Pegasus Solutions, Inc. Business Information, Profile, and History

Company Perspectives:

The company's mission is to maximize revenue and profitability for ho tels and travel distributors worldwide by providing the most comprehe nsive and innovative services and technologies in the industry.

History of Pegasus Solutions, Inc.

Pegasus Solutions, Inc. serves the worldwide hotel and travel industr y with a medley of technological services. Founded in 1989, the compa ny has evolved to become the hotel industry's largest provider of thi rd-party marketing and reservations services. Pegasus is headquartere d in Dallas, Texas, and has regional corporate sites in Scottsdale, A rizona; London; and Singapore, as well as offices in ten other countr ies. The company provides a number of technological solutions to some 60,000 hotel properties worldwide, and to the vast majority of trave l agencies. Pegasus' resources for the hotel and travel industry incl ude central reservation systems, electronic distribution services, co mmission processing and payment services, and marketing representatio n services. Pegasus' Utell and Unirez representation services are kno wn and utilized in 140 countries around the world. Pegasus' services are primarily business-to-business, with the exception of Hotelbook.c om, serving online consumers with access to independent hotels all ov er the world.

1989: Founded to Create Technology

The company was founded in 1989 to develop the technology to connect hotel reservation systems to the airlines' global distribution system s. A group of about 15 leading hotel and travel company executives re cruited John F. Davis III to launch The Hotel Industry Switch Company (THISCO). Davis's business abilities and entrepreneurial experience and success had come to their attention when Davis established ATC Co mmunications and called on them to offer the services of his call cen ter to manage their overflow reservation calls. Under Davis's leaders hip, the company was given the goal of developing the "switch" techno logy to link systems of the THISCO member hotels' systems to global d istribution systems used by travel agents.

It did not take long for the company to succeed and be recognized. In 1991, President and CEO Davis was selected by Travel Agent ma gazine as one of their "People of the Year" for solving frequent prob lems and inefficiencies hotel operators and travel agents deal regula rly with by developing the technology to connect the hotels' central reservations systems (CRSs) to the global distribution systems (GDSs) .

Finding initial success in the travel and technology niche, Davis dev eloped another service targeted to that same market. He followed up b y establishing the Hotel Clearing Corporation (HCC) in 1992. HCC enab led travel agents to consolidate their hotel commissions in one check for a small fee. In addition, in 1994 the company launched the first Internet site for booking hotels in real-time. It was called TravelW eb. Consumers responded well to the new service. A year later Davis c reated Pegasus Systems as the umbrella under which all three technolo gical travel services operated. Pegasus Systems was the parent compan y of THISCO, HCC, and TravelWeb.

Going Public: 1997

In 1997 Pegasus Systems had a successful initial public offering of & #36;53.4 million, distancing its ownership from the original small gr oup of investors. Pegasus Systems' public campaign raised $40.5 m illion for the company and fueled further business growth. The compan y was listed in the FastTech 50 in both 1998 and 1999.

By 2000 Pegasus became the power behind the popular travel deal web s ite Hotwire.com, helping provide Hotwire with one-stop direct access to hotels around the globe, up-to-date price deals, and little hassle . The addition of Hotwire opened another distribution channel to reac h Pegasus's hotel clients, including Summit Hotels and Resorts, Utell , Sterling Hotels and Resorts, and Golden Tulip Worldwide. Pegasus al so continued to unveil new services for the hotel and travel industry , such as a new Customer Relationship Management tool.

2000: Name Change and Growth Spurt

In April 2000 the company changed its name from Pegasus Systems to Pe gasus Solutions to better reflect the breadth of services offered by the company. The company's offerings had grown to include marketing s ervices for independent hotels as well as the technological solutions the industry had come to expect and respect.

Soon after the name change, Pegasus purchased a much larger company c alled REZsolutions. In the hotel industry, REZsolutions was the bigge st third-party marketing and reservations provider. Pegasus acquired REZsolutions for $198 million in cash and stock. The merger enhan ced Pegasus' technological capabilities and expanded the company's pr esence internationally.

