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This issue contains my essay, "Log Cabin Travel Distribution."  The seminar-attending public, trade press, and association meetings never seem to tire of listening to high-profile executives of alternative electronic agents, of one sort or other, tell mainstream agents to get back to "their roots."

"If agents would just return to their roots and focus upon service, customer relationships, and consultation, why they have nothing whatever to fear from the Interactive age"--or so the story goes.

If you try, you can almost see the early pioneers, seated in log cabins with only kerosene lamps to light their way, busily scribbling tickets by hand while enthusiastic crowds line up for their services.

I exaggerate to illustrate a point: electronic commerce, interactivity, and disintermediation are all inevitable consequences of today's business environment.  One can no more alter that fact than one can remove the affects of technology in any of a hundred other ways it has changed society.

As a practical matter, no one should want to.

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Wishing you good business,

David J. Wardell

Log Cabin Travel Distribution

Many political leaders throughout history were born in difficult circumstances and made their mark after overcoming significant obstacles.

We think of the desirable personal attributes of perseverance, honesty, dedication, and character not only because these persons possessed and lived these principles, but because the promotion that surrounded their rise to prominence echo years later

The political machine is frequently in full operation and together with ambitious party functionaries, an image for the aspiring leader is conceived.  Humble origins are brought into focus and a "man of the people," compared to often more aristocratic opponents, is highlighted.

Political considerations aside, that "of the people" theme is alive and well in travel distribution.  The seminar-attending public, trade press, and association meetings never seem to tire of listening to high-profile executives of alternative electronic agents, of one sort or other, tell mainstream agents to get back to "their roots."

"If agents would just return to their roots and focus upon service, customer relationships, and consultation, why they have nothing whatever to fear from the Interactive age"--or so the story goes.

If you try, you can almost see the early pioneers, seated in log cabins with only kerosene lamps to light their way, busily scribbling tickets by hand while enthusiastic crowds line up for their services.

I exaggerate to illustrate a point: electronic commerce, interactivity, and disintermediation are all inevitable consequences of today's business environment.  One can no more alter that fact than one can remove the affects of technology in any of a hundred other ways it has changed society.

As a practical matter, no one should want to.

In general, technology and the social, commercial, and personal advances it enables are positive.  The "good old days" never were how we recall them. It's been said that clear sign you're no longer young is when enthusiasm for the future is replaced by nostalgia for the past.  Very few businesses succeed by delivering what their customers wanted yesterday.

The basics of customer service are essential to survival in any business environment (a lesson many on-line retailers need to learn), but the call to "basics" as an escape from the business and technology pressures of the moment is absurd.  Being "of the people" or "customer-focused" does not equate to being "of the past."  One can only speculate why so many voices have adopted the "basics" line, but the fact that this is a simplistic platitude requiring little real thought must surely be one reason.

Successful travel distributors of the 21st century are those that enthusiastically embrace the substantial opportunities enabled by interactive and other technological advances and integrate these with the suite of services--old and new--that customers truly want to buy.  The hesitancy of both emerging on-line retailers and those using more traditional methods so to do is among the major factors limiting the competitiveness of both.

Key Points:

1. The "call to basics" is an overly simplistic view of travel distribution and often masks an inability to appreciate the real issues.
2. Successful travel distributors must embrace traditional business vales and leading-edge tools in order to continue delivering effective customer service.
3. Those in either the high-tech or high-touch realm who fail to achieve the right service mix and thereby deliver what their customers truly want to buy are the ones whose survival is at risk.

Passing Strange ... Comments on the News

PRICELINE'S EARNINGS

"For the second quarter, Priceline announced revenue of $364.8 million, a 3.5% gain compared with the same period last year. Net income for the quarter was $2.8 million, compared with a loss of $4.5 million in the second quarter of 2000." - (Travel Weekly; August 1, 2001).

Accounting is a wonderful thing.  A few published reports commenting on this same event went to some effort to explain why this "profit" differed from earnings reports by similar companies in that it is less contrived and more consistent with accepted accounting practices.

Give me strength.

A single profitable quarter does not mean much at all.  Experienced analysts and investors look at several profitable quarters prior to passing a preliminary judgment.  This practice tends to expose any possible revenue manipulation by management or other external events that might artificially inflate results.  Moreover, looking at historic performance provides encouragement that similar results can be repeated in the future.

Accounting involves much more subjectivity and interpretation than most people believe, which is yet another reason why consistent performance over time is important.  Simply to illustrate, remember that Priceline burned through over $1 billion of its shareholders' capital in 1999 getting the business started (TechNotes volume 2000, number 5).  Because this money was charged against shareholder's equity it wasn't tracked the same way as operating losses for accounting purposes--even though the loss was just as real.

In $2.8 million dollar quarterly bites, even assuming that the operating earnings were consistent and were retained somewhere as equity for shareholders, it would take roughly 95 years for the shareholders to recoup just the 1999 loss.  No one has ever successfully explained what would have to happen to the company in order for equivalent value to be created some way other than through earnings.

Whatever else Priceline may be, a builder of shareholder wealth and consistent, sustainable earnings it isn't.

Key Points--Financial Analysis Insight (Or How Not To Be Taken In By Creative Accounting):

1. Look for financial commentators and research analysts who follow travel distribution and who are willing to be critical where criticism is warranted.
2. Follow the Latin proverb, "Cui bono," or "To whose gain?"  Meaning, in this case, people deriving their income from painting compelling pictures about the companies or industries they comment on aren't automatically disqualified, but minimally you must take their personal interests into account.
3. Take time to read financial reports thoroughly.  Look especially for extraordinary items that artificially change results, income derived from business activities that aren't central to the core business, and operating losses that are hidden in non-operating areas.
4. Understand what "insiders," such as key employees or directors, are doing.  The unambiguous key is stock purchases.  There are many reasons insiders might sell their shares, but only one reason why they would buy more.
5. Pay attention to business structure.  For instance, joint ventures sometimes allow losses to be distributed between the partners, making them more difficult to count.