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Leading analyst and top management from nine sector firms examine the online travel sector in this special 37-page report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info558.htm.

TWST: Moving on to the hospitality segment of your coverage, first of all, how have the stocks in this group performed over the past six to 12 months?

Mr. Fuller: Surprisingly well. From September 10 to now, the hotel stocks are up by about 20% versus a gain for the S&P of less than 2%.

TWST: What would you attribute this to?

Mr. Fuller: There are a couple of factors. First, the stocks took a big hit following the attacks and we all had pretty dire expectations about the potential impact on demand. While demand has been depressed, the reality has been much better than the market had anticipated. So we attribute much of the recent performance to a closing of the gap between expectations and reality. We have been surprised by the pace of recovery in the hotel industry. The key metric we watch to assess the health of the industry is RevPAR. RevPAR has bounced back to about 90% plus of year-ago levels. Looking ahead, the market is also anticipating a deceleration in supply growth, even as demand continues to recover with the economy, a scenario that should allow hoteliers to drive room rates up. Hotel companies are highly leveraged to room rates and any increase in rates above and beyond expectations would have a meaningful impact on profits.

TWST: Last year, even before the events of September 11, we were hearing a great deal about the decline in business travel. Is that not being reflected in the results for the hotels?

Mr. Fuller: That has clearly been one of the bigger issues facing the group. Leisure travel has snapped back a lot more rapidly than corporate travel in the wake of the attacks. I do not expect corporate travel to rebound until corporate profits improve. Our firm’s economic forecasts suggest that profits should improve sequentially throughout the year, which should in turn stimulate business travel.

TWST: Tell us something about Extended Stay America. Isn’t it a rather different animal?

Mr. Fuller: Yes. When Extended Stay America (NYSE:ESA) went public it was a new concept in the hotel industry. It was going after a guest who was seeking accommodations for several weeks, not nights. The company targets government workers, temporary laborers and a wide range of others. Because the company has a guest for a lot longer than a typical low-end hotel, it does not have to offer the same level of service, and therefore derives superior profits. The unexpected result of that unique customer mix, however, has been sharper declines in RevPAR than has been the experience in the low end of the industry more broadly. Because the company relies to a greater extent than other economy chains on business travel, we also expect that it will lag the industry recovery.

TWST: Jake, what kind of time frame should an investor have, as a general rule, when they buy hotel stocks?

Mr. Fuller: Remember, these stocks have significantly outperformed the market, so I would argue that performance could be volatile in the short term. So an investor should be willing to hold these stocks for a year or more.

This special report includes:

1) Online Travel Retailers - In an in-depth (2,200 words) Analyst Interview, Jake Fuller, Hospitality Research Analyst covering the lodging, online travel and travel distribution groups at Thomas Weisel Partners, examines the outlook for the sector and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of nine sector firms examine the outlook for their firm and the sector.