As part of the purchase, Pegasus gained access to Utell, a company wi th a more global reach that was providing reservation services to mor e than 6,000 hotels. According to Hotel and Motel Management m agazine, as a result of the acquisition, "Pegasus emerges as the tota l-solution provider for reservations distribution, whether electronic or voice, for independent hotels as well as for worldwide chains." T he company grew from "two offices and 170 employees" to "39 offices i n 25 countries." Pegasus not only gained worldwide exposure, it would soon benefit from an experienced sales force and access to more inde pendent hotel brands. Travel Agent magazine called the compan y "the invisible hand behind every type of hotel booking."

Acquisition Fueling Global Expansion

Soon after the company's growth spurt, Pegasus made headlines for glo bal expansion into the travel industry businesses in the U.K. and Jap anese markets. In addition, Pegasus realigned its business operations into technology and hospitality divisions. The technology group incl uded information technology development, business intelligence, elect ronic distribution, application-server computing services, and centra l-reservation-system software licensing and integration. The hospital ity group included Pegasus Commission Processing (which had been HCC) and Hotel Representation Services.

The merger with the larger company was not a smooth one. Forbes I> magazine referred to REZsolutions as a "poorly managed hodgepodge. " "The group marketing independent hotels had no idea what the Web-ba sed central reservations systems for the likes of Hilton or Fairmont were up to. The marketing subsidiary, Utell, was positively obese: 2, 000 people in 39 offices across 25 countries, managing only 6,400 acc ounts and miserably at that."

Pegasus saw its stock fall to $7 a share, in contrast to the $ ;40 high enjoyed early the previous year. The company let go of sever al of REZsolutions' top executives and 100 employees of Utell while w orking to streamline operations. Pegasus continued its pioneering eff orts in developing and implementing new services for the industry.

Growing Recognition: Late 1990s and 2000s

Davis succeeded in getting the larger company back on track, so much so that Travel Agent magazine chose him again as one of its Pe ople of the Year in 2000, for "doing the same thing [that he had been recognized for in 1991] but on a larger scale." Davis's growing and frequent recognition in the industry was widespread. In 1999 Busin ess Travel News named him to its "Travel Industry Hall of Fame," and for five years in the 1990s it cited Davis as one of the t ravel business's "25 Most Influential Executives." In addition, in 19 98 Interactive Travel Report named him its "Person of the Year in Interactive Travel." Computerworld cited him as an "Agent of Change" in 1995. In 2001 Davis was inducted into the Hospitality and Financial and Technology Professionals International Technology H all of Fame

By 2001, what started out as the commission payment service, HCC, was proving to be a successful arm of the business. Pegasus was consolid ating $42 million each month in commission payments for customers in more than 200 countries, all done through an electronic network. The company was providing those services to nine out of the top ten t ravel agencies in the United States. In addition, Pegasus was involve d in 70 percent of all electronic hotel reservations generated throug h travel agents and the Internet.

According to a 2001 Dallas Business Journal article, Pe gasus' customers included nine of the world's largest hotel companies , with some 40,000 hotel properties. Pegasus also powered more than 1 ,000 web sites for securing hotel reservations. The business world re cognized Pegasus' strength in the business-to-business category. Forbes ASAP magazine included Pegasus in its list of "Best of the Web: Top B2B Websites" in September 2001.

Pegasus garnered additional attention from the mainstream business wo rld when Forbes magazine put the company on its 200 Best Small Companies list. Pegasus was the only company on the list whose busin ess was related to the hotel industry. According to the magazine, Peg asus was "a compilation of profitable, financially strong small-cap b usinesses." Within the industry, Pegasus' service was gaining recogni tion and faithful customers. The company's Utell Service was selected as the preferred provider of hotel rooms by nine out of the top 50 t ravel agencies in the United States. Utell represented independent ho tels around the globe.

