Future uncertain for Vegas company after TWA ruling

The future of Carl Icahn's Las Vegas Internet travel-booking company Lowestfare.com was up in the air today as Icahn appealed a judge's decision canceling Lowestfare's lucrative ticket deal with TWA and as Icahn sued American Airlines for interfering with the deal.

One scenario for Lowestfare, as outlined in a court deposition by Icahn, would be to link it with another airline Icahn would buy or start up.

But aviation experts said they would be surprised to see the billionaire investor Icahn attempt to acquire or start up an airline just to provide seats for Lowestfare.com.

"It would be like ordering an entree because you want one of the vegetables," said Henry Harteveldt, a senior analyst for Forrester Research, Cambridge, Mass., a company that studies Internet commerce.

Harteveldt said he was surprised that Icahn would say in the court deposition that he was interested in acquiring or investing in an airline for the purpose of providing discount seats on the Internet site hosted by Lowestfare.

Experts say the statement may have been an effort by Icahn to convince a U.S. Bankruptcy Court judge to consider his bid to acquire TWA for $1.1 billion and to keep the deal in which Icahn buys TWA tickets at a discount and then re-sells them at a profit.

"The deal between TWA and Lowestfare is part of a settlement that got him out of TWA," Harteveldt said. "It's Mr. Icahn's ransom money. And, frankly, it's why TWA is in as precarious a position as it is now."

The Icahn deposition suggesting the acquisition of an airline to provide seats to Lowestfare set off a round of speculation centered around another Las Vegas company, National Airlines, which is operating under Chapter 11 bankruptcy protection.

National officials say they weren't surprised by the speculation. After all, Icahn and National's chief executive officer, Michael Conway, have known each other for years, going back to when Icahn was the head of TWA and Conway was the top executive at America West Airlines.

A spokesman for National repeated this week that the company won't make any comments about speculation or make an announcement about investors until a deal is sealed.

Now that Lowestfare is on the verge of losing a large chunk of its inventory -- one industry expert said 70 percent of Lowestfare's tickets are on TWA flights -- what's in store for the company?

The company, whose executives are based in New York, has not commented on Icahn's strategy.

Lowestfare, formerly known as Global Discount Travel Services LLC, has agreements with more than 800 travel agents, airlines, resort companies, car rental agencies and cruise lines. A year ago, the company reported it had 530 employees based in Las Vegas.

The company's Internet site offers tickets on several airlines, including United, America West, Northwest, American, Delta, Frontier and National. It also sells hotel rooms in nearly 100 U.S. cities.

The company has relationships with international airlines that allow it to offer inexpensive overseas travel. For example, it currently offers round-trip flights on Alitalia Airlines between New York and Frankfurt, Germany, for $391.

In Las Vegas, it sells rooms at a variety of resorts, including Icahn's Stratosphere hotel-casino, and most of the city's major properties. It also sells tours to Hoover Dam and the Grand Canyon and wedding chapel packages.

Forrester Research's Harteveldt believes Icahn's best option is either to develop new relationships with airlines to build the company's inventory of seats, sell the company or develop an alliance and possibly merge with another tour-consolidating company.

"He's in a very, very tough, precarious position," Harteveldt said. "The company is going to have to scramble to fill the void. He's already taken some steps to address that."

He was referring to deals Lowestfare.com announced in late 1999 in which it acquired Maupintour, Lawrence, Kan., and Los Angeles-based Jetset Tours Inc. Maupintour, a 49-year-old company, operated MaupinTrek, which offered action tours like whitewater rafting, mountain biking and safari camping. Jetset had two divisions, one of which was a wholesale distributor of airline tickets.

Harteveldt said he doubts Icahn will be able to negotiate with other airlines to get the kind of deal he had with TWA. The low overhead enabled Lowestfare to advertise extensively on the Internet in the last year and develop into a formidable competitor in the industry.

That may make it attractive to companies like Travelocity, Expedia or American Express, which could be interested in acquiring Lowestfare, Harteveldt said,

Or, Lowestfare could acquire a company like Hotwire, a small competitor to Priceline.com, and attempt to become a household name in the name-your-own-price ticket sale market.

Tom Underwood, vice president of equity research for Legg Mason's office in Reston, Va., concurred that Icahn could be looking at options to be more competitive that could include acquisitions. But he, too, doesn't see an airline acquisition as part of the equation.

Besides, Underwood said, Icahn shouldn't be counted out on the appeal process just yet. His bid for TWA was greater than the one offered by American and the American deal must still pass the scrutiny of the Justice Department and the U.S. Department of Transportation.

"I heard him (Icahn) talk in Phoenix late last year and based on what he said, I don't see him trying to get another airline," he said. "I expect he'll fight pretty hard in his appeal on the TWA deal, though. I think it's premature to say the deal has fallen through, and there still is the antitrust scrutiny."

Assuming that the deal does go ahead, representatives of TWA and American have said they would gradually phase out the TWA brand.

A Las Vegas aviation expert says the transaction won't have a big impact on operations at McCarran International Airport here because TWA has such a small presence here.

The airline currently offers five daily round-trip flights between Las Vegas and St. Louis.

"It's kind of sad for me, because my first job in aviation was with TWA," said Harry Kassap, McCarran's manager of air service development. "But it will have minimal impact here. As far as the routes are concerned, I would expect they (American) would keep the St. Louis flights and there might be an opportunity for them to be a more formidable presence on routes between Las Vegas and JFK (New York's John F. Kennedy International Airport)."

TWA is the only airline that offers daily nonstop service between Las Vegas and St. Louis. Southwest Airlines offers one nonstop round trip a week to and from St. Louis.

In the last year, the airline cut its nonstop flights between New York and Las Vegas in the face of increased competition from America West and National airlines in that market.

American recently went through a Las Vegas downsizing after acquiring the assets of Reno Air. It currently has 24 daily flights to and from Las Vegas, serving the markets of Chicago, Dallas, Los Angeles and San Jose, Calif.

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