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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                                       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 0-29298

                       TRAVEL SERVICES INTERNATIONAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  FLORIDA                                   52-2030324
      (STATE OR OTHER JURISDICTION OF                    (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                    IDENTIFICATION
                                                         NUMBER)

            220 CONGRESS PARK DRIVE, DELRAY BEACH, FLORIDA 33445-7289
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 266-0860
        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ____
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK (PAR VALUE $.01 PER SHARE)
                                (TITLE OF CLASS)

         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. Yes [X]   No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [X]

         The aggregate market value of voting stock held by non-affiliates of
the Company as of the 31st day of March, 2000, was approximately $18,585,262
based on the $25-7/8 closing sale price for the Common Stock on the Nasdaq Stock
Market on such date. For purposes of this computation, all executive officers
and directors of the Company have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such directors and
officers are, in fact, affiliates of the Registrant.

         The number of shares of Common Stock of the Registrant outstanding as
of the 31st day of March, 2000, was 14,111,687.

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<PAGE>
                                     PART I
ITEM 1.       BUSINESS

ACQUISITION OF THE COMPANY BY AIRTOURS PLC

         On February 21, 2000, Travel Services International, Inc., (the
"Company") entered into an Agreement and Plan of Merger with Blue Sea Florida
Acquisition Inc. ("Blue Sea") and Airtours plc ("Airtours") with respect to the
acquisition of the Company. Pursuant to such agreement, Blue Sea Florida
Acquisition Inc., an indirect, wholly-owned, subsidiary of Airtours, completed
its tender offer for the shares of the Company at a price of $26 per share in
cash. As of March 29, 2000 Blue Sea is the owner of approximately 95% of the
outstanding shares of the Company. The Company and Blue Sea expect to be merged
on or about May 1, 2000. Upon such merger, all remaining outstanding shares of
the Company not currently held by Blue Sea will be converted into the right to
receive $26 per share in cash and the Company will become a wholly-owned
subsidiary of Airtours. Following the merger, the Company's shares will cease to
be quoted on the Nasdaq Stock Market and the Company will no longer file public
reports with the Securities and Exchange Commission.

GENERAL

         The Company is a leading specialized distributor of travel products
including cruise vacations, vacation packages, domestic and international
airline tickets and European auto rentals, and is a leading provider of travel
services such as electronic hotel reservation services, specialized hotel
programs and services and incentive travel programs. The Company provides its
services to both travel agents and travelers, offering a combination of
specialized expertise, the ability to compare travel options from multiple
travel providers and competitive prices. Unlike traditional travel agents who
often lack extensive knowledge about the specific services being offered, the
sales agents of specialized distributors focus their efforts on certain segments
of the travel service industry and thus provide a greater level of expertise and
service with respect to their segments. The Company's ability to provide
in-depth knowledge about alternative products from multiple travel providers
also differentiates it from the internal sales departments of travel providers,
who offer only that provider's services. Recognizing the ability of specialized
distributors to sell a significant amount of travel capacity, as well as their
in-depth knowledge, travel providers utilize specialized distributors as a
preferred source of distribution. The Company often has preferred pricing and
access to inventory through its negotiated arrangements with leading airline,
cruise line and European auto rental travel providers.

         The Company commenced operations in July 1997 concurrently with its
initial public offering and the acquisition of five specialized travel
distributors, and has since acquired an additional 17 operating companies and a
software development company. Through 1998, the Company focused its acquisitions
primarily on distributors of cruise vacations to take advantage of recognized
growth opportunities in that segment. The Company has also looked for
opportunities to expand into new segments of the leisure travel industry that
are complementary to its other lines of business. In June 1998, the Company
entered the lodging travel services segment with the acquisition of Lexington
Services, which the Company believes is the largest electronic hotel reservation
services company in the United States, and the second largest in the world. The
Company strengthened its presence in the lodging segment with the purchase in
July 1998 of ABC Corporate Services, a developer of a hotel program, publisher
of a related hotel guide and provider of after-hours travel services. In
February 1999, the Company continued its expansion of product offerings with the
acquisitions of AHI International Corporation, a distributor of packaged
vacation products to university alumni associations, and Lifestyle Vacation
Incentives, Inc., a marketer of incentive and promotional travel products.

         Development of technology applications that facilitate and enhance the
selling process for the Company's sales agents has become a significant focus
for the Company. During 1999, the Company continued to make substantial
investments in its technology applications. The Company's air reservation
application, known as Flight Attendant, is currently in use in the Company's
1-800-FLY-CHEAP and 1-800-FLY-EUROPE operations. The cruise application, known
as Cruise Control, is currently in use in two of the Company's cruise call
centers. Each of the applications developed by the Company use web-based
technologies, thereby allowing the Company to make the systems available to
travel agents and travelers over the Internet.

         The Company currently utilizes four distinct channels of distribution:
(i) call centers staffed with trained sales personnel; (ii) home-based agents
(including franchisees) who service their local markets; (iii) traditional
travel agents; and (iv) the Internet. Marketing of the products and services
sold directly to consumers is accomplished primarily


                                       2
<PAGE>

through newspaper, magazine and television advertisements and direct mail
promotions; marketing to travel agents and independent hotels is managed
primarily through sales forces dedicated to those efforts. The Company also
markets its services over the Internet, using both the Company's own websites,
www.mytravelco.com, www.flycheap.com and www.autoeurope.com, and links through
other Company-owned and third party sites. Beginning in late 1998, the Company
launched a new brand name, "The Travel Company". The Company has discontinued
promotional use of The Travel Company brand in favor of certain traditional
brand names used by the Company's subsidiaries, as well as the mytravelco.com
trademark.

         Currently, the Company does not have any material portion of its
assets, operations or customers located outside of the United States.
Substantially all of the Company's revenues are from customers based within the
United States, where all of the Company's services are provided.

INDUSTRY OVERVIEW

         Domestic travel and tourism spending by U.S. travelers was an estimated
$408 billion in 1997 and was forecasted to increase at a compound annual growth
rate of 6.7% through the year 2000. The market for specialized distributors of
leisure travel services is highly fragmented. Many of these specialized
distributors are small and generally have made little investment in technology
to improve their selling effectiveness, efficiencies and access to information.
Furthermore, most of these companies lack the volume and financial security
necessary to obtain preferential pricing and inventory from travel providers or
to create effective national marketing campaigns.

         CRUISE INDUSTRY. The number of North American cruise passengers is
expected to increase from 5.1 million in 1997 to 7.0 million by the year 2000,
an 11.5% compound annual growth rate. In addition, industry analysts forecast a
10.3% compound annual growth rate in capacity over the same period, with a total
of 40 new vessels, contracted or planned, adding a net supply of approximately
40,000 berths. The character of a cruise varies significantly among the
different cruise lines and cruise ships. In addition, a cruise vacation, which
consists of lodging, entertainment, dining and travel, typically represents a
large portion of a traveler's vacation budget. As a result, cruise sales require
significant marketing time and effort in comparison with sales of other travel
products. Cruise lines traditionally have relied primarily on third party
distributors to sell virtually all of their berth capacity. It is estimated that
6% of cruise vacations are sold directly by the internal sales departments of
the cruise lines. While travel agents remain an important channel of
distribution for cruise lines, specialized cruise vacation distributors have
become an increasingly significant source of capacity utilization and,
accordingly, may be given preferential pricing, cooperative advertising dollars
and access to preferred berth inventory and locations. In contrast to most
traditional travel agents, specialized cruise distributors often offer travelers
extensive knowledge of cruise options available and are able to provide more
detailed information with respect to daily excursions and other amenities.

