certainly the growth rates we're talking about for Airline Solutions, GetThere and Travelocity would be an indicator of that. But that's kind of how we thought about it. Jeff, do you want to talk about the ramp?

Yes, I'll just elaborate a little bit, Paul. If you think -- well, I think Sam's business, Travelocity.com, I think we were pretty explicit related to both the first quarter and then as it ramps. Sam gave you metrics both on the revenue side and the merchant mix side.

The only thing I'd add to that is couple that with our thinking about the timing of the introduction of our packaging capability which is sometime in the second quarter. So that clearly points to a ramp starting in the third quarter and the fourth quarter on a Travelocity.com business. And, you know, GetThere continues to be a business which ramps pretty consistently because of adoption, new sales and things like that. We saw that this year.

And finally, on TM&D, if you think about our assumptions of travel industry growth as zero, we've got, as we said on the 13th call, and just reiterate here, we've got a point decline built in on our worldwide booking share, predominantly for year-over-year end tax of customers that were acquired by a competitor and then an assumption that we will elect to, you know, not bring down our margins and how we competitively bid for some of the business that's out there.

And finally channel shift, so the industry growth does pick up a little bit throughout the year. Our booking share starts off, you know, with a decline, although I talked to you about conversions in the fourth quarter, they take some time to play out through the year as they come on, and the bookings billed. So I would assume that our, we would grow a little bit in the second and the back half of the year in terms of share.

And then channel shift is just consistent assumption throughout the year.

Those are the components and a little bit of, a little bit of our thinking around how those various components ran for the business.

OK. Try to break that down. And then trying to read between the lines on your acquisition comments. I mean, I'm looking at Expedia, you know, they bought, invested in launch packaging, you guys will have the dynamic side done by second quarter.

How important is it to take packaging to the next level where you go beyond taking the inventory, you have current electronic access to you right now. In other words, would you look at buying other you know, traditional offline consolidators and stuff like that? So I mean, that's part of that long-term business.

I don't want to go down that path Paul as far as getting more explicit on the definition of travel commerce. But again, when you talk about packaging and the expertise around packaging, certainly the Site 59 acquisition in '02 reflects some of our focus and energy in that area.

OK, all right, and then the last question, on Sabre Exclusives, those fully 1,000 room nights that you booked, what kind of margins are you able to secure right now in that business right now? Where do you see it going?

Yes, just to make sure we have definitions straight, because margin is sometimes talked about in a couple different forms by the various people in this business.

OK. There is spread revenue, which is a different, which is the rate at which the hotel room is sold at versus the rate in which the room is acquired at. And the spread revenues, they vary by month, but they're in the 25 to $30 range.

In terms of contribution to variable contribution, which is the contribution after the variable costs of commission, credit cards, data processing are accounted for, the contribution on a per-room-night basis, it's about $12 to $14 and that represents about 10 times the profitability on a room-night basis of a traditional room sold through the Sabre system. Economics are different with Sabre Exclusive, because we have a commission structure to agents, which Travelocity doesn't have.

And the room rates on a Sabre Exclusive is that when the $100 or what's the range on that?

The average daily room rate is well in excess of $100. It's, we're planning on about $120 without sur charges and taxes for the year, per room night.

Great. Thanks .

Thanks Paul.

Thanks everyone, yes.

Our next question is from Tom Underwood of Legg Mason. Please state your question.

Hi, yes, just first I have a question for Jeff on the income statement. I was wondering what led to the significant increase in elimination of inter-segment revenues in the quarter?

Well those are principally intercompany payments, and so the largest one of course is the payments related to marketing fees and incentives from TM&D to Travelocity.

Right, and is there any change in the terms, or any reason that, percentage wise, it increased so significantly?

No, nothing significantly. Off the top of my head, I think it's got to just be growth related.

OK.

Volume-related.

OK, and then just in terms of the merchant hotel business, both Sabre Exclusive and Travelocity, can you share with us any goals in terms of gross bookings or revenue that you would have for 2003?

Tom, we talked about the -- we talked about taking the merchant hotel side from 30 percent last year, going towards 35, towards at the end of the year to north of 55 percent through '03.

How much then do you expect for the hotel business overall in '03?

Well, what we talked about -- and this is Sam -- what we talked about was this roughly 11 points of revenue growth, or a growth of about $33 million in that -- in our merchant business overall. The large portion of that coming from hotels ...

Would that imply 200 million in gross bookings, then? Just using a low-20s net spread, percentage-wise?

You could.

