Can These Two Companies Fly Higher?

Barton: Initially, I would have described our customers as adventurous, control-oriented people who resembled customers of Charles Schwab. But now the appeal has widened so much that it's difficult to distinguish our travelers from the overall base. Fifty-nine million Americans used the Internet to research travel last year -- that's fast approaching the number of people who actually took trips.

Jones: We serve leisure travelers who take approximately two and a half trips each year. They make between $60,000 and $70,000 each year, and they're concerned about value.

What have you learned in the past six months?

Barton: Discounted vacation packages have been a tough sell online -- most likely because they don't offer any advantage from a usability perspective. We launched a product recently that we think really changes the game. The components are totally flexible, so you can build the air, car, and hotel pieces of the package one bit at a time. We're in a better position now to offer a customer fries and a Coke with that burger; we can do the Happy Meal thing. So far, the results have exceeded our expectations.

Jones: We experienced nearly 30% growth in our advertising from the third to the fourth quarter last year, and we expect similar growth this year. Vendors are beginning to understand that point-of-sale advertising does work on the Web. Convention bureaus spend money on print, TV, radio, and brochure advertising. But most people don't look for travel advice in any of those media today; they turn to the Web. Our targeting capability is 100 times better than any magazine, and we're doing a better job of integrating those offerings for advertisers.

What do you still not know how to do that frustrates you?

Barton: I want to use the Internet to reach every travel supplier on Earth. There are probably 20 million of them. The question is, How do we bring those suppliers to our marketplace in an effective, personalized manner? That solution is still a long way off.

Jones: Surveys show that privacy and security still play heavily into the decision consumers make not to shop online. Considering the safety of Web shopping today, that statistic has become one of those great mysteries of life for me.

Also, I saw how much money my wife and daughter spent before departing on an Italian vacation recently. I'd like Travelocity to get a piece of that ancillary market.

Is a weakening economy good or bad for online agencies?

Barton: On the negative side, people certainly spend less on travel if they have less money -- or even if they think that they have less money. However, some people might argue that during a recession, people want more diversions from the gloom and doom. On the positive side, we're doing a lot of wholesaling on our own now, taking empty seats or rooms and selling them at a low price that's exclusive to our site. We're more likely to have more of those offerings in an economy that is going sour.

Jones: We're still at a 4.3% unemployment rate, and the people who are working will still go on vacation. Maybe the people who went to Paris last year will go to Vegas this year, and the people who went to Vegas will drive to the lake. But if people are looking for bargains, they're going to come to us.

What's your biggest competitive threat right now? Airlines that are trying to drop commissions to zero? Orbitz, the long-delayed online booking engine being launched by the airlines?

Barton: The greatest threats are always the ones that don't exist yet, and Orbitz falls into that category. We think about those threats quite a bit. But because we're not just in the business of booking airline tickets and because we have a pretty good track record, we feel that we're prepared to withstand those threats. The government can and will do a good job keeping the playing field level so that we're all well equipped to compete.

Jones: I hope that the Internet remains a popular shopping channel. As the irrational dotcom exuberance wore off, so many good things about online shopping were suddenly labeled as "bad." Our competition is the telephone. Still, we're going to be profitable in the second quarter of this year. So what does that say about our upside potential? It says that the potential is huge. We're running an exceptionally large store that is full of shoppers.