         AIRLINE INDUSTRY. The number of passengers carried by the major U.S.
based airlines increased 2.9% to 542 million in 1997 from 526 million in 1996,
with domestic and international passenger growth of 2.8% and 4.1%, respectively.
Airlines rely heavily on travel agents and specialized distributors to
supplement their own internal marketing efforts. Given their focus on air travel
and their corresponding large volumes of reservations, specialized distributors
often receive preferential pricing or controlled access to capacity at
discounted prices through the use of negotiated rate fare contracts. Airlines
typically issue these contracts to a limited number of specialized distributors
in order to increase capacity utilization without disrupting their overall
pricing strategy. These specialized distributors are then able to offer
non-published discounted fares for domestic and international flights to both
travel agents and travelers.

         EUROPEAN AUTO RENTAL INDUSTRY. U.S. citizen departures to Europe
increased 11.1% to 10.1 million in 1997 from 9.0 million in 1996. Unlike
domestic auto rental providers which, to a large extent, market directly to
travelers in the U.S., European auto rental providers rely heavily on third
party distributors to market to U.S. customers traveling abroad. As in the U.S.,
European auto rental providers focus on business traveler segment which peaks in
the spring and fall seasons. As a result, specialized distributors in the U.S.
serve an important role to these European auto rental providers by supplementing
their sales efforts during non-peak periods. In addition, these specialized
distributors serve as a centralized and efficient source of information on
pricing and availability of reservations to travel agents in the U.S.

         LODGING INDUSTRY. Average daily room rates in the U.S. lodging industry
increased 6.2% to $75.16 in 1997 from $70.81 in 1996. Average daily room nights
sold increased 2.3% to 2.3 million in 1997 from 2.2 million in 1996. Average
daily rates and average daily rooms sold are expected to increase 5.3% and 2.2%,
respectively, in 1998.

                                       3
<PAGE>

         VACATION AND TOUR PACKAGES INDUSTRY. Sales of vacation and tour
packages is estimated to be a $20 billion market in 1997. In 1997, 104.2 million
U.S. adults traveled with other family members, an increase of 11% over the
prior year. The market is expected to grow at 6% a year for the next several
years. Vacation packages include a combination of two or more travel services
(e.g. hotel accommodations, ground transportation, air transportation, cruises)
that are offered at a package price. Many vacation packages offer a choice of
components and options, thereby enabling the customer to customize the package.

         INCENTIVE TRAVEL PROGRAMS INDUSTRY. The travel incentive industry is
estimated to be a $6 billion market. Travel promotion agencies range from
sophisticated companies offering a broad range of service to boutique shops,
specializing in one or few specific types of promotions. The industry is
fragmented, with over 1000 travel promotion companies; however less than 100
companies are believed to have sales in excess of $1 million.

OPERATING STRATEGY

         The Company seeks to provide comprehensive, quality leisure travel
products and services, while improving efficiencies in its operations. The
primary components of the Company's operating strategy include the following:

         PROVIDE EXTENSIVE EXPERTISE IN SPECIFIC TRAVEL SEGMENTS. The Company,
through its operating companies, is a specialist in several leisure travel
products and services. By leveraging this specialized knowledge, the Company
aims to provide a higher level of expertise and information for a broader array
of travel products and services than may be available through traditional
distribution channels.

         UTILIZE TECHNOLOGY TO IMPROVE THE SELLING PROCESS. The Company
continues to make significant investments in development of technology that is
expected to improve and enhance the ability of its sales agents to convert
travel inquiries into sales and make the selling and service processes more
efficient. In addition, the technology reduces new agent training time from
several weeks currently to less than one week. The technology applications being
developed by the Company are web-based.

         MAINTAIN AND ENHANCE STRONG STRATEGIC RELATIONSHIPS WITH TRAVEL
PROVIDERS. The Company believes that its relationships with travel providers are
integral to the Company's success. The Company has negotiated with many travel
providers for pricing that is often lower than published fares and for preferred
access to capacity. These strategic relationships enable the Company to access
multiple providers within each travel segment and to offer value and service
that is generally better than would be available to travelers through travel
agents.

         MARKET THROUGH MULTIPLE DISTRIBUTION CHANNELS. The Company believes
that utilizing multiple distribution channels provides it with additional sales
opportunities, decreases its reliance on any one channel and differentiates it
from competitors who offer their products through a single channel.

         OFFER HIGH LEVELS OF CUSTOMER SERVICE. The Company believes that
maintaining high levels of customer service is essential to its ability to
generate significant repeat business. In addition to the Company's competitive
prices, customer service is an important differentiating factor to the leisure
traveler who is making a significant investment in a vacation, the travel agent
who is seeking the ability to make travel arrangements with greater ease, the
independent hotel seeking to distribute its product efficiently through global
distribution systems, and the corporation looking for innovative and turn-key
travel incentive products to stimulate its sales.

         CAPITALIZE ON MANAGEMENT EXPERTISE. The Company's executive management
personnel have had many years of experience in various segments of the travel
industry. In addition, the Company believes the experienced local management
teams at its operating companies have an in-depth understanding of their
respective markets and businesses, have built strong relationships with travel
providers and customers and are important to managing the day-to-day operations
and human resources at their respective locations.

GROWTH STRATEGY

         Strong internal revenue growth is the core of the Company's growth
strategy. Key elements of the Company's growth strategy include the following:

         INVESTMENT IN TECHNOLOGY. The Company is continuing its development of
information and telecommunications technologies and strategies for use by the
Company, as well as by travel agents and travelers


                                       4
<PAGE>

through the Internet. Through 1999, the Company has invested approximately $17.3
million on its strategic software applications, and intends to invest
approximately $5 million more to complete the development of its technology
software applications primarily for cruise and air operations.

         CAPITALIZE ON THE INTERNET. The Company plans to capitalize on the
Internet as a major distribution channel for its products and services. The
Internet represents a substantial opportunity as an important distribution
channel for leisure travel today and in the future. The Company promotes itself
and the www.mytravelco.com website through advertising and promotional alliances
on the Internet. Several of the Company's operating companies also market
through specialized websites, such as www.flycheap.com and www.autoeurope.com.
The Company has dedicated agents to handle Internet sales leads and inquiries,
as well as management personnel who have experience in the areas of e-commerce
and Internet marketing.

         DEVELOPMENT OF CONSUMER BRANDS. The Company seeks to build nationally
recognized and respected consumer brands. Promotion of the brands is expected to
be through traditional marketing and sales initiatives, as well as through
opportunities that may arise in other businesses of the Company.

         CAPITALIZE ON CROSS-SELLING, ECONOMIES OF SCALE AND BEST PRACTICES. The
Company seeks to take advantage of significant cross-selling opportunities to
further enhance revenue growth. The Company believes that it can achieve
economies of scale and that its sales volumes and relationships with travel
providers may enable it to obtain preferential pricing and preferred access to
travel provider inventories. The Company believes it can also benefit from
greater purchasing power in certain important expense areas, as well as reduce
total operating expenses by consolidating certain duplicative back-office and
administrative functions. During 1998 and 1999, the Company began to implement
some of these economies, such as consolidating the purchasing of
telecommunications services, advertising, insurance and credit card merchant
services, and is creating a shared services center for fulfillment and
accounting of cruise reservations. In addition, the Company has identified
certain best practices, including marketing techniques, revenue management
processes, operations and call center management strategies and cost
efficiencies, that can be implemented in order to generate incremental revenue
and enhance profitability.