No, it would put you more in the mid ones.

And then finally just was wondering for Q4 Travelocity, what was operating income or loss?

Tom, I didn't get that question. I'm sorry.

Fourth quarter Travelocity operating loss or income?

Well, we haven't broken that out yet, but Travelocity did experience a loss in the quarter.

OK, great, thanks.

Our next question is from from Neuberger Berman. Please state your question.

Hi, can you comment on the revenue ramp of Travelocity? It seems like it should start at 11 percent, or 12 percent, given the $5 fee, including the ramp from there in the second quarter. Can you give any kind of guidance on that or guess?

Yes, we talked about the ramp during Sam's piece. As far as -- Sam, do you want to comment on that?

The service fee just goes in now.

gilliland Yes, the service fee goes in now, so that's kind of a steady increase over the course of the year. And then really the ramp comes from -- there is a ramp related to the growth in Merchant Hotel. And as you recall, I talked about a ramp in hotel properties from the roughly 1300 they're at today to nearly 4000 by year end. So there's a ramp just in terms of how we can grow that piece of the business. And a ramp from the roughly 35 percent merchant bookings as a percentage of total today, up to the 55 percent. So you see that ramp. And then you also -- there are here early in the year -- there are assumptions about, again, increased visitors to the site. And those are relatively consistent with some of the things that you've seen even in the fourth quarter. The good news in the fourth quarter was volume good news. Our air bookings, as an example, were up 30 percent year over year.

The problem in the fourth quarter came from yield decline related to commission reductions.

So therefore, the hotel availability goes up -- ramps as you expect -- second quarter should be more representative of how the year goes, or maybe even better than that.

That's right. And I made the reference in my comments to midyear being a good indicator of how we're doing. Because we'll see the ramp in the hotels. We'll see ramp and we'll start to see ramp related to packaging product as it comes out in the second quarter.

We'll see some improvement as it relates to cars and car conversions because that's another second quarter delivery. So, I think the second quarter will be a good indication of how we're doing from a performance perspective.

Anyway to kind of give us an indication of where the mature margins of this business could be? In steady state? It doesn't have to be in a quarter or year.

Yes, we haven't talked about that beyond, obviously, there are some points out in the marketplace. Our forecast is operating margins greater than 10 percent for '03.

OK. Thank you.

You bet.

Our last question today will come from Jeff Kessler of Lehman Brothers. Please state your question.

Thank you. Whenever we debate with clients about the proposals regarding Sabre and other GDS providers, the question comes up that the proposal -- even as stated today. Even if has not changed. That need not be harmful to the GDS if the GDS providers can continue to add "value" for added value.

Can you define in your terms what you see the GDS providers doing to add value so that even if some proposals are not changed that you can still -- that you're business is not impinged by them?

Yes, my assumption is that the -- my assumption is that the proposed rules will change. I would go beyond that because it's early in the process. But certainly, the GDS business through, you know, I'll talk specifically about GDS business. Sixty thousands points of sale. The lowest cost channel of distribution the airlines have with all in costs running about 11 bucks a ticket versus, you know, the airline owned.

Orbitz running at about 13 to 14 bucks a ticket and our average yields through that GDS channel in the 450 range versus, again, an Orbitz comparison, you know, south of $200 per ticket. So the value is there from an economic perspective. Certainly from a future functionality perspective.

If the rules play out as they're written today, you would expect that the airlines would have some more leverage because of mandatory participation. But the value proposition doesn't change because of the rules.

OK. What I'm hearing say also is that you think there's going to be a lot of wiggle room between now and whenever -- May or June -- when these rules are finally promulgated.

Yes, I expect so. I mean, it was -- you know, last time we went through this process around 10 years ago. What went into the process came out about 18 months later about 180 degrees out from what went into the front of the process.

OK. Thank you very much.

You bet.

, are there any further questions?

We have no further questions at this time. Are there any concluding remarks?

Well, I'd like to turn it back to Bill.

OK. Thanks, . Thanks, Karen. I appreciate all of you joining our call today. Let me close by saying just a couple of things. In 2002 three of our four businesses exceeded our operating earnings plan. Our expectation is that in 2003 all of our companies will exceed our operating plans.

Our strong balance sheet combined with healthy free cash flow certainly enables us to pursue an ambition, strategic agenda to build on our leadership position in the travel commerce arena.

Thanks all for joining us. Talk to you soon.

Ladies and gentlemen, this does conclude today's teleconference, thank you for participating, you may now disconnect.