JANE LEVERE NEW YORK Global distribution system company Sabre has merged its Travelocity unit with Preview Travel in a step-up in the battle for the growing on-line travel market.

The new company, Travelocity.com, will have projected sales this year of more than $1 billion.

Travelocity was already top-ranked in the US on-line travel business, followed by Microsoft's Expedia and Preview.

Merging with Preview has moved Travelocity far ahead of Expedia: it says it is 50% larger than the Microsoft company in registered member terms. According to Forrester Research, on-line travel sales will climb from $7.8 billion this year to $32.1 billion by 2004.

Travelocity.com will be 70% owned by Sabre, itself 80% owned by AMR, the parent of American Airlines. The remaining 30% will be owned by Preview Travel stockholders.

Under a five-year contract, Travelocity.com is the exclusive reservations engine for all travel-related services within America Online (including CompuServe and Netscape). It also has a contract to provide travel services to Yahoo, which has also invested in the new company. Travelocity.com will have a combined registered membership base of 17 million people.

Don Carty, AMR chairman, says: "The transaction will create the leading on-line travel service in the leading e-commerce category. The strategic agreements Travelocity.com will have with AOL and Sabre's distribution business bolster the content and reach of the combined entity. From a shareholder perspective, we have unlocked the value of Travelocity by creating a pure Internet currency, with Sabre shareholders owning a majority stake."

Sam Buttrick, aviation analyst for Paine Webber, says: "We and others had been expecting a simple initial public offering for Travelocity. This is a much better transaction because it simultaneously gets Travelocity public and creates an instant category leader." He adds that Galileo, which had been used by Preview, is "losing a good customer".

James McQuivey, a senior analyst with Forrester, suggests the merger puts a question mark over the future of smaller on-line travel companies.

Source: Airline Business