ACQUISITIONS

         Since the Company's initial public offering in July 1997, the Company
has acquired 22 operating companies and a software development company. Through
1998, the Company focused its acquisitions primarily on distributors of cruise
vacations. The Company entered the lodging travel services segment with the
acquisition of Lexington Services in June 1998 and ABC Corporate Services in
July 1998. In February 1999, the Company continued its expansion of product
offerings with the acquisitions of AHI International Corporation and Lifestyle
Vacation Incentives, Inc.

         The Company has relied on the industry experience of its senior
management, particularly Joseph Vittoria, the Executive Chairman, who is the
former Chief Executive Officer of Avis, Inc. Mr. Vittoria sits on industry
boards including the World Travel and Tourism Council, of which he is a founding
member, and the Travel Industry Association. The Company also believes that the
experience, reputation and relationships of the operating companies' management
has been of value in the Company's efforts to acquire other specialized
distributors of travel services. As consideration for acquisitions, the Company
has used various combinations of Common Stock and cash. The Company registered
under the Securities Act certain shares of its Common Stock that have been
issued in connection with acquisitions.


                                       5
<PAGE>
         The following table sets forth certain information with respect to the
Company's acquisitions:
<TABLE>
<CAPTION>
                                                    FINANCIAL
OPERATING                     DATE OF               REPORTING          PRIMARY TRAVEL
 COMPANY                      ACQUISITION           SEGMENT            SERVICE OFFERED                 PRIMARY LOCATION
--------                      -----------           -------            ---------------                 ----------------
<S>                                <C>               <C>                      <C>                          <C>
Auto Europe                   July 1997             Outbound           European auto rentals           Portland, Maine
Cruises Inc.                  July 1997             Cruise             Cruise vacations                Syracuse, New York
Cruises Only                  July 1997             Cruise             Cruise vacations                Orlando, Florida
D-FW Tours                    July 1997             Outbound           International air               Dallas, Texas
Travel 800                    July 1997             Other              Domestic air                    San Diego, California
Cruise Fairs of America       November 1997         Cruise             Cruise vacations                Los Angeles, California
CruiseOne                     November 1997         Cruise             Cruise vacations                Deerfield Beach, Florida
CruiseWorld                   November 1997         Cruise             Cruise vacations                Syossett, New York
Ship 'N' Shore                November 1997         Cruise             Cruise vacations                Englewood, Florida
Trax Software                 December 1997         --                 Software development            Delray Beach, Florida
Diplomat Tours                January 1998          Outbound           International air               Sacramento, California
Gold Coast Cruises            February 1998         Cruise             Cruise vacations                North Miami, Florida
AutoNet International         February 1998         Outbound           European auto rentals           Portland, Maine
CruiseMasters                 March 1998            Cruise             Cruise vacations                Los Angeles, California
The Cruise Line Inc.          April 1998            Cruise             Cruise vacations                North Miami, Florida
Landry & Kling                May 1998              Other              Cruise incentives               Coral Gables, Florida
The Travel Company            May 1998              Cruise             Cruise vacations                Atherton, California
Lexington Services            June 1998             Lodging            Lodging reservations            Irving, Texas
ABC Corporate Services        July 1998             Lodging            Lodging services                Omaha, Nebraska
Cruise Outlet of the
   Carolinas                  August 1998           Cruise            Cruise vacations                 Charlotte, North Carolina
1-800-CRUISES                 August 1998           Cruise            Cruise vacations                 Boca Raton, Florida
Lifestyle Vacation
   Incentives                 February 1999         Other             Incentive promotions             Delray Beach, Florida
AHI International, Inc.       February 1999         Outbound          Packaged vacations               Rosemont, Illinois
</TABLE>
         The following is a summary of the strategy underlying the Company's
acquisitions since the Company's initial public offering:

o    Lexington Services and ABC Corporate Services--enabled the Company to enter
     into the lodging travel services segment.

o    The Cruise Line Inc. and Gold Coast Cruises--significantly bolstered the
     Company's presence in the cruise segment, particularly in South Florida.

o    Ship 'N' Shore--provided Alaska land tour operations and expertise in the
     Alaska cruise market.

o    CruiseMasters, Cruise Fairs of America and The Travel Company--provided a
     West Coast presence for the distribution of cruise vacations and added
     specific marketing expertise.

o    CruiseOne--added a cruise franchise distribution system consisting of more
     than 350 franchisees.

o    CruiseWorld--provided cruise distribution in the New York Tri-State area.

o    Landry & Kling--provided expertise in cruise charters and corporate
     incentive marketing.

o    Diplomat Tours and AutoNet International--expanded presence in European
     airline tickets and auto rental markets and bolstered relationships with
     travel agents.

o    Trax Software--accelerated the development of the Company's Flight
     Attendant reservation system.

o    Cruise Outlet of the Carolinas--expanded the Internet marketing
     capabilities of the cruise segment.

o    1-800-CRUISES--provided a marketing tool for national branding of the
     cruise segment.

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<PAGE>
o    Lifestyle Vacation Incentives--expanded expertise in corporate incentive
     marketing and travel clubs.

o    AHI International--expanded international packaged vacation offerings and
     added university alumni associations as a new marketing channel.

PRODUCTS AND SERVICES

         The Company currently provides its products and services nationwide
primarily through the use of toll-free telephone numbers, home-based agents,
global distribution systems and the Internet. Product information and the
ability to communicate with customers via email is also provided through the
Company's website, www.mytravelco.com. Typically, potential customers call the
Company, often in response to an advertisement or other promotion or in response
to information seen on the Internet. The Company's sales personnel assist
potential customers, whether travel agents or travelers, in selecting the
appropriate travel arrangement and making the reservation. Customers may also
book domestic air tickets directly on the Internet.

         CRUISE. The Company is believed to be the largest distributor of
cruises in the world, selling cruises on all major cruise lines. Typically,
berths are booked on behalf of customers at specified discounts from the
published cruise line prices. In addition, the Company is permitted to reserve
more desirable berths on a number of cruises, which gives the Company an
"exclusive" right to sell these berths for a period of time. If the Company does
not sell these reserved berths, they are returned to the cruise lines at a
specified time, generally 90 to 150 days prior to sailing, at no cost to the
Company. The Company also advises large groups, such as affinity groups,
corporate groups and business seminars, in selecting the appropriate cruise and
sells Alaskan land tour packages directly to travelers and to travel agents.

         The Company advises travelers and assists them in selecting the cruise
that best fits their particular needs and desires. This requires the Company's
sales personnel to have extensive knowledge about the character of the various
cruise lines and the differences in their ships and cruises offered. The
Company's sales personnel undergo in-house training, participate in seminars
conducted by cruise lines and may receive complementary passes for cruises that
provide the agent direct cruise line experience. Through the Company's new
cruise reservation technology, detailed information about ships, itineraries,
destinations and other data will be available to sales personnel at their
desktops and to consumers on the Internet. Sales personnel endeavor to develop
relationships with travelers in order to encourage repeat and referral business.
The Company provides extensive services to its cruise customers in the form of
information provided on its website, periodic mailings of information, reviews
of various cruises and ships, advice regarding planning for the specific cruise
and assistance in preparing the necessary travel documents. In addition to
reserving a berth on a cruise, reservation agents can give customers information
about the activities, shopping, sightseeing and restaurants available at the
various ports at which the cruise stops and can make reservations for these
activities.

