<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended June 30, 2001

                                      or

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from _______________ to ______________

                       Commission file number: 000-25279


                              CHEAP TICKETS, INC.
            (Exact name of registrant as specified in its charter)

                  Delaware                           99-0338363
        (State or other jurisdiction             (I.R.S. Employer
             of incorporation)                   Identification No.)


     1440 Kapiolani Blvd., Honolulu, Hawaii               96814
    (Address of principal executive offices)            (Zip Code)

                                (808) 945-7439
             (Registrant's telephone number, including area code)

             (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No

As of August 13, 2001, the Registrant had 24,336,701 shares of Common Stock,
$.001 par value per share, outstanding.

<PAGE>

                                     INDEX

                                                                            Page
                                                                            ----
PART I   FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements (unaudited).....................   3

         - Consolidated balance sheets at December 31, 2000 and June 30,
           2001............................................................   3

         - Consolidated statements of operations for the three and six
           months ended June 30, 2000 and 2001.............................   4

         - Consolidated statement of stockholders' equity for the
           six months ended June 30, 2001..................................   5

         - Consolidated statements of cash flows for the six
           months ended June 30, 2000 and 2001.............................   6

         - Notes to consolidated financial statements......................   7

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations.....................   9

Item 3.  Quantitative and Qualitative
         Disclosure about Market Risk......................................  15

PART II  OTHER INFORMATION.................................................  15

Item 1.  Legal Proceedings.................................................  15

Item 2.  Changes in Securities and Use of Proceeds.........................  15

Item 3.  Defaults Upon Senior Securities...................................  15

Item 4.  Submission of Matters to a Vote of Security Holders...............  15

Item 5.  Other Information.................................................  15

Item 6.  Exhibits and Reports on Form 8-K..................................  16

         SIGNATURES........................................................  16

                                       2
<PAGE>

All historical financial information contained in this Quarterly Report on Form
10-Q has been restated to comply with recently issued accounting standards as
discussed on page 7 (see Note 1 to the Notes to Consolidated Financial
Statements).

                                    PART I
                             FINANCIAL INFORMATION

Item 1.  CONSOLIDATED FINANCIAL STATEMENTS

                              CHEAP TICKETS, INC.
                          CONSOLIDATED BALANCE SHEETS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                December 31,      June 30,
                                                                    2000            2001
                                                                -----------    -------------
                                                                                (unaudited)
<S>                                                             <C>            <C>
                          ASSETS
Current Assets:
        Cash and cash equivalents                                  $ 40,325         $ 47,253
        Marketable securities                                       100,485          101,662
        Trade accounts and other receivables                          6,995            9,581
        Refundable income taxes                                         659              884
        Contract acquisition costs                                        -              886
        Ticket inventories                                              464              238
        Other current assets                                          2,119            3,059
                                                                   --------         --------
               Total current assets                                 151,047          163,563
Property and equipment, net                                          13,571           18,450
Contract acquisition costs                                                -            2,458
Other assets                                                          1,867            1,594
                                                                   --------         --------
                                                                   $166,485         $186,065
                                                                   ========         ========
        LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
        Accounts payable                                           $  7,358         $ 21,052
        Accrued salaries                                              1,596            1,750
        Accrued vacation                                                680              870
        Accrued expenses and other liabilities                          837            1,328
        Current installments of long-term debt                           26               31
        Current installments of capital lease obligations             1,415            1,206
        Deferred revenue, current                                       400              400
                                                                   --------         --------
               Total current liabilities                             12,312           26,637
Long-term debt, excluding current installments                          491              474
Capital lease obligations, excluding current installments             1,961            1,468
Deferred revenue, noncurrent                                            800              600
Other noncurrent liabilities                                            126              211
                                                                   --------         --------
               Total liabilities                                     15,690           29,390

Stockholders' Equity:
Preferred stock, $0.01 par value as of December 31, 2000 and
 June 30, 2001.  Authorized 10,000 shares; Issued and
 Outstanding none at December 31, 2000 and June 30, 2001.                  -               -
Common stock, $.001 par value.  Authorized 70,000 shares;                 24              24
 Issued and outstanding 24,250 shares at December 31, 2000 and
 24,322 shares at June 30, 2001.
Additional paid-in capital                                          145,874          149,277
Unearned compensation                                                   (83)              (7)
Retained earnings                                                    19,720           22,121
Treasury stock, at cost-1,037 common shares at December 31,
 2000 and June 30, 2001                                             (14,740)         (14,740)
                                                                   --------         --------
               Total stockholders' equity                           150,795          156,675
                                                                   --------         --------
                                                                   $166,485         $186,065
                                                                   ========         ========
</TABLE>
              The accompanying notes are an integral part of the
                      consolidated financial statements.

