Travel anxiety benefits reservations firm

NORTH DALLAS -- Bad news for the hotel industry has turned into good news for Dallas-based Hotel Reservations Networks Inc.

When fear of terrorism began keeping travelers at home last month, hotel operators turned to Hotel Reservations Networks for help filling an abundance of empty rooms. Since then, more than 500 hotels have signed on to use Hotel Reservations Networks for the first time.

Hotels were already facing a tough year as business travel dipped, but the aftermath of Sept. 11 prompted the hotel industry to brace for the worst downturn in 10 years. Continuing reductions in business and leisure travel are expected to depress 2001 hotel occupancy levels to about 60%, the lowest level since the Gulf War, according to the Hospitality Services Group of Ernst & Young L.L.P.

Though its business has been affected by the downturn, prompting the company to revise its outlook for the fourth quarter, Hotel Reservations Networks continues to grow. And now, to support that growth, the company is planning to open an additional call center early next year that could employ 100.

The company had considered locating the new call center in cities including Wichita Falls and Midland, but El Paso is now the frontrunner, said David Litman, its CEO.

In addition to finding a pool of good workers, HRN aims to locate the center far enough away from existing call-center operations in the Metroplex so that a natural disaster or other event would not disrupt all its operations.

"We'll have to expand our base," Litman said, since its existing call centers are "running on overdrive" now.

The company operates centers in the Rio Grande Valley and in Dallas and Fort Worth, with about 450 call-center employees in all.

Last month HRN laid off 80 workers at call centers in Fort Worth and Pharr, Texas, reacting quickly to September's decreased bookings.

The company is now seeing "nearly normal levels" of bookings," Litman said. "But hotels have lowered their prices fairly significantly, so anyone who is traveling now is getting a great deal."

But that's a temporary phenomenon, he cautioned.

While the industry's outlook overall is uncertain, it will come back in the short- and medium-term, Litman said.

"Rates and occupancies should be back to normal in 2003 and, in the meantime, we'll adjust and continue to grow," he said.

The company anticipates 35% to 40% annual growth while remaining "highly profitable," he said.

HRN aims to move business to the lowest-cost way to handle it -- in this case, online.

Already the company books 90% of its business over the Internet, and more than two-thirds is handled strictly over the Web. The difference springs from customers who book over the Internet, but still talk to a customer-service representative to finish the transaction. Other calls are handled by the company's call centers from start to finish.

"We're still in the expansion mode," Litman said. "We're increasing our number of customers and affiliates and we've barely scratched the surface" in an industry where most hotel reservations are still handled in the traditional way: directly between the customer and the hotel.

The company also began offering hotel bookings in 25 additional cities during the third quarter of the year, bringing its total number of cities to more than 170, and sold 1.2 million hotel room nights in the quarter.

HRN (Nasdaq: ROOM) provides its services to customers through its own Web site, http://www.hoteldiscount.com, or through its "affiliated network," about 22,000 Internet sites that direct traffic its way. The company pays a commission to those affiliates.

HRNplans a "major marketing initiative" of its direct-booking channel, Litman said. Details on that initiative are not available, but it would mean working to raise awareness of the company's Web site.

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