         DOMESTIC AND INTERNATIONAL AIR TRAVEL. The Company sells both domestic
and international airline tickets. Through relationships with most major
airlines, the Company is generally able to offer fares below published rates.
The Company sells airline tickets to travelers relying primarily on its
reputation and telephone numbers such as 1-800-FLY-CHEAP, 1-800-LOW-FARE and
1-800-FLY-EUROPE to attract business. The Company sells international airline
tickets primarily to travel agents utilizing multiple fax distribution
technology and a field sales force to advise travel agents of special fares and
promotions. In August 1999, the Company also began selling domestic airline
tickets over the Internet, on its www.flycheap.com website.

         EUROPEAN AUTO RENTAL. The Company provides reservations for U.S. and
Canadian travelers for auto rentals in Europe. The Company has agreements with a
number of auto rental travel providers that operate in Europe, such as Avis
Europe Limited and Europcar International S.A. The Company's European auto
rental customers are primarily travel agents. The Company's field sales
representatives establish and maintain relationships with a majority of the
travel agents located in the U.S. Auto rentals in Europe pose a number of
challenges for a U.S. traveler. In addition to costs such as drop off fees and
airport levies, travelers run the risk of additional costs associated with
currency fluctuations and rate changes if they do not pre-pay in U.S. dollars.
Travelers are also faced with age restrictions, lack of flexibility in drop off
and pick up and insurance complications. Further, the difficulty obtaining air
conditioned, automatic transmission cars makes the European auto rental process
difficult for travelers. The Company is able to simplify the process and
overcome many of these challenges for travel agents and travelers. The Company
maintains 24-hour toll-free numbers connected directly to its customer service
department in the U.S. from which its customers in Europe can obtain emergency
assistance. These toll-free numbers provide the customer with an English
speaking contact with

                                       7
<PAGE>
access to the appropriate emergency roadside assistance in the relevant foreign
location. European auto rentals are also now offered by the Company on its
www.autoeurope.com website.

         LODGING. The Company provides electronic reservation services to over
3,300 independent and chain hotels located in 70 countries worldwide. The
Company's lodging service revenues are generally commission based and,
therefore, largely depend on the volume of reservations processed on behalf of
its hotel customers. The Company generally processes hotel reservations through
the major computerized central reservation systems, including SABRE Group and
Amadeus, through Internet sites such as TravelWeb and Expedia and through its
call center. The Company also publishes a hotel directory featuring over 5,300
participating hotels worldwide through which travel agencies obtain special
rates, access to block space and other benefits at these listed hotels, and
provides after-hours travel services to travel agents.

         VACATIONS AND TOUR PACKAGES. The Company sells vacation packages
primarily to Alaska and Europe. One of the operating companies within the cruise
segment operates land tours in Alaska in connection with Alaska cruises and also
sells cruise/tour products to Europe and South America. Auto Europe also sells
vacation packages to Europe under the trade name Destination Europe. AHI
International Corporation develops, markets and sells packaged European
vacations primarily to individuals that are members of over 240 university and
college alumni associations, and also is a long standing provider of alumni tour
packages to college bowl games. Many of the European packages include riverboat
cruises.

         INCENTIVE TRAVEL PROGRAMS. The Company provides incentive travel
promotion services primarily to corporations. One of the Company's operating
companies sells incentive cruises to Fortune 500 and other corporations, often
as an incentive award for their top sales people. Another operating company
specializes in corporate sales promotion and fulfillment, providing structured
discounts to consumers for various forms of leisure travel. In addition, the
Company manages the fulfillment of travel arrangements arising from such
promotions.

INFORMATION TECHNOLOGY

         The Company has adopted an information technology strategy focused on
delivering value to the Company's customers, sales agents and travel providers,
while enabling efficient and effective back office processes and providing
necessary management information.

         The core of the Company's information technology strategy is the
"Universal Technology" platform, a series of applications and their supporting
infrastructure that enable the sale and fulfillment of the travel products and
services the Company sells. The Universal Technology environment includes: (i)
web-based applications that take advantage of thin client processing structures;
(ii) a multi-tier architecture for easy changes, enhancements and maximum reuse
potential; (iii) Microsoft standard development tools, including XML-based
message exchange architectures; (iv) the Microsoft Windows NT operating system
for the applications environment; and (v) an Oracle relational database
management system operating in the SUN/UNIX environment.

         The Universal Technology is expected to contribute to the Company's
efforts to increase productivity and net revenue per transaction by: (i)
allowing Company agents to process reservations on-line in a more efficient
fashion than the current manually-intensive processes employed; (ii) enabling
Company agents to offer customers more comprehensive product information and
automated access to special pricing and inventory opportunities; (iii) providing
Company agents additional up-selling and cross-selling capabilities; (iv)
allowing Company agents real time access to customer information via an on-line
database facility; (v) capitalizing on revenue management opportunities; (vi)
using the Internet to provide information and book reservations; and (vii)
enabling consolidation of cruise back office functions, including
reconciliation, accounting, documents management and financial reporting.

         Several releases of the Universal Technology applications are currently
in production; some software is still in development or testing phases. For
example, Flight Attendant Release 2.4, the application for air reservations, is
now in production in the San Diego, California, Albuquerque, New Mexico, and
Portland, Maine, call centers. Cruise Control Release 3.0, the application for
cruise sales, service and fulfillment, is currently in use in two of the cruise
call centers and is expected to be implemented in all call centers in 2000.

         The Flight Attendant application has been built to enable sales agents
to more effectively sell a greater volume of airline reservations faster and
with greater accuracy. These objectives are accomplished by use of the unique
features of Flight Attendant, which include: (i) integration of discount, net,
and published fares and flights on one screen. Flight

                                       8
<PAGE>
Attendant searches multiple global distribution systems, such as SABRE and
Amadeus, and the Company's own fare database to find the lowest fare available
and presents the information in one concise display; (ii) parallel access to
on-line airline systems and databases for faster response time; (iii) unique
"flexing" logic, which allows the agent to "coach" the customer toward lower
fares that are available if the customer has the flexibility to change dates
and/or times of travel; (iv) real time price management, which maximizes profit
opportunity by dynamically adjusting the airfare price in response to market
demands; (v) elimination of errors that can occur at the point-of-sale because
of the need to interpret complex airline rules; and (vi) reduced training time
from several weeks to less than one week.

         The Cruise Control application has been designed and developed with the
following core features and functions: (i) a sophisticated booking engine to
enable the seamless processing of cruise reservations and bookings; (ii) on-line
access to individual, group and block inventory and pricing; (iii) a
comprehensive database of cruise ships and sailing information, including
itineraries, destinations, pricing, deck plans, public rooms and amenities; (iv)
electronic interfaces to cruise lines' and other third-party systems; (v)
revenue management capabilities; and (vi) extensive back-office capabilities
including reconciliation, accounting, documents management and financial
reporting.

         Among the Company's goals is the desire to own the most comprehensive
collection of customer information in the leisure travel industry. Access to
this information will enable the customer relationship model that is key to
direct mail, advertising and other marketing activities. Accordingly, the
Universal Technology includes a comprehensive customer information database,
which includes extensive customer data such as profiles, preferences, travel
history, memberships, passport information, and future travel desires. The
customer information database is a common repository, shared across all
Universal Technology applications. This is expected to allow the Company to
acknowledge a customer's buying patterns across travel segments.

         The Company invested an aggregate of approximately $17 million through
1999 and plans to spend an additional $5 million in 2000 for the development of
the Universal Technology applications.