                                       3
<PAGE>

                              CHEAP TICKETS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except for per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                Three months ended     Six months ended
                                                      June 30,              June 30,
                                                ------------------    ------------------
                                                  2000      2001        2000       2001
                                                --------  --------    --------   -------
<S>                                             <C>       <C>         <C>        <C>
Revenue:
Non-published fares                             $ 17,233  $ 13,727    $ 30,145   $26,257
Commissions and bonuses                            8,763    11,936      15,025    21,953
Service fees and other                             3,583     2,838       5,640     5,165
                                                --------  --------    --------   -------
    Total revenue                                 29,579    28,501      50,810    53,375
Cost of sales                                      2,247     2,087       4,054     4,045
                                                --------  --------    --------   -------
Gross profit                                      27,332    26,414      46,756    49,330
Selling, general and administrative expenses      21,405    26,411      38,889    49,588
                                                --------  --------    --------   -------
Net operating income (loss)                        5,927         3       7,867      (258)
Other income (deductions):
    Interest and dividend income                   2,270     1,841       4,333     3,987
    Interest expense                                 (97)      (68)       (202)     (144)
    Other, net                                      (132)       53        (175)       38
                                                --------  --------    --------   -------
Earnings before income taxes                       7,968     1,829      11,823     3,623
Income taxes                                       3,069       608       4,611     1,222
                                                --------  --------    --------   -------
Net earnings                                    $  4,899  $  1,221    $  7,212   $ 2,401
                                                ========  ========    ========   =======
Income available to common shares               $  4,899  $  1,221    $  7,212   $ 2,401
                                                ========  ========    ========   =======
Basic earnings per common share                 $   0.21  $   0.05    $   0.31   $  0.10
                                                ========  ========    ========   =======
Average common shares outstanding                 23,171    23,254      23,137    23,243
                                                ========  ========    ========   =======
Diluted earnings per common share               $   0.21  $   0.05    $   0.31   $  0.10
                                                ========  ========    ========   =======
Average diluted common shares outstanding         23,542    23,796      23,561    23,646
                                                ========  ========    ========   =======

</TABLE>
              The accompanying notes are an integral part of the
                      consolidated financial statements.

                                       4
<PAGE>

                              CHEAP TICKETS, INC.
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                Additional                                               Total
                                                 Common          Paid-In      Unearned        Retained    Treasury    Stockholders'
                                                  Stock          Capital     Compensation     Earnings      Stock       Equity
                                             ----------------   ---------    -----------     ---------    --------    -----------
                                              Shares   Amount
                                             -------   ------
<S>                                          <C>       <C>      <C>          <C>             <C>          <C>         <C>
Balance, December 31, 2000                    24,250   $   24   $ 145,874    $      (83)     $  19,720    $(14,740)   $   150,795

Net earnings                                      -        -           -             -           2,401          -           2,401

Exercise of stock options                         68       -           22            -              -           -              22

Income tax benefit of stock option                -        -           76            -              -           -              76
  compensation

Amortization and forfeiture of stock option       -        -           -             76             -           -              76
  compensation

Write-off of stock options                        -        -          (78)            -             -           -             (78)

Issuance of stock for BOD compensation            4        -           37             -             -           -              37

Issuance of stock warrants to Delta               -        -        3,346             -             -           -           3,346
                                             ------    ------   ---------    -----------     ---------    --------    -----------
Balance, June 30, 2001                       24,322    $   24   $ 149,277    $       (7)     $  22,121    $(14,740)   $   156,675
                                             ======    ======   =========    ===========     =========    ========    ===========
</TABLE>

              The accompanying notes are an integral part of the
                      consolidated financial statements.

                                       5
<PAGE>

                              CHEAP TICKETS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                     Six months ended
                                                                          June 30,
                                                                    ------------------
                                                                      2000       2001
                                                                    -------    -------
<S>                                                                 <C>        <C>
Cash flows from operating activities:
   Net earnings                                                     $ 7,212    $ 2,401
   Adjustments to reconcile net earnings to net cash provided
   by operating activities:
      Deferred income taxes                                               -       (207)
      Depreciation and amortization                                   1,226      1,480
      Stock option compensation                                          21         (2)
      Amortization of discount on marketable securities                (151)      (171)
      Amortization of contract acquisition costs                          -        117
      Loss on sale or disposal of property and equipment                134         63
      Loss/(gain) on sale of marketable securities                       68        (80)
      Changes in:
        Trade accounts and other receivables                         (2,006)    (2,586)
        Refundable income taxes                                         356       (149)
        Ticket inventories                                              (82)       227
        Other current assets                                              1       (646)
        Other noncurrent assets                                        (138)       272
        Accounts payable                                             11,418     13,528
        Accrued salaries                                               (623)       154
        Accrued vacation                                                 80        190
        Income taxes payable                                          1,162          -
        Accrued expenses and other liabilities                          205        490
        Deferred revenue                                               (200)      (200)
        Other noncurrent liabilities                                    (16)        (3)
                                                                    -------    -------
           Net cash provided by operating activities                 18,667     14,878

Cash flows from investing activities:
      Capital expenditures                                             (779)    (6,257)
      Proceeds from sale of property and equipment                      105          -
      Purchase of marketable securities                             (75,449)   (82,192)
      Proceeds from sale of marketable securities                    80,254     81,267
                                                                    -------    -------
           Net cash provided by (used in) investing activities        4,131     (7,182)

Cash flows from financing activities:
      Proceeds from issuance of common stock, net of expenses paid       79         60
      Principal payments on long-term debt                             (121)       (13)
      Stock warrant issuance costs                                        -       (114)
      Principal payments on capital lease obligations                  (712)      (701)
                                                                    -------    -------
           Net cash used in financing activities                       (754)      (768)

           Net increase in cash                                      22,044      6,928

Cash and cash equivalents at beginning of period                     40,718     40,325
                                                                    -------    -------
Cash and cash equivalents at end of period                          $62,762    $47,253
                                                                    =======    =======
Supplemental cash flow information:
 Cash paid for:
  Interest                                                              202        144
  Income taxes                                                        3,093      1,225
Noncash investing and financing activities:
 Issuance of common stock warrant in connection with Delta
  contract acquisition                                                    -      3,460
 Stock option disqualifying disposition                                   -         76
</TABLE>

              The accompanying notes are an integral part of the
                      consolidated financial statements.

