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Pegasus Solutions Launches New Service for Tour Operators, Online Net Rate Merchants and Travel Wholesalers

26 June 2002

Pegasus Solutions, Inc. (Nasdaq: PEGS) introduced its newest technology service for the travel industry today at HITEC 2002 in Chicago. Continuing its track record of developing innovative technology solutions to solve worldwide travel industry problems and inefficiencies, Pegasus has launched PegsPay(SM), an ASP-based service for travel businesses that operate under the merchant model. Dallas-based Pegasus Solutions is a leading provider of hotel industry transaction processing solutions and electronic commerce services. 

The first of its kind, PegsPay automates the exchange of funds and incentives between travel distributors such as tour operators, online net rate providers, consolidators and wholesalers, and any type of travel supplier, including hotels, rental cars, airlines, railways and cruise lines. PegsPay is designed for travel distributors that employ the merchant model. PegsPay eases the process for both the travel distributor and the travel supplier, providing confidence that the financial transactions supporting their relationship will be complete, dependable and supported by quality service and information.

"The net rate merchant model is a very successful business model, but its current methods of operation are highly labor intensive, with little or no automation," said John F. Davis III, chairman and chief executive officer of Pegasus Solutions. "With the recent proliferation and success of online net rate providers, such as Travelweb LLC (formerly HDS LLC) and Priceline, it became clear that the administrative problems surrounding quick, accurate and efficient payments to travel suppliers for travel inventory has grown to become an industry-wide issue. 

It's an issue that traditional tour operators have faced for many years, but it has now escalated due to the growth of travel purchasing over the Internet."  

"Once again, we saw an opportunity to bring our unique payment clearing expertise to help solve an industry problem," Davis continued. "After studying the problem and speaking with travel distributors, we realized how similar their issues were to those previously faced by hoteliers prior to the launch of our Pegasus Commission Processing service. In the same way that Pegasus Commission Processing collects and pays commissions to travel agents from hoteliers, PegsPay similarly collects and clears the net rate payments from the travel distributor or merchant (online discount travel seller) to the travel supplier. We created PegsPay by leveraging the technology and infrastructure of the highly successful Pegasus Commission Processing service we launched more than 10 years ago."

Under the merchant model, travel distributors, such as tour operators and online net rate providers, obtain travel inventory (hotel rooms, rental cars, airline tickets, other package components, etc.) from travel suppliers at a negotiated rate, mark it up, and re-sell it to consumers either directly or through an affiliate. The travel distributor is then obligated to pay the travel supplier that provided the inventory. Without PegsPay, the travel supplier must manually track the inventory that has been sold by various distributors on their behalf and must try to collect the revenues due to them from the distributor in a timely manner. Today, the travel supplier typically either invoices the travel distributor, which is administratively burdensome and expensive, or charges a credit card provided by the distributor, which incurs additional costs for the supplier due to credit card fees. 

According to Jeff Bzdawka, senior vice president of Pegasus Financial Services, "As a result of existing processes, the travel merchant typically receives thousands of individual invoices and credit card bills from its suppliers. One online travel merchant reported that by month end, its invoices and bills typically create stacks several feet high. Another online discount travel site reported that it recently had to increase its accounting department by eight people to handle the huge accounts receivables and payables burden that the growth in Internet bookings has created."  

Another payment transaction generated by many merchants that will also benefit from an automated solution occurs when a net rate travel distributor sells travel products or inventory through agents or online affiliate sites. For example, the new online hotel merchant Travelweb distributes its net rate hotel rooms through the Orbitz travel Web site. In this case, the travel distributor must also compensate its affiliate for securing the reservation. PegsPay also automates this time-consuming payment transaction.

"PegsPay automates each of these labor intensive processes, while providing additional value to both sides in the form of customer service assistance, reconciliation support, and valuable management information," Bzdawka said. 

While PegsPay definitely benefits the distributor's travel suppliers and affiliates, the travel distributor pays for the service via a transaction fee. The new service allows the travel distributor to pay each travel supplier via one consolidated payment in the travel supplier's choice of currency and in the manner in which the supplier wishes to get paid (e.g., check or direct deposit). Additionally, the travel supplier receives detailed reservation reporting that allows them to better manage their net rate distribution programs. 

The service is being marketed to travel merchants and distributors worldwide. "With the abundance of tour operators and packagers in Europe, we see a huge potential there for PegsPay," Bzdawka said. "As a testament to the great industry need for this type of solution, we've already received numerous inquiries about the service since announcing our agreement with Travelweb last week."

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