INTERNET DISTRIBUTION CHANNEL

         The Company seeks to capitalize on the Internet as a major distribution
channel for its products and services. On-line travel accounted for
approximately one percent of the $101 billion of travel products sold by travel
agents and specialized distributors in 1997, with 84% of on-line travel
transactions being airline tickets. With over 43 million U.S. households owning
a personal computer and with over 22 million households on-line in 1998, the new
digital economy is growing at double the rate of the overall economy. According
to Forrester Research, the on-line travel market is the second largest by dollar
volume and the fastest growing area of Internet commerce. The Company believes
that the Internet represents an important distribution channel for leisure
travel in the future.

         The Company currently markets on the Internet in several ways.
Mytravelco.com provides information on air, lodging, auto and vacation products,
and particularly in-depth information on cruises, offered by the Company. For
example, the cruise section of the site includes pages on hot deals, cruise
quotes, ships, cruise lines and cruise reviews. There is also a feature to
request cruise information and quotes on-line and to engage in on-line chat,
post messages and photos and view virtual tours of cruise ships. The air section
features a link to flycheap.com where a consumer can book an airline reservation
on line. The toll free phone numbers for the Company's products are promoted on
each page. In addition, the Company promotes itself and the www.mytravelco.com
website through advertising and promotional alliances on the Internet and
promotes its website in its other advertising media. Several of the Company's
operating companies also market through specialized websites including
www.autoeurope.com, www.cruises.com, www.flycheap.com and
www.lifestylevacations.com. The Company has dedicated agents to handle Internet
sales leads and inquiries, as well as management personnel who have experience
in the areas of e-commerce and Internet marketing.

         The Company's technology employs a thin client, web-based architecture
appropriate for the Internet. The Company implemented on-line booking
capabilities for air in 1999 and expects to do so for cruise in 2000.

SALES AND MARKETING

         The Company utilizes a multi-faceted marketing and sales approach
depending on the particular travel products and services being promoted and
depending on the type of customer being targeted. In addition, the Company
markets its other national brands, such as 1-800-FLY-CHEAP, Auto Europe and
Lexington Services, to consumers, travel agents and independent hotels,
respectively.

                                       9
<PAGE>

         The Company markets cruises to consumers in a variety of ways,
including newspaper and magazine advertisements, television commercials, e-mail
and direct mail, each of which contain extensive product offerings and special
travel offers and which highlight toll-free numbers, including 1-800-CRUISES.
The Company operates several call centers to respond to these calls. The Company
also has a network of over 700 home-based agents, including franchisees and
independent contractors, who actively market and sell cruises in their local
areas. Direct mail campaigns include brochure and vacation directory mailings to
existing and new customers. Point of purchase sales promotions include tie-ins
with other retailers such as fast food chains and supermarkets. Extensive cruise
information and automated requests for information are available to consumers by
accessing the Company's website, www.mytravelco.com. In addition, the Company
promotes its cruise offerings through advertising and promotional alliances on
the Internet.

         The Company markets European auto rentals and international air tickets
primarily to travel agents through a variety of methods including a dedicated
sales force, trade advertising, direct mail, fax distribution technology and the
Internet. Incoming calls are handled at three call centers. European vacation
package concepts are marketed to over 240 alumni associations using a dedicated
sales force, and the packages are then marketed to alumni via extensive direct
mail offerings produced in cooperation with the alumni associations.

         The Company markets its electronic hotel reservation services to
independent hotels through a dedicated business development sales force,
extensive public relations activities and industry trade events. The Company
markets its special hotel programs and its after-hours travel services to travel
agents primarily through a dedicated sales force.

         The Company markets domestic airline tickets to consumers primarily
through newspaper and yellow page advertising, through word of mouth exposure of
the easy to remember toll free number, 1-800-FLY-CHEAP, and on the Internet.
Calls are currently taken at two call centers. On-line booking is also promoted
on the Company's website, www.flycheap.com.

         The Company markets incentive cruises to corporations through a
dedicated sales force and through industry events. For the travel incentive
promotions business, the Company markets to corporations primarily through
independent sales representatives, the Internet, and industry trade events.

TRAVEL PROVIDER RELATIONSHIPS

         The Company receives from certain travel providers pricing that is
preferential to published fares, which enables the Company to offer prices which
are often lower than would be generally available to travelers and travel
agents. The Company's agreements with travel providers are generally short-term
agreements that are cancelable on relatively short notice and, therefore, travel
providers can, and often do, modify the terms of contracts as industry
conditions change, including terms relating to commissions, access to inventory
and pricing. Such agreements generally permit the Company and its subsidiaries
to sell the travel products at either preferred prices or with preferred
commission structures because of the Company's and its subsidiaries' reputation,
historical relationships, expertise, and substantial volume of business
conducted with the travel providers; however, such contracts generally do not
create commitments by the travel providers for fixed capacity or inventory.
Other distributors, including the Company's competitors, may have similar
arrangements with travel providers, some of which may provide better
availability or more competitive pricing than that offered by the Company.

         In 1999, the Company consolidated its travel provider contracts in the
cruise segment. In other segments, however, the Company may still operate with
more than one agreement with travel providers. Although the Company's agreements
with its travel providers in the aggregate are important to the Company's
success, the Company does not believe that cancellation of any one of these
agreements would have a material adverse effect on the Company's business or
results of operations. Nevertheless, there can be no assurance that cancellation
of one or more of such agreements would not result in such a material adverse
effect.

         Six cruise lines each in 1997 and 1998 and four cruise lines each in
1999 represented greater than 10% of cruise segment net revenues and represented
in the aggregate approximately 74%, 85% and 70%, respectively, of the Company's
cruise net revenues in 1997, 1998 and 1999. Two auto rental travel providers
each represented greater than 10% of outbound segment net revenues and
represented in the aggregate approximately 87%, 84% and 77%, respectively, of
the Company's net revenues from European auto rentals in 1997, 1998 and 1999.
Three airlines each represented greater than 10% of the other segment's net
revenues and represented in the aggregate approximately 63%,

                                       10
<PAGE>
51% and 55%, respectively, of the Company's net revenues from domestic airline
tickets in 1997, 1998 and 1999. Carnival Cruise Line and Europcar International,
S.A. were travel providers for approximately 7% and 8%, respectively, of the
Company's consolidated net revenues in 1999.

COMPETITION

         The travel service industry is extremely competitive and has
traditionally had low barriers to entry. The Company competes with other
distributors of travel services, travel providers, travel agents, tour
operators, group travel sponsors, Internet companies, and global distribution
system providers, some of which have greater experience, brand name recognition
and/or financial resources than the Company. The Company competes for customers
based upon service, price, specialized in-depth knowledge and, with respect to
sales to travel agents, attractive commission structures. Travel providers may
decide to compete more directly with the Company and restrict the availability
and/or preferential pricing of their capacity. In addition, other distributors
may have relationships with certain travel providers, providing better
availability or more competitive pricing than that offered by the Company.
Furthermore, some travel agents and group travel sponsors have a strong presence
in their geographic area, which may make it difficult for the Company to attract
customers in those areas.

EMPLOYEES

         As of December 31, 1999, the Company had 2,142 full-time employees, of
whom 807 were employed in connection with the cruise reporting segment, 466 were
employed in connection with the outbound reporting segment, 259 were employed in
connection with the lodging reporting segment, 482 were employed in connection
with the other reporting segment and 128 were employed at the Company's
corporate headquarters. In addition, the Company had contracts with 197
independent contractors and 400 franchisees, and used temporary employees,
contractors and consultants as required to meet the needs of seasonal demand and
technology and other projects. The Company believes that its relations with its
employees, independent contractors and franchisees are good.