2003: Acquiring Competitor Unirez

The company was not done growing. In late 2003 Pegasus Solutions acqu ired competitor Unirez for $38 million. Unirez was a leading hote l reservation distribution company that delivered lower cost connecti vity-only representation services to independent hotels and small gro ups. At the time, Unirez was a young company, just four years old, wi th annual sales of $18 million. Its success was partially due to its flexibility and easy-to-use format. With Unirez under its wing, P egasus could expand the reach of its hotel reservation service, Utell , with its primarily European customers. Formats of the two programs (Utell and Unirez) would eventually be integrated. According to Tr avel Agent magazine, the acquisition was expected to facilitate t he company's "growth in the United States customer base and enhance i ts technology offerings to small hotel chains and independents worldw ide."

In 2004 Pegasus was in the selling rather than buying mode. The compa ny sold its TravelWeb stake to Priceline.com, and extended its servic es agreement with TravelWeb through 2007. Pegasus also released a web -based property management system, PegasusCentral. Another reorganiza tion was in the works as Pegasus worked to integrate its technology a nd hospitality divisions into one.

By 2005 Pegasus Solutions was successfully expanding its presence in the Asia-Pacific region. The previous year it had brokered a deal wit h Ctrip, a leading Chinese online travel service provider. The deal w as for electronic distribution, and would help increase the company's business presence in China. Pegasus soon opened an office in central Beijing. At the time Pegasus also had offices in Singapore, Tokyo, a nd Sydney.

The company received additional industry recognition for its growth a nd success. Accounting firm Deloitte and Touche listed Pegasus Soluti ons in its prestigious Technology Fast 500 honor roll, indicating it was among North America's fastest growing technology companies. It wa s the fourth year in a row Pegasus had made that list. The company's RezView central reservation system received a World Travel Award in 2 005 for the third consecutive year as the "World's Leading Hotel Rese rvation Service."

2005: Exploring Strategic Options

Despite the kudos, the company continued to face increased pressure f rom similar services including Expedia.com. In mid-2005 Pegasus leade rs began to explore corporate strategic options as many of the compan y's competitors were increasing their reach and scope with acquisitio ns of other related businesses such as Orbitz and Hotwire. Breaking u p the company was a possibility; there were some companies interested in acquiring all or part of Pegasus Solutions.

But Pegasus was still in a growth mode. The company reentered the con sumer market by establishing Hotelbook.com, a consumer site linking o nline customers to a cache of some 5,000, mostly independent hotels, with descriptions of their attributes and amenities as well as detail ed information about general travel destinations. The company also ha d plans to launch a similar site targeted toward consumers of high-en d, five star hotels. Pegasus also announced it was getting out of the property management system (PMS) business and sold its NovaPlus and Guestview businesses to competitor MSI.

Being a pioneer and innovator in the travel and hotel industry had ke pt Pegasus Solutions on the cutting edge of the industry since its in ception. What started out as the original switch technology, now conn ected more than 40,000 hotels worldwide to global distribution system s. Under Davis's leadership, Pegasus Solutions had exerted a major im pact on the travel and hotel industry. The future of the company and the industry appeared promising since online hotel booking was still a booming business, with no signs of waning.

Principal Subsidiaries: Utell; Unirez.

Principal Competitors: IAC/Interactive Corp. (Expedia); Sabre Holdings Corp. (Travelocity); Cendant Corporation (Orbitz).

Chronology

• Key Dates:
• 1989: Company is founded as THISCO, The Hotel Industry Switch Company.
• 1992: THISCO CEO creates Hotel Clearing Corporation (HCC).
• 1994: TravelWeb is launched as the first online site for real- time hotel reservations.
• 1995: Pegasus Systems is created as parent company of THISCO, HCC, and TravelWeb.
• 1997: Pegasus Systems goes public.
• 2000: Pegasus Systems acquires REZsolutions and becomes Pegasu s Solutions.
• 2001: Pegasus Solutions purchases GETS, LLC.
• 2003: Pegasus Solutions acquires Unirez.
• 2004: Pegasus Solutions sells TravelWeb stake to Priceline.com .
• 2005: Pegasus Solutions opens an office in Beijing; launches H otelbook.com.