                                       6
<PAGE>

                              CHEAP TICKETS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Cheap Tickets,
Inc. ("Cheap Tickets") have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission and reflect all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation for the periods reported. Certain information and note disclosures
normally included in annual consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules or regulations, although management believes
that the disclosures made are adequate to make the information presented not
misleading.

These consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2000 and the
notes thereto included in Cheap Tickets' Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities and Exchange Commission. The
results of operations for the three and six months ended June 30, 2001 are not
necessarily indicative of results expected for the full fiscal year or for any
future period.

Principles of Consolidation

The consolidated financial statements include the accounts of Cheap Tickets and
its wholly-owned subsidiary. All significant intercompany transactions have been
eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change relate to the determination of the useful lives of property and
equipment, the valuation allowance for deferred tax assets and the allowance for
doubtful receivables. Management believes that such estimates have been
appropriately determined in accordance with generally accepted accounting
principles.


Revenue Recognition

Cheap Tickets implemented several new accounting pronouncements in the fourth
quarter of 2000 that affected its revenue recognition policies. These new
pronouncements included EITF 99-19 "Reporting Revenue Gross as a Principal
versus Net as an Agent", SAB 101 "Revenue Recognition in Financial Statements",
and EITF 00-10 "Accounting for Shipping and Handling Fees and Costs". To promote
the comparability of our financial statements, all periods presented have been
restated to conform with these new pronouncements.

EITF 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent"
required that we report our revenue from sales of non-published fares on a net
basis. Accordingly, only the net margin on the sale of non-published fares is
reported as revenue. Previously we reported the sales of these fares on a gross
basis, whereby the gross booking or retail amount was reported as revenue, and
the amount we paid to the airline carrier was reported as cost of sales. The
implementation of EITF 99-19 did not affect the reporting of commissions on
published fares, which was and continues to be reported on a net basis.

SAB 101 "Revenue Recognition in Financial Statements" required us to delay
recognition of revenue until tickets had been delivered to our customers.
Previously, we reported revenue once the reservation was ticketed and payment
was received. This change in our policy did not have a material impact on our
financial statements.

Under EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" we now
report distribution, handling and service fees as revenue. The related cost of
distribution is reported as cost of sales. Previously we reported distribution
costs as part of selling, general and administrative expenses with the fees
charged to our customers as an offset to that expense.

Revenue is reported net of an allowance for cancellations and refunds. Due to
the restrictive nature of our sales, which are generally noncancellable and
nonrefundable, cancellations and refunds are not significant.

                                       7
<PAGE>

Volume bonus and override revenue are recognized at the end of each monthly or
quarterly measurement period if the specified target has been achieved. Bonuses
received in connection with contract acceptances or extensions are deferred and
recognized as income over the life of the contract.

Advertising revenue from internet banner advertising is reported on a net basis,
which is the net amount remitted to Cheap Tickets by its advertising service
provider. Such revenue has been immaterial to date.

2. Net Income Per Share

In accordance with the requirements of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," a reconciliation of the numerator and
denominator of basic and diluted EPS is provided as follows (in thousands,
except per share data).

<TABLE>
<CAPTION>
                                         Three months ended     Six months ended
                                              June 30,              June 30,
                                         ------------------    ------------------
                                           2000      2001        2000      2001
<S>                                      <C>        <C>        <C>        <C>
Numerator:
  Income available to common shares...   $ 4,899    $ 1,221    $ 7,212    $ 2,401
                                         -------    -------    -------    -------
Denominator:
  Shares - basic......................    23,171     23,254     23,137     23,243
    Effect of Dilutive Securities:
     Common stock warrants............        --         48         --         --
     Stock options....................       371        494        424        403
                                         -------    -------    -------    -------
  Shares - diluted....................    23,542     23,796     23,561     23,646
                                         -------    -------    -------    -------
Basic earnings per share:.............   $  0.21    $  0.05    $  0.31    $  0.10
                                         =======    =======    =======    =======
Diluted earnings per share:...........   $  0.21    $  0.05    $  0.31    $  0.10
                                         =======    =======    =======    =======
</TABLE>

Net income per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period.

Options to purchase 1,018,348 shares of common stock at a range of $12.5625 to
$35.875 were outstanding during the three months ended June 30, 2001 but were
not included in the computation of the diluted EPS because the options' exercise
price was greater than the average market price of the common stock.

3. Restructuring Costs

On August 2, 2001, Cheap Tickets announced plans to close all but one of its
retail stores and other corporate actions. Cheap Tickets will record pre-tax
restructuring costs totaling $2.5 million in the third quarter of 2001 primarily
for severance and asset write-offs.