QUALIFICATION OF FORWARD-LOOKING STATEMENTS

         The statements contained in this Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including without limitation statements regarding the Company's expectations,
beliefs, intentions or strategies regarding the future. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statements. The forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause actual
results, experience and the performance or achievements of the Company to be
materially different from those anticipated, expressed or implied by the
forward-looking statements. In evaluating the Company's business, the following
factors, in addition to the Risk Factors set forth below and other information
set forth herein, should be carefully considered: successful deployment and
integration of systems; factors affecting internal growth and management of
growth; the Company's ability to implement its technology strategy; success of
marketing, integration and operational initiatives, including Internet marketing
initiatives; dependence on technology; labor and technology costs; cost and
availability of advertising and promotional efforts; success of the acquisition
strategy and availability of acquisition financing; success in entering new
segments of the travel market and new geographic areas; dependence on travel
providers; risks associated with the travel industry generally; seasonality and
quarterly fluctuations; competition; and general economic conditions. In
addition, the Company's operating strategy and growth strategy involve a number
of risks and challenges, and there can be no assurance that these risks and
other factors will not have a material adverse effect on the Company.

                                       11
<PAGE>
RISK FACTORS

         LIMITED COMBINED OPERATING HISTORY; RISKS OF INTEGRATION. Travel
Services International, Inc. was founded in April 1996 but conducted no
operations and generated no revenues prior its initial public offering in July
1997, when it acquired the five Founding Companies. Subsequent to July 1997, the
Company acquired an additional 17 operating companies and one software
development company. Currently, the Company relies on the existing reporting
systems of the operating companies for financial reporting. There can be no
assurance that the Company will be able to successfully integrate the operations
of these businesses or institute the necessary Company-wide systems and
procedures to successfully manage the combined enterprise on a profitable basis.
Also, there can be no assurance that the management group will be able to
effectively manage the combined entity or effectively implement and carry out
the Company's internal growth strategy, operating strategy or technology
strategy. The consolidated financial statements cover certain periods when the
operating companies were not under common control or management and, therefore,
may not be indicative of the Company's future financial or operating results.
The inability of the Company to successfully integrate the operating companies,
and future acquisitions, would have a material adverse effect on the Company's
business, financial condition, and results of operations, and would make it
unlikely that the Company's acquisition program will continue to be successful.

         A number of the operating companies offer different travel services,
utilize different capabilities and technologies and target different client
segments. While the Company believes that there are substantial opportunities to
cross-market and integrate these businesses, these differences increase the risk
inherent in successfully completing such integration. Further, there can be no
assurance that the Company's strategy to be the leading specialized distributor
of leisure travel services will be successful, or that the travelers or travel
providers will accept the Company as a distributor of a variety of specialized
travel services.

         MANAGEMENT OF GROWTH; FACTORS AFFECTING INTERNAL GROWTH. The Company
expects to spend significant time and effort expanding and integrating existing
businesses. There can be no assurance that the Company's systems, procedures or
controls will be adequate to support the Company's operations as they expand.
Any future growth also will impose significant added responsibilities on members
of senior management, including the need to identify, recruit and integrate new
senior level managers and executives. There can be no assurance that such
additional management will be identified or retained by the Company. To the
extent that the Company is unable to manage its growth efficiently and
effectively, or is unable to attract and retain qualified management, the
Company's business, financial condition and results of operations could be
materially adversely affected. There can be no assurance that the Company will
experience internal growth. From time to time, certain of the operating
companies have been unable to hire and train the number of qualified sales
personnel needed to meet the demands of their businesses. Factors affecting the
ability of the Company to continue to experience internal growth include, but
are not limited to, the ability to expand the travel services offered, the
continued relationships with certain travel providers and travel agents, the
public's acceptance of and response to the Company's brand names, the ability to
recruit and retain qualified sales personnel, the ability to cross-sell services
within the Company, continued access to capital and increased competition.

         DEPENDENCE ON TRAVEL PROVIDERS. The Company is dependent upon travel
providers for access to their products. The Company receives from certain travel
providers pricing and capacity that is preferential to published fares which
enables the Company to offer consistently competitive products and services.
Other distributors may have similar arrangements with travel providers, some of
which may provide better availability or more competitive pricing than that
offered by the Company. The Company anticipates that a significant portion of
the Company's revenues will continue to be derived from the sale of capacity for
relatively few travel providers. In addition, travel providers may expand their
direct marketing efforts and reduce the capacity offered to distributors.

          Six cruise lines each in 1997 and 1998 and four cruise lines each in
1999 represented greater than 10% of cruise segment net revenues and represented
in the aggregate approximately 74%, 85% and 70%, respectively, of the Company's
cruise net revenues in 1997, 1998 and 1999. Two auto rental travel providers
each represented greater than 10% of outbound segment net revenues and
represented in the aggregate approximately 87%, 84% and 77%, respectively, of
the Company's net revenues from European auto rentals in 1997, 1998 and 1999.
Three airlines each represented greater than 10% of the other segment's net
revenues and represented in the aggregate approximately 63%, 51% and 55%,
respectively, of the Company's net revenues from domestic airline tickets in
1997, 1998 and 1999. Carnival Cruise Line and Europcar International, S.A. were
travel providers for approximately 7% and 8%, respectively, of the Company's
consolidated net revenues in 1999.

                                       12
<PAGE>
         The Company's agreements with its travel providers can generally be
cancelled or modified by the travel provider upon relatively short notice. The
loss of a contract, changes in the Company's pricing agreements, commission
schedules, or cooperative marketing arrangements or more restricted access to
travel providers' capacity could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
lodging industry recently has witnessed a period of consolidation. Continued
consolidation could reduce the Company's electronic hotel reservation services
customer base which could, in turn, have a material adverse effect on the
Company's financial condition and results of operations.

         DEPLOYMENT OF NEW TECHNOLOGY. The Company is in the process of, and
expects that it will continue over the coming years, replacing many of the
existing computer systems at the operating companies and implementing its new
"Universal Technology" architecture. There can be no assurance that these new
systems will be successfully completed, installed according to the expected time
frame or within the anticipated budget, implemented without any disruption to
the Company's business or result in the intended operational benefits and cost
efficiencies.

         DEPENDENCE UPON TECHNOLOGY. The Company's business is currently
dependent upon a number of different information and telecommunication
technologies to facilitate its access to information and manage a high volume of
inbound and outbound calls. Any failure of this technology would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company is dependent upon certain third party
vendors, including central reservation systems, such as SABRE Group, Amadeus and
THISCO for access to certain information. Any failure of these systems or
restricted access by the Company would have a material adverse effect on the
Company's business, financial condition and results of operations.

         RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS.
The Company's results of operations are dependent upon factors generally
affecting the travel industry. The Company's revenues and earnings are
especially sensitive to events that affect domestic and international air
travel, cruise travel, auto rentals in Europe and hotel room nights. A number of
factors could result in an overall decline in demand for travel, including
political instability, armed hostilities, international terrorism, extreme
weather conditions, a rise in fuel prices, a decline in the value of the U.S.
dollar, labor disturbances, excessive inflation, a general weakening in economic
activity and reduced employment in the U.S. These types of events could have a
material adverse effect on the Company's business, financial condition and
results of operations.

