Priceline Plans Layoffs as Air Slump Persists

Casting a shadow over what has become a dot-com turnaround success story, Priceline.com announced it will lay off 15 percent of its workforce and will trim some product lines after a larger-than-expected quarterly loss.

Repeating a theme it has sounded ever since the September 11th terrorist attacks depressed air travel last year, Priceline (Nasdaq: PCLN) said a resurgence in airline ticket sales at its site has yet to occur, though improvements in hotel sales cushioned the blow.

Revenue dropped sharply in the quarter, from US$302 million in 2001 to $240 million this year.

Layoffs Coming

To help cut future losses, Priceline said it will lay off about 50 workers and will terminate another 15 outside consultants as part of a broad effort to cut costs starting in the current quarter. The Norwalk, Connecticut-based company, which now has 300 employees, said it will save $13 million per year as a result of the cuts.

In a conference call, Priceline chairman and co-CEO Richard Braddock said Priceline will continue to offer name-your-price airline tickets and fixed-price fares through iLowestFares.com, but will focus the bulk of its marketing efforts on "growing businesses," such as its hotel and vacation packages offerings.

"In a word, our results are disappointing," Braddock said, "although the reasons were mixed."

Outlook Dour

Braddock noted that on an operating basis, Priceline broke even in the third quarter, and much of its $24 million net loss was related to losses from investments in fellow dot-coms. Analysts had been expecting a one-cent profit on $261 million in revenue.

Priceline executives remained unwilling to predict when airline ticket prices will rise again, a key requirement for the name-your-price model to flourish. But Braddock said an uptick must happen eventually, as most airlines cannot sustain themselves financially by offering steep discounts on their own tickets.

The number of airline tickets sold fell 46 percent year-over-year, while the number of hotel rooms booked rose 37 percent. Late last month, Priceline announced its hotel booking product would become available in China, Singapore and Thailand.

"We expect continued pressure on total revenues from airline industry challenges," said co-CEO Jeffery Boyd. "We are going to funnel more of our resources into the growth segments of our business."

Off Message?

Some doubt was also cast on Priceline's marketing efforts, because new customer flow fell 11 percent. However, Braddock attributed the drop to the airline pricing environment.

Priceline, which expanded its reach into the used car market during the quarter, also said it plans to discontinue its name-your-price feature for long-distance calling plans.

Shares of Priceline were battered in early trading Wednesday, falling 30 percent to $1.71.

The stock had risen as high as $6.89 early this year on optimism that Priceline had turned itself around after shedding unprofitable business lines and was poised to expand into Asia-Pacific and European markets.