4. Contract Acquisition Costs

On May 14, 2001, Cheap Tickets entered into a five-year agreement with Delta Air
Lines, Inc ("Delta"). Cheap Tickets will receive excess Delta inventory that
will be sold to customers at retail travel stores, call centers, and on the
Internet. As part of the agreement, Cheap Tickets granted a stock warrant to
acquire 1,626,426 shares of Cheap Tickets stock at $11.805 per share. The fair
value of the warrant, $3.5 million, was determined by an independent appraisal
and has been recorded as an intangible asset (contract acquisition costs). The
warrant is being amortized over the life of the agreement. The equity instrument
is accounted for in accordance with EITF 00-18 "Accounting Recognition for
Certain Transactions Involving Equity Instruments Granted to Other Than
Employees" and EITF 96-18 "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".

5.   Subsequent Events

On August 13, 2001, the Company, Cendant Corporation, a Delaware Corporation
("Cendant") and Diamondhead Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Cendant, entered into an Agreement and Plan of Merger
dated August 13, 2001 (the "Merger Agreement"), pursuant to which Cendant will
commence a cash tender offer to purchase all of the Company's issued and
outstanding shares of common stock, par value $.001 per share. The purchase
price is $16.50 per share.

                                       8
<PAGE>

Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere herein.

Overview

Cheap Tickets is principally engaged in the sale of discount tickets for
domestic leisure travel. A significant portion of our gross bookings have
historically come from the sale of non-published fares, which Cheap Tickets
acquires from airlines and resells to the public at a profit. Cheap Tickets
purchases non-published fares only when it resells them to customers, so that it
has no inventory carrying costs. On these fares, Cheap Tickets sets its resale
prices to meet the demands of leisure travelers who are generally looking for
the lowest price. Cheap Tickets also sells published fares for which it receives
commissions from the airlines. Sales of non-published fares generally carry
higher profit margins as a percentage of gross bookings than commissions on
published fare bookings as a percentage of those bookings.

Cheap Tickets' revenue is generated by ticket sales through Cheap Tickets' five
call centers, on-line through our website at www.cheaptickets.com, and to a
                                             --------------------
lesser extent through 10 walk-in retail stores. In the second quarter of 2001,
gross bookings were derived approximately 59% from call centers and retail
stores and 41% from online bookings. During this quarter, Cheap Tickets added
approximately 2,354,200 registered online users. At June 30, 2001, we had
approximately 13,138,500 online registered users. Cheap Tickets expects online
gross bookings and revenue to represent an increasing portion of gross bookings
and revenue in future periods.

In August 2001, we made a determination to close nine of our ten retail travel
stores, primarily to reduce costs and improve efficiency as we shift resources
to our growing call center and Internet business segments. These closures and
other actions are expected to result in a one-time special charge in the third
quarter of 2001 of approximately $2.5 million pre-tax, or a $0.07 effect on
earnings per diluted share, due to the fulfillment of lease obligations, write-
off of equipment and technical applications, and employee severance packages.
These actions are expected to reduce expense by approximately $2 million
annually in the future.

We expect to launch, in August 2001, our upgraded Web site, which will introduce
e-ticketing, enhanced price-finding capabilities and improved customer-usability
features.

Gross bookings represent the aggregate retail value of tickets sold under non-
published fares and published fares. Cheap Tickets records as revenue in its
statement of operations only the commissions earned by Cheap Tickets on the sale
of published fares and gross profit on the sale of non-published fares. Our
statement of gross bookings is not required by generally accepted accounting
principles ("GAAP") and should not be considered in isolation or as a substitute
for other information prepared in accordance with GAAP. Management uses gross
bookings as a key indicator of general business activity, success of promotional
efforts, capacity to handle customer demand and efficiency of reservation
agents. In addition, management believes that gross bookings provide a useful
comparison between historical periods, and that year-to-year changes in such
information provide a useful measure of market acceptance of Cheap Tickets'
products.

Cheap Tickets' gross bookings are substantially comprised of airline ticket
sales. For the three months ended June 30, 2001 and 2000, approximately 95% and
98% respectively, of gross bookings were derived from airline ticket sales. The
remaining gross bookings were derived from sales of cruise tickets, auto
rentals, hotel reservations and other travel related products. Cheap Tickets
expects gross bookings from sources other than airline ticket sales to increase
in future periods.

Revenue consists of gross profit on non-published fare sales, published fare
commissions, net advertising revenue and service fees. Cheap Tickets' cost of
sales consists of distribution costs related to the sale of tickets.
Commissions, including incentive overrides, are earned primarily on published
air fares sold and include certain other payments based on the volume of
transactions.

Gross profits include (1) the gross profit on non-published sales, (2)
commissions earned on the sale of published fares sold, (3) net advertising
revenue and (4) service fees less distribution costs. Cheap Tickets earns higher
profits on the sale of non-published fares than on the sale of published fares.

Cheap Tickets' selling, general and administrative expenses include all
operating and corporate overhead. Major expense categories include compensation,
advertising, communications, credit card bank fees, outside services and
occupancy.

                                       9
<PAGE>

Subsequent Events

On August 13, 2001, the Company, Cendant Corporation, a Delaware Corporation
("Cendant") and Diamondhead Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Cendant, entered into an Agreement and Plan of Merger
dated August 13, 2001 (the "Merger Agreement"), pursuant to which Cendant will
commence a cash tender offer to purchase all of the Company's issued and
outstanding shares of common stock, par value $.001 per share. The purchase
price is $16.50 per share.

Results of Operations

Three months ended June 30, 2001 and June 30, 2000

Total revenue. Total revenue for the second quarter of 2001 decreased $1.1
million to $28.5 million, a 3.6% decrease compared to the second quarter of
2000. Revenue for the 2001 period was adversely affected by a lower-than-
expected percentage of non-published airline ticket sales, which typically
contribute more to the bottom line than published airfares. The shift in this
mix was due primarily to technical errors on our Web site, a decline in call-
handling ability at our call centers as call volume increased, and airline fare
sales which reduced the competitiveness of our non-published inventory.
Commissions and bonuses increased $3.2 million, or 36.2%, to $11.9 million in
the 2001 quarter, primarily reflecting increased sales of published fares and a
97% increase in airline overrides from published fare sales and incentives
received from our global distribution system, or GDS, on higher sales volumes.
Commissions on published fare sales as a percentage of total revenue increased
from 29.6% to 41.9%. Total gross bookings rose 20.6% to $232.8 million for the
second quarter of 2001 compared to the same period in 2000.

Service fees and other revenues decreased $744,513 to $2.8 million. These
revenues include gross service fees and banner advertising. The decrease was due
primarily to our free service fee promotion on the Internet continuing through
the second quarter of 2001 offset by increased amounts received from banner
advertising.

Total revenue through call centers and retail operations increased $230,000, or
1.3%, to $18.4 million as a result of higher call volume due to increased
advertising.

Total revenue from Internet sales decreased $1.3 million to $10.1 million. Total
revenue through the Internet represented 35.6% of total revenue in the second
quarter of 2001, compared with 38.7% in the second quarter of 2000. However,
total Internet gross bookings for the second quarter of 2001 increased 30.3%
over the second quarter of 2000 to $98.0 million. The decrease in total revenue
from Internet sales was primarily the result of a higher proportion of published
fares sold in the second quarter of 2001 compared with the same period in 2000,
which generally carry lower commissions compared to gross profit on non-
published fare sales.

Gross Profit. Gross profit for the second quarter of 2001 decreased $918,000, or
3.4%, to $26.4 million, compared to the second quarter of 2000. This decrease
was primarily attributable to reduced service fees collected due to the free
service fee promotion on Internet sales and an increase in lower profit
published fare sales. This quarter also included amortization of the warrant we
issued to Delta Air Lines, which accounted for approximately 47.5% of the total
decrease in gross profit. As a percentage of total revenue, gross profit
increased from 92.4% in the 2001 quarter compared to 92.7% for the 2000 period.

Selling, General and Administrative Expenses. For the three months ended June
30, 2001, selling, general and administrative expenses increased $5.0 million,
or 23.4%, to $26.4 million, and increased as a percentage of total revenue from
72.4% to 92.7%. The increase in selling, general and administrative expenses as
a percentage of total revenue was primarily due to increased technology related
expenses and higher compensation costs. Total advertising expenses were $320,000
higher for the three months ended June 30, 2001 compared to the same quarter in
2000.

Net Earnings. Net earnings for the three months ended June 30, 2001 decreased
$3.7 million, or 75.1% to $1.2 million. The decrease reflected increased
expenditures related to staffing, outside services, and technological
infrastructure related to Company initiatives.

                                       10
<PAGE>

Six months ended June 30, 2001 and June 30, 2000

Total Revenue. Total revenue for the six months ended June 30, 2001 increased
$2.6 million to $53.4 million, a 5.0% increase compared to the six months ended
June 30, 2000. Commissions and bonuses increased $6.9 million, or 46.1%, to
$22.0 million, offset by decreases in commissions on non-published fares of $3.9
million and services fees of $1.1 million. The $6.9 million increase in
commissions and bonuses primarily reflected a 64.1% increase in commissions on
published fares and a 27.9% increase in airline overrides and GDS incentive
payments. The decrease in commissions on non-published fares was due primarily
to technical errors on our Web site, a decline in call-handling ability at our
call centers as call volume increased, and airline fare sales that reduced the
competitiveness of our non-published inventory. Total gross bookings rose to
$424.8 million for the six months ended June 30, 2001, an increase of 20.8%
compared to the six months ended June 30, 2000.

Gross Profit. Gross profit for the six months ended June 30, 2001 increased $2.6
million, or 5.5%, to $49.3 million. The increase was due primarily to increased
commissions on published fare sales, including higher airline overrides and GDS
commission fees, offset by a reduction in service fees due to our free service
fee promotion on the Internet.

Selling, General and Administrative Expenses. For the six months ended June 30,
2001, selling, general and administrative expenses increased $10.7 million, or
27.5%, to $49.6 million and increased as a percentage of revenue from 76.5% to
92.9%. The increase as a percentage of revenue was primarily the result of
increases in compensation, advertising, telephone, and technology related
expenses due to the enhancements of our technology platform and proposed new Web
site. Advertising expenses increased $2.5 million, representing an increase from
19.1% to 22.8% of total revenue, reflecting the new marketing strategy
implemented in the first quarter of 2001.

Net Earnings. Net earnings for the six months ended June 30, 2001 decreased $4.8
million, or 66.7%, to $2.4 million. The decrease primarily reflected increased
expenditures related to staffing, advertising, telephone and technological
infrastructure related to Company initiatives.

Operating Segments

Cheap Tickets' reported segments are comprised of Internet and Call Center/Other
operations.

The accounting policies of the segments are the same as those used in the
preparation of Cheap Tickets' consolidated financial statements. Cheap Tickets
evaluates the performance of its operating segments based on segment operating
contribution, which includes sales and marketing expenses and other overhead
charges directly attributable to the operating segment. Certain expenses managed
outside of the operating segments are excluded, such as corporate expenses,
including other income and expense items, unallocated shared expenses, and
income taxes. Asset information by operating segment is not reported since Cheap
Tickets does not identify assets by segment.

<TABLE>
<CAPTION>
                                                     Total revenue by segment
                                                     ------------------------

                           Three Months Ended June 30,                          Six Months Ended June 30,
                 ----------------------------------------------    -----------------------------------------------
                        2001                        2000                   2001                      2000
                 ----------------------------------------------    -----------------------------------------------
                     In       Percent       In        Percent          In       Percent        In         Percent
                  Thousands   of Total   Thousands    of Total      Thousands   of Total    Thousands     of Total
                 ----------------------------------------------    -----------------------------------------------
<S>              <C>          <C>        <C>          <C>          <C>          <C>         <C>           <C>
Segments
--------
Internet           $ 10,142     36%     $  11,449        39%        $ 18,802      35%       $ 19,245        38%
Call Center/
Other                18,359     64%        18,130        61%          34,573      65%         31,565        62%
                 ----------------------------------------------    -----------------------------------------------
  Total revenue    $ 28,501    100%    $   29,579       100%        $ 53,375     100%       $ 50,810       100%
                 ==============================================    ===============================================
</TABLE>

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                     Gross profit by segment
                                                     -----------------------

                           Three Months Ended June 30,                          Six Months Ended June 30,
                 ----------------------------------------------    -----------------------------------------------
                        2001                        2000                   2001                      2000
                 ----------------------------------------------    -----------------------------------------------
                     In       Percent       In        Percent          In       Percent        In         Percent
                  Thousands   of Total   Thousands    of Total      Thousands   of Total    Thousands     of Total
                 ----------------------------------------------    -----------------------------------------------
<S>              <C>          <C>        <C>          <C>          <C>          <C>         <C>           <C>
Segments
Internet           $   8,940     34%     $ 10,429        38%        $ 16,554      34%       $ 17,492        37%
Call Center/
Other                 17,474     66%       16,903        62%          32,776      66%         29,264        63%
                 ----------------------------------------------    -----------------------------------------------
  Gross profit     $  26,414    100%     $ 27,332       100%        $ 49,330     100%       $ 46,756       100%
                 ==============================================    ===============================================
</TABLE>

<TABLE>
<CAPTION>
                                                 Operating contribution by segment
                                                 ---------------------------------

                           Three Months Ended June 30,                          Six Months Ended June 30,
                 ----------------------------------------------    -----------------------------------------------
                          2001                    2000                     2001                      2000
                 ----------------------------------------------    -----------------------------------------------
                     In       Percent       In        Percent          In       Percent        In         Percent
                  Thousands   of Total   Thousands    of Total      Thousands   of Total    Thousands     of Total
                 ----------------------------------------------    -----------------------------------------------
<S>              <C>          <C>        <C>          <C>          <C>          <C>         <C>           <C>
Segments
--------
Internet           $  2,422      50%     $ 4,992         57%        $  4,633      49%       $  8,525        62%
Call Center/
Other                 2,433      50%       3,763         43%           4,742      51%          5,334        38%
                 ----------------------------------------------    -----------------------------------------------
   Operating
    contribution   $  4,855     100%     $ 8,755        100%        $  9,375     100%       $ 13,859       100%
                 ==============================================    ===============================================
</TABLE>

        Three Months Ended June 30, 2001 and June 30, 2000 by Segment

Total Revenue. Total revenue through the Internet decreased $1.3 million, or
11.4% to $10.1 million. Total revenue through the Internet represented 35.6% of
total revenue for the second quarter of 2001 compared to 38.7% for the second
quarter of 2000. This decrease in the proportion of revenue was the result of
increases in sales of published fares for the second quarter 2001, compared to
the same period last year. Published fare commissions are generally lower as a
percentage of bookings than gross profit on non-published fare bookings. Gross
bookings increased as a result of a targeted advertising campaign, growing
acceptance of Internet commerce, and a significant increase in registered users
to our website. Total Internet gross bookings for the second quarter increased
30.3% over the second quarter 2000 to $98.0 million.

Total revenue through call centers and retail operations increased $230,000, or
1.3%, to $18.4 million due primarily to higher call volume from increased
advertising expenses.

Gross Profit. Gross profit from Internet sales decreased $1.5 million, or 14.3%
to $8.9 million. As a percentage of total revenue, Internet gross profit
decreased from 91.1% to 88.2%. The decrease was mainly the result of a free
service fee promotion on Internet sales continuing through the second quarter of
2001.

Call center gross profit increased $570,000, or 3.4% to $17.5 million. As a
percentage of total revenue, gross profit from call centers increased from 93.2%
to 95.2% for the three months ended June 30, 2000 and 2001, respectively. Call
center gross profit increased as a percentage of total revenue due to increased
published fare commissions, including higher volume incentives and net service
fee income.

Operating Contribution. Operating contribution from Internet sales decreased
$2.6 million or 51.5% to $2.4 million. The decrease in operating contribution
was primarily due to higher advertising expenditures and to a lesser extent,
increased technological costs related to enhancement of the Cheap Tickets
website.

                                       12
<PAGE>

Call center operating contribution decreased $1.3 million, or 35.3% to $2.4
million. As a percentage of total call center revenue, operating contribution
decreased from 20.8% to 13.3% for the three months ended June 30, 2000 and 2001,
respectively. As a percentage of total call center revenue, operating expenses
increased from 72.5% to 81.9% reflecting higher compensation, telephone and
outside service costs.

Six Months Ended June 30, 2001 and June 30, 2000 by Segment

Total Revenue. Total revenue through the Internet decreased $443,000, or 2.3% to
$18.8 million. Total revenue through the Internet represented 35.2% of total
revenue for the first six months of 2001 compared to 37.9% for the first six
months of 2000. This decrease in the proportion of revenue was the result of
increases in sales of published fares for the first six months of 2001, compared
to the same period last year. Commissions on public fares are generally lower as
a percentage of bookings than gross profit on non-published fare bookings. Gross
bookings increased as a result of a targeted advertising campaign, growing
acceptance of Internet sales of air transportation, and a significant increase
in registered users to our web site. Total Internet gross bookings for the six
months ended June 30, 2001 increased 29.9% over the six months ended June 30,
2000 to $175.7 million.

Total revenue through call centers and retail operations increased $3.0 million,
or 9.5%, to $34.6 million due to increased call volume resulting from increased
advertising.

Gross Profit. Gross profit from Internet sales decreased $938,000, or 5.4% to
$16.6 million. As a percentage of total revenue, Internet gross profit decreased
from 90.9% to 88.0%. The decrease was mainly the result of a free service fee
promotion on Internet sales continuing through the second quarter of 2001 and
increased published fare commissions in the sales mix.

Call center gross profit increased $3.5, or 12.0% to $32.8 million. As a
percentage of total revenue, gross profit from call centers increased from 92.7%
to 94.8% for the six months ended June 30, 2000 and 2001, respectively. Call
center gross profit increased as a percentage of total revenue due to increased
sales volumes, higher volume incentives and higher service fee income.

Operating Contribution. Operating contribution from Internet sales decreased
$3.9 million, or 45.7% to $4.6 million. The decrease in operating contribution
was primarily due to higher advertising expenditures and to a lesser extent,
increased technological costs related to enhancement of the Cheap Tickets web
site.

Call center operating contribution decreased $592,000, or 11.1% to $4.7 million.
As a percentage of total call center revenue, operating contribution decreased
from 16.9% to 13.7% for the six months ended June 30, 2000 and 2001,
respectively. Call center operating contribution decreased due to higher
operating expenses, particularly compensation, telephone, and outside services.

Seasonality and Quarterly Financial Information

Cheap Tickets' business is seasonal due primarily to customers' leisure travel
patterns and changes in the availability of non-published fares. As a result,
Cheap Tickets typically has higher sales and gross profit in the second and
third quarters and lower sales and gross profit in the fourth quarter. During
periods of high-volume air travel, such as occur in the fourth quarter of each
year, Cheap Tickets historically has had access to fewer non-published fares,
and such fares on certain major routes may be blacked out or otherwise
unavailable. Online gross bookings also tend to follow the same seasonal
pattern. The seasonal sales cycle is fairly predictable, but the cycle may shift
year-to-year, corresponding to changes in the economy or other factors affecting
the market such as price wars. This could lead to unusual volatility in revenue
and earnings.

Liquidity and Capital Resources

For the six months ended June 30, 2001, Cheap Tickets generated cash from
operating activities of $14.8 million, compared with $18.7 million for the six
months ended June 30, 2000. For the six months ended June 30, 2001, cash
generated from operating activities was comprised principally of net earnings of
$2.4 million plus depreciation of $1.5 million, an increase in accounts payable
of $13.5 million and net changes in working capital and other accounts. For the
six months ended June 30, 2000, cash generated from operating activities was
comprised principally of net earnings of $7.2 million plus depreciation of $1.2
million, an increase in accounts payable of $11.4 million and net changes in
working capital and other accounts. The primary account payable is the weekly
settlement to the Airline Reporting Corporation for airline tickets purchased
less

                                       13
<PAGE>

commissions earned. This is generally a significant balance and the timing of
the current payment relative to month-end can cause fluctuations in month-end
balances.

For the six months ended June 30, 2001, Cheap Tickets used cash in investing
activities of $7.2 million, while in the prior period it received cash from
investing activities of $4.1 million. Cash used for investing activities for the
six months ended June 30, 2001 included net purchases of short-term marketable
securities of $925,000 and capital expenditures of $6.3 million. For the six
months ended June 30, 2000, net proceeds of short-term marketable securities
were $4.8 million and capital expenditures were $779,000.

At June 30, 2001, Cheap Tickets maintained on hand cash and cash equivalents of
$47.3 million and short-term marketable securities of $101.7 million. Cheap
Tickets' net working capital was $136.9 million. Cheap Tickets had outstanding
long-term debt net of current installments of $474,000 and capital lease
obligations net of current installments of $1.5 million.

In January 2000, Cheap Tickets completed its stock repurchase program. Cheap
Tickets repurchased 1,037,288 shares of its outstanding common stock for an
aggregate price of $14.7 million through periodic open market transactions. All
funds required for the repurchase of common stock were obtained from available
cash resources and marketable securities.

Cheap Tickets believes that its current cash and cash equivalents, short-term
marketable securities and anticipated cash flow from operations will be
sufficient to meet its anticipated cash needs for working capital, debt service
and capital expenditures, at least for the foreseeable future. If cash generated
from internal operations is not sufficient to satisfy Cheap Tickets' liquidity
requirements, Cheap Tickets may seek to acquire bank lines or sell additional
equity or debt securities. The sale of convertible debt or equity securities
could result in additional dilution to Cheap Tickets' stockholders. There is no
assurance that financing will be available in amounts or on terms acceptable to
Cheap Tickets, if at all.

Risks Associated with Forward-Looking Statements

     Forward-Looking Statements contained in this Quarterly Report on Form 10-Q
which are not historical facts are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-
looking statement may contain words such as "anticipate," "believe," "expect,"
"estimate," "project," "plan" and similar expressions. These forward-looking
statements include statements relating to our expectations as to:

  . an increasing portion of gross bookings and revenue in future periods will
    be represented by online gross bookings and online revenue;

  . an increasing portion of gross bookings will come from sources other than
    airline ticket sales;

  . the non-materiality of our interest rate exposure; and

  . sufficiency of our current cash and cash equivalents, short-term marketable
    securities and anticipated cash flow from operations to meet our anticipated
    cash needs for working capital, debt service and capital expenditures, at
    least for the foreseeable future.

     Management cautions that these forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
could cause our actual results to differ materially from those projected in such
forward-looking statements. Some of the factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements
include, but are not limited to, the following possibilities:

  . the continued growth of online commerce and Internet infrastructure;

  . our ability to enter into new supply agreements and to expand, enhance and
    renew existing supply agreements;

  . our ability to maintain and renew our technological infrastructure and to
    maintain the security of our communications network;

  . our ability to obtain needed services from reliable third parties; and

  . the availability of sufficient liquidity and capital resources for the
    future.

     Some of these factors and additional risks and uncertainties are further
discussed under the other factors identified in the "Risk Factors" section
contained in our Annual Report on Form 10-K for the year ended December 31,
2000. Further, our future business, financial condition and results of
operations could differ materially from those anticipated by such forward-
looking statements and are subject to risks and uncertainties including the
risks set forth above. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward- looking
statements. We are under no

                                       14
<PAGE>

duty to update any of the forward-looking statements after the date of this
Quarterly Report on Form 10-Q to conform such statements to actual results or to
changes in our expectations.

General

     There are several risks and uncertainties that may affect the future
operating results, business and financial condition of Cheap Tickets, including,
without limitation: (1) the risk of reduction in consumer demand for Cheap
Tickets' products; (2) the risk of loss of one or more of the major airline
carriers with whom Cheap Tickets does business; (3) the risk that Cheap Tickets
may not be able to continue to provide its products at prices which are
competitive or that it can continue to market its products in a manner that
appeals to consumers even if price-competitive; (4) the risk that Cheap Tickets
may not be able to obtain its products on substantially similar terms, including
cost, in order to sustain its operating margins; (5) the risks associated with
the exercise of management's discretion in the use of proceeds from the initial
and secondary public offerings; and (6) the risks inherent in legal proceedings.
Readers are encouraged to refer to Cheap Tickets' Annual Report on Form 10-K for
the year ended December 31, 2000 for a further discussion of Cheap Tickets'
business and the risks and opportunities attendant thereto.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Cheap Tickets does not use derivative financial instruments. We generally place
our marketable security investments in high credit quality instruments,
primarily U.S. Government obligations and corporate obligations with contractual
maturities of less than one year. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material.

                          PART II--OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

        Cheap Tickets may from time to time become a party to various legal
proceedings arising in the ordinary course of its business. Any such proceeding
against Cheap Tickets, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        Not applicable.


Item 3. DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

        Not applicable.

Item 5. OTHER INFORMATION

        Not applicable.

                                       15
<PAGE>

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     10.15+  Sabre Travelbase System Lease Agreement (United States) between
             Sabre Inc. and the Company, dated October 21, 1999.

     10.24+  General Agreement, dated May 14, 2001, by and between the Company
             and Delta Air Lines, Inc.

     10.25+  Warrant dated May 14, 2001 from the Company to Delta Air Lines,
             Inc.

     10.26+  Corporate Master Agreement between Vignette Corporation and the
             Company effective October 31, 2000.

     10.27+  Consolidator Agreement dated January 1, 2001 between America West
             Airlines, Inc. and the Company.

     10.28   Sublease Agreement between Customer Communications Center, Inc. and
             the Company effective as of June 6, 2001.

     + Portions have been omitted pursuant to a confidential treatment request.


(b)  Reports on Form 8-K

     During the quarter ended June 30, 2001, Cheap Tickets filed the following
     reports on Form 8-K:

     . Current Report on Form 8-K dated May 15, 2001 regarding a press release
       issued by the Company announcing a strategic alliance with Delta Air
       Lines disclosed under Item 5.

     . Current Report on Form 8-K dated June 25, 2001 regarding a press release
       issued by the Company reporting preliminary results for the second
       quarter ending June 30, 2001 disclosed under Item 5.


                                  SIGNATURES

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     CHEAP TICKETS, INC.
                                     (Registrant)


                                             /s/ Samuel D. Horgan

Date: August 13, 2001
                                                 Samuel D. Horgan
                           Chief Financial Officer and Vice President (Principal
                            Financial Officer and Principal Accounting Officer)

                                       16