         SEASONALITY AND QUARTERLY FLUCTUATIONS. The domestic and international
leisure travel industry is seasonal. The results of each of the operating
companies have been subject to quarterly fluctuations caused primarily by the
seasonal variations in the travel industry, especially the leisure travel
segment. Seasonality depends on the particular leisure travel product or service
sold. The Company expects seasonality to continue in the future on a combined
basis. The Company's quarterly results of operations may also be subject to
fluctuations as a result of changes in the mix of services offered by the
Company as a result of acquisitions, internal growth rates among various travel
segments, fare wars by travel providers, changes in relationships with certain
travel providers, the timing of the payment of overrides by travel providers,
extreme weather conditions or other factors affecting travel and the timing and
cost of acquisitions.

         SUBSTANTIAL AMOUNT OF GOODWILL. Approximately $142 million, or 61%, of
the Company's total assets as of December 31, 1999, is goodwill, which
represents the excess of consideration paid over the estimated fair market value
of net identifiable assets acquired in business combinations accounted for under
the purchase method. The Company generally amortizes goodwill on a straight line
method over a period of 35 years, the approximate useful life of acquired
intangible assets, with the amount of goodwill amortized in a particular period
constituting a non-cash expense that reduces the Company's net income.
Amortization of goodwill resulting from certain past acquisitions, and
additional goodwill recorded in certain future acquisitions may not be
deductible for tax purposes. In addition, the Company will be required
periodically to evaluate the recoverability of goodwill by reviewing the
anticipated undiscounted future cash flows from operations and comparing such
cash flows to the carrying value of the associated goodwill. If goodwill becomes
impaired, the Company would be required to write down the carrying value of the
goodwill and incur a related charge to its income. A reduction in net income
resulting from a write down of goodwill would currently affect financial
results.

         SUBSTANTIAL COMPETITION. The travel service industry is extremely
competitive and traditionally has low barriers to entry. The Company competes
with other distributors of travel services, travel providers, travel agents,
tour operators, Internet companies and central reservation service providers,
some of which have greater experience, brand name recognition and/or financial
resources than the Company. Travel providers may decide to compete more directly

                                       13
<PAGE>
with the Company and restrict the availability and/or preferential pricing of
their capacity. In addition, other distributors may have relationships with
certain travel providers providing better availability or more competitive
pricing than that offered by the Company. Furthermore, some travel agents have a
strong presence in their geographic area which may make it difficult for the
Company to attract customers or employees in those areas.

         RELIANCE ON KEY PERSONNEL. The Company's operations are dependent on
the efforts and relationships of Joseph V. Vittoria and the other executive
officers as well as the senior management of the operating companies. If any of
these individuals become unable to continue in their role the Company's business
or prospects could be adversely affected. Although the Company has entered into
an employment agreement with each of the Company's executive officers and the
executive officers of each operating company, there can be no assurance that
such individuals will continue in their present capacity for any particular
period of time. The Company does not maintain key man life insurance covering
any of its executive officers or other members of senior management.

         RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. Acquisitions
involve a number of special risks, including possible adverse effects on the
Company's operating results, diversion of management's attention, failure to
retain key personnel, risks associated with unanticipated events or liabilities
and amortization of acquired intangible assets, some or all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. Customer dissatisfaction or performance problems at a
single acquired company could also have an adverse effect on the reputation of
the Company. Further, there can be no assurance that businesses acquired will
achieve anticipated revenues and earnings. In addition, to the extent that the
Company intends to increase its revenues, expand the markets it serves and
increase its service offerings through the acquisition of additional operating
companies, there can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses into the Company without substantial costs, delays or other
operational or financial problems. Increased competition for acquisition
candidates may also develop, in which event there may be fewer acquisition
opportunities available to the Company, as well as higher acquisition prices.
The Company may also seek international acquisitions that may be subject to
additional risks associated with doing business in foreign countries. The
Company continually reviews various strategic acquisition opportunities and has
held discussions with a limited number of such acquisition candidates. As of the
date of this Report, the Company is not party to a binding agreement with
respect to any material acquisition.

         RISKS RELATED TO POSSIBLE NEED FOR ADDITIONAL CAPITAL. If the Company
has insufficient cash resources, its growth could be limited unless it is able
to obtain additional capital. There can be no assurance that the Company's
Credit Facility will be sufficient or that other financing will be available on
terms the Company deems acceptable. If the Company is unable to generate cash or
obtain financing sufficient for its needs, it may be unable to fully carry out
its strategies. If funding is insufficient, the Company may be required to
delay, reduce the scope of or eliminate some or all of its expansion programs.

         CONTROL BY AIRTOURS; ILLIQUID MARKET FOR COMMON STOCK. As of March 29,
2000, Airtours beneficially owned shares of Common Stock representing 95% of the
total voting power of the Common Stock. Accordingly, Airtours is able to
exercise control over the Company's affairs and is able to elect the entire
Board of Directors and to control the disposition of any matter submitted to a
vote of shareholders. Further, there is unlikely to be an active trading market
for the Common Stock.

                                       14
<PAGE>
ITEM 2. PROPERTIES

         As of March 31, 2000, the Company had 39 office facilities, two of
which it owns and 37 of which are leased. As the Company continues to implement
its growth strategy, certain changes are possible, such as combinations of
facilities, expansion of other facilities, and the implementation of new call
centers or shared services centers. The Company's facilities are set forth in
the table below.
<TABLE>
<CAPTION>
                                                             OWNED/       EXPIRATION     SQUARE      ANNUAL
           COMPANY                  LOCATION                 LEASED          DATE         FEET         RENT
           -------                  --------                 ------          ----         ----         ----
<S>                                      <C>                   <C>           <C>        <C>          <C>
ABC Corporate Services              Rosemont, IL              Leased        02/14/05     4,693      85,000
ABC Corporate Services              Omaha, NE                 Leased        12/31/01     4,050     114,000
AHI International, Inc.             Rosemont, IL              Leased        02/14/05    19,996     429,000
Auto Europe                         Portland, ME               Owned (1)      --        38,000          --
Auto Europe                         New York, NY              Leased        12/31/01       500      17,000
Auto Europe                         Miami, FL                 Leased        10/31/00       400      10,000
Auto Europe                         Sunrise, FL               Leased        02/14/01     2,188      26,000
Cruise Fairs of America             Culver City, CA           Leased        03/31/04     8,910     177,000
Cruises Inc.                        Syracuse, NY              Leased        02/28/06    10,636     168,000
CruiseMasters                       Culver City, CA           Leased        07/31/02     5,154      88,000
CruiseOne                           Deerfield Beach, FL       Leased        09/30/00     4,316      78,000
CruiseOne                           Ft. Lauderdale, FL        Leased        05/01/10     7,271     124,000
Cruises Only                        Jacksonville, FL          Leased        11/30/00     4,750      51,000
Cruises Only                        Orlando, FL               Owned (1)        --       37,600          --
Cruises Only                        Portland, ME              Owned (2)        --           --          --
Cruise Outlets of the Carolinas     Charlotte, NC             Leased        11/30/04     4,506      87,000
CruiseWorld                         Sysossett, NY             Leased        04/30/04    15,088     233,000
CruiseWorld                         Rockville Center, NY      Leased        04/30/07     1,500      21,000
CruiseWorld                         Briarcliff Manor, NJ      Leased        03/31/02     2,300      41,000
CruiseWorld                         Wilton, CT                Leased        10/31/02     2,600      38,000
D-FW Tours                          Dallas, TX                Leased        01/31/05    12,727     216,000
Diplomat Tours                      Sacramento, CA            Leased        12/31/00     5,337      83,000
Gold Coast Cruises                  North Miami, FL           Leased        07/31/02    13,000     198,000
Gold Coast Cruises                  North Miami, FL           Leased        01/31/04     1,000      15,000
Gold Coast Cruises                  North Miami, FL           Leased        01/31/04     1,000      15,000
Landry & Kling                      Coral Gables, FL          Leased        06/30/03     4,740     103,000
Lexington Services                  Dallas, TX                Leased        07/31/05    20,371     376,000
Lifestyle Vacation Incentives       Delray Beach, FL          Leased        12/31/01     7,896     114,000
Ship & Shore                        Englewood, FL             Leased        11/20/02     7,214      96,000
Ship & Shore                        Anchorage, AK             Leased        10/31/02       911      16,000
Ship & Shore                        Clarence, NY              Leased        07/31/01     1,250      15,000
Ship & Shore                        Fort Myers, FL            Leased (3)    02/28/00     1,150      11,000
Ship & Shore                        Longboat Key, FL          Leased        08/31/00       966      13,000
The Cruise Line Inc.                Miami, FL                 Leased        05/15/02    12,250     228,000
The Travel Company                  Atherton, CA              Leased        07/31/00     2,300      71,000
Travel 800                          San Diego, CA             Leased        11/30/03    15,605     248,000
Travel 800                          Albuquerque, NM           Leased        02/28/05    21,000     358,000
Travel Services International       Delray Beach, FL          Leased        10/20/04    22,428     388,000
Travel Services International       Delray Beach, FL          Leased        11/01/00     2,800      48,000
1-800-Cruises                       Boca Raton, FL            Leased        05/31/02     2,102      59,000
</TABLE>
-------------------
(1) Subject to a mortgage.
(2) Contained within Auto Europe's corporate headquarters.
(3) Location continues to be occupied on a month-to-month basis, with the
    consent of the landlord.

                                       15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

         The Company is involved in various legal claims and actions arising in
the ordinary course of business. The Company believes that none of these actions
will have a material adverse effect on its business, financial condition and
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of security holders during the fiscal
quarter ended December 31, 1999.


                                     PART II
                                     -------

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS


         The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol "TRVL." The following table sets forth the high and low closing
prices for each quarter (or partial quarter) in 1999 and 2000, as quoted on The
Nasdaq Stock Market:


            1999                                        HIGH           LOW
            ----                                        ----           ---
            First Quarter                               31-1/2         9-1/16
            Second Quarter                              12-5/8          6-3/8
            Third Quarter                               14-5/8       10-13/16
            Fourth Quarter                              12-1/2          8-3/4

            2000
            ----
            First Quarter                               26              9
            Second Quarter (through April 10, 2000)     26             25-7/8

         The closing price of the Company's Common Stock, as reported by The
Nasdaq Stock Market, on March 31, 2000 was $25-7/8. The approximate number of
record holders of the Common Stock as of March 31, 2000 was 46. The Company
believes that a large number of beneficial owners hold such shares in depository
or nominee form.

         The Company does not anticipate paying any cash dividends on its Common
Stock in the near term. The Company's line of credit includes restrictions on
the ability of the Company to pay cash dividends without the consent of the
lender.

ITEM 6. SELECTED FINANCIAL DATA

         On July 28, 1997, the Company consummated its initial public offering
and acquired the Founding Companies (the "Combinations") in transactions
accounted for using the purchase method of accounting. Financial statements do
not include the operating results of the Founding Companies (other than Auto
Europe, the "accounting acquiror") prior to July 1997. Financial statements for
the years ended December 31, 1997, 1998 and 1999 include the operating results
of eight additional specialized distributors of cruise reservation services
acquired from November 1997 through December 1998 under transactions accounted
for using the pooling of interests method of accounting (the "Pooling
Acquisitions"). The financial statements also do not include the operating
results of five specialized distributors (one airline, three cruise, and one
auto rental) (the "Purchase Acquisitions"), an electronic hotel reservation
service company ("Lexington"), a provider of services to independent travel
agencies ("ABC"), a package tour provider to members of university and college
alumni associations ("AHI") and a provider of incentive programs for structured
travel discounts to consumers ("LVI"), acquired under transactions accounted for
using the purchase method of accounting, prior to their respective dates of
acquisition. Accordingly, the financial data for each year presented represent
those of Auto Europe and the Pooling Acquisitions, and include the operations of
the other four Founding Companies and the Company only since July 28, 1997 and
the Purchase Acquisitions, Lexington, ABC, AHI, and LVI from date of acquisition
through December 31, 1999.

                                       16
<PAGE>
         The financial data of the Company for each of the five years ending
December 31, 1995, 1996, 1997, 1998 and 1999 and as of December 31, 1998 and
1999 have been derived from the audited consolidated financial statements of the
Company included elsewhere herein. The information contained in these tables
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

The financial statements do not include the operating results of the Founding
Companies (other than Auto Europe, the "accounting acquiror") Lexington, ABC,
AHI, or LVI prior to their respective dates of acquisition.

STATEMENT OF OPERATIONS DATA:
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                            --------------------------------------------------------------------
                                               1995          1996          1997          1998          1999
                                            ------------  ------------  ------------ ------------- -------------
<S>                                              <C>           <C>           <C>           <C>          <C>
Net revenues                                    $30,024       $37,654       $62,813      $129,855      $187,042
Operating expenses                               19,079        25,305        38,810        70,920       115,202
                                            ------------  ------------  ------------ ------------- -------------
Gross profit                                     10,945        12,349        24,003        58,935        71,840
General and administrative expenses              10,534        11,824        19,209        34,550        55,378
Goodwill amortization                                 -             -           513         2,628         4,316
                                            ------------  ------------  ------------ ------------- -------------
Income from operations                              411           525         4,281        21,757        12,146
Other income (expense), net                        (43)         (209)          (30)          (28)           112
                                            ------------  ------------  ------------ ------------- -------------
Income before provision for income taxes            368           316         4,251        21,729        12,258
Provision for income taxes                          147           173           770         9,310         4,903
                                            ------------  ------------  ------------ ------------- -------------
Net income                                         $221          $143        $3,481       $12,419        $7,355
                                            ============  ============  ============ ============= =============

Per Share Data:
Basic earnings per share                          $0.07         $0.05         $0.54         $1.03         $0.53
                                            ============  ============  ============ ============= =============

Diluted earnings per share                        $0.07         $0.05         $0.53         $0.99         $0.53
                                            ============  ============  ============ ============= =============

Shares used in computing basic earnings
  per share                                   3,080,678     3,080,678     6,394,843     12,075,044   13,840,750
                                            ============  ============  ============ ============= =============
Shares used in computing diluted
  earnings per share                          3,080,678     3,080,678     6,533,769     12,516,195   13,884,610
                                            ============  ============  ============ ============= =============
</TABLE>
BALANCE SHEET DATA (in thousands):
                                                         DECEMBER 31,
                                                    1998              1999
                                               ----------------  ---------------

Working capital                                    $22,728            $10,918
Total assets                                      $180,129           $231,484
Long-term debt                                      $2,888            $17,323
Stockholders' equity                              $145,297           $162,539

                                       17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion should be read in conjunction with "Selected
Financial Data" and the Company's Consolidated Financial Statements and related
Notes thereto appearing elsewhere herein.

INTRODUCTION

         The Company is a leading specialized distributor of leisure travel
products including cruise vacations, vacation packages, domestic and
international airline tickets and European auto rