Competitor: D Soskins, Entrepreneur and Cheapflights takes wing - at 23p a click

Full article: Not all online travel businesses are hitting turbulence, writes Edward Simpkins

It has been a bleak few months for the online travel industry. Despite an upturn in confidence in the tourism trade - which has seen travellers returning in numbers not seen since before the September 11 terrorist attacks in 2001 - leading online firms have disappointed.

However, one company, Cheapflights, appears to be booming. David Soskin, the chief executive, says the internet travel company is profitable, has margins of at least 25 per cent and has doubled its turnover in the past year.

In contrast, the big names in online travel are facing huge challenges. Shares in lastminute.com have tumbled by more than 60 per cent since January after a shock profits warning last month. Third-quarter losses jumped to £17m from £12.1m a year ago, contributing to a £56.5m loss for the nine months to the end of June. Meanwhile, ebookers' shares have dived by a third as the company has been plagued by six profits warnings in the past 18 months.

Last week, InterContinental Hotels Group, one of the world's biggest hotel operators, spooked the online market even further when it severed its ties with Expedia, the US travel website.

InterContinental's action is the latest sign of the increasingly strained relationship between the hotel industry and the online travel agents. The online sites may have performed a useful function reselling rooms at discount prices in the downturn, but now that visitors are back, the hotel groups want them to book direct and pay higher prices.

So how has Cheapflights, launched in 1998, managed to avoid the turbulence?

Soskin's business model is different. Cheapflights runs price comparison websites for flights, accommodation and holiday packages. The websites update prices several times a day, allowing travellers to compare prices for flights, packages and accommodation. Unlike online travel agents which sell travel products direct, Cheapflights is paid a fee every time a user clicks on a price and gets taken to the supplier's website. The fee can be small - currently 23p for a flight to New York - but the volumes are high.

This year Cheapflights expects to sell travel products worth £525m through its websites. It now has more than 2m unique users each month, has projected turnover of £8m for this year (compared with £4.3m last year) and sets its margins at 25 to 30 per cent.

"We are like the Google of travel," Soskin says, "We are a one-stop shop where consumers can compare and contrast deals from a very wide range of suppliers."

And he claims the company is popular with travel product providers. "It is direct marketing on steroids, it is the cheapest advertising they are going to get." He says the conversion rate on clickthroughs from the site is around one in four, so an airline such as British Airways could spend less than £1 to sell a flight to New York.

The problem for ebookers, Travelocity and Lastminute is that the old-fashioned travel industry, including tour operators such as TUI, which owns Thomson Holidays, and Thomas Cook, has now become more sophisticated in how it uses the internet.

"The airlines and hotel groups want to go direct and they are offering better prices," Soskin says. "So why would customers want to go to an online agent? It is a huge strategic problem for them.

"They got it right that the internet was going to be the fastest growing media in history and that travel was going to be a killer application. The one thing they didn't realise was that any industry growing at an exponential rate creates the honeypot effect: everyone wants to get into it."

Soskin says owning the cheapflights.com and cheapflights.co.uk web addresses is a big advantage - it is one of the most used search terms on the internet - but argues the company would not be a success if its website did not meet customers' needs.

The company was founded in 1996 by John Hatt, then the travel editor of Harpers & Queen. "His genius was to work out that there is a better application for the internet than retailing and selling. That is the provision of information."

Soskin points out that the world's two largest internet companies by market value, eBay and Yahoo, are information providers, while Amazon, the world's largest online retailer, is just half their size.

In 1999, Soskin, who was then the global head of media at ABN Amro, the investment bank, became interested in buying an internet company after discussing the opportunities at a Harvard business school reunion.

He eventually stumbled on cheapflights.co.uk, which unlike other internet start-ups had made money from the outset. He admits to paying a top-of-the-market price for the business, which he is not keen to disclose, and funded the deal with other private investors.

Soskin already had experience as an entrepreneur. In 1989 he founded Asquith Court, a chain of upmarket nursery schools, after reading about the success of an equivalent company in the US. He sold the business for £66m in 2001.

Soskin and his other shareholders have no plans to sell Cheapflights just yet. The company has only just launched in the US (cheapflights.com) while its package holidays (cheapholidaydeals .co.uk) and accommodation (cheapaccommodation.com) websites are growing rapidly.

"This is not the endgame. The company is eight years old but we are just beginning - we are in a position to build something huge."