priceline Cuts Airfares, but Stock Slides Anyway - TheStreet

Investors weren't buying

priceline.com's

(PCLN)

latest gamble to boost its beleaguered air travel business.

The name-your-own price online travel agent announced an aggressive airfare sale Tuesday in response to investor concerns that the company's airfare business was

cratering under ramped-up competition. Investors sold anyway, sending shares down lately 18 cents, or 4.7%, to $3.67. The stock is now off about 30% since the company's quarterly earnings report last week raised growth concerns.

In the announcement Tuesday, priceline said customers can save 50% or more on many airline tickets now through June 5. The offer doesn't require many of the usual hassles -- such as blackout dates or weekend stays.

Norwalk, Conn.-based priceline's air business has suffered because the cheap fares that were once found only on priceline are now offered by the airlines themselves or can be found on a host of other travel sites, such as

Expedia

(EXPE) - Get Report

or Orbitz. In the meantime, the company has boosted its hotel business -- in the latest quarter that segment grew 110% year-over-year -- to compensate for the downturn in the air business.

But with air travel accounting for the bulk of priceline's revenue, many investors and analysts are waiting for a rebound in the air business before jumping on the stock. In the company's recent conference call, managers said they saw signs of improvement -- but not enough to raise financial guidance.

Still, priceline is profitable on a generally accepted accounting principles, or GAAP basis, as it expects to earn 12 cents a share in 2002. As one of the few Internet outfits to turn a GAAP profit -- as compared to the much-maligned pro-forma basis, which excludes many costs but is preferred by most online outfits -- priceline is no longer in danger of extinction. After an aggressive cost-cutting plan, the company turned its first profit last July.