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Trans World Airlines (TWA) and American Airlines announced a set of deals Wednesday morning that, if approved, would reshape the airline industry and put the future earnings of a premiere online travel site into a court’s hands. TWA filed for bankruptcy Wednesday and accepted American’s takeover offer of $500 million and the assumption of $3 billion in aircraft-operating leases. But amid the takeover plans, American also would inherit TWA’s longtime thorn in the side, Lowestfare.com. Ranked the 11th-most popular travel site in November by Media Metrix, Lowestfare sells discount airline tickets, hotel rooms, car rentals and other services at a markdown, with a large chunk of its business coming from discounted TWA tickets. American officials said Wednesday that they will not honor the contract that gives Lowestfare’s founder, billionaire financier Carl Icahn, those low-cost TWA tickets, likely setting the stage for a legal battle between the two companies. “We are not interested in acquiring that contract,” says American CEO Don Carty. American CFO Tom Horton adds: “Carl Icahn will be just another contract to be reviewed in the context of bankruptcy. My understanding is that under bankruptcy law, all contracts are voidable.” Lowestfare boasts one of the most bizarre stories in Net history. Icahn, the famed 1980s corporate raider who headed TWA from 1986 to 1993, used his exit from TWA as an opportunity to start another travel company, Global Discount Travel Services. To settle an outstanding loan of $190 million from Icahn, TWA gave him the right to buy $610 million in tickets at 40 percent less than their face value and other tickets not subject to a cap at 55 percent off the published fare, through September 2003. Icahn created Global Discount in 1995 to sell the marked-down tickets primarily through a toll-free phone number. Then in 1996, he ventured onto the Net with Lowestfare, another outlet to peddle the discount tickets. TWA has been fighting the agreement ever since. The airline lost one suit on appeal and is currently embroiled in another suit in Las Vegas over whether TWA interfered with Lowestfare’s IPO, which was abandoned last year. TWA’s agreement with Icahn includes a clause prohibiting TWA from seeking to dissolve the agreement or support such efforts by another party if TWA declares bankruptcy, as it is doing in the American deal. One option for American, which was never available to the cash-strapped TWA, could be to buy Icahn out. “If nothing else, American will pay him to get out of it,” says Mike Boyd, president of The Boyd Group, an aviation research firm in Evergreen, Colo. “I’m sure American wouldn’t want to deal with the likes of him.” Icahn is held in low esteem by many in the travel business who believe that Lowestfare helped sink TWA. “He’s buying tickets at 55 cents to the dollar,” he says. “[TWA has] to match his fares.” “It’s a bad deal,” says Jenkins. “It takes the control of your inventory away from you because you’re never sure where those tickets are going or what price they are charged.” American already has invested in two other discount-airline Web sites, Hotwire.com and the still-to-be-launched Orbitz. It’s unlikely American would be interested in distributing tickets to another site, such as Lowestfare, that it has no stake in. Icahn declined to be interviewed but has insisted in the past that Lowestfare has helped TWA by feeding it revenues from its discount-ticket sales. One thing is certain: Losing the TWA agreement would be a dramatic turn against Lowestfare’s winning streak. TWA airline ticket sales made up 96 percent of the company’s revenues in the first quarter of 1999, according to a Securities and Exchange Commission filing. Since then, Lowestfare has expanded into cruise lines and tour packages, which are the fastest growing portion of sales, according to spokesman David Lovely. He declined to name how much of the company’s revenues come from TWA tickets, but said they no longer make up the majority of Lowestfare’s ticket sales. Despite Lowestfare’s reliance on TWA, Henry Harteveld, a senior analyst who covers travel for Forrester Research (FORR) , still doubts that losing the TWA deal would spell the end of the resilient Internet company. It already has managed to build on its TWA agreement to snag tickets from other airlines such as Northwest and Virgin Atlantic Airways. “I wouldn’t be so quick to pull the plug on Lowestfare,” concludes Harteveldt. But “it will be a challenge to them.” Related Articles from The Industry Standard: Airlines to Fight for Cheap Seats Online Everyone’s a Travel Agent Barbarians on the Net Copyright � 2001 The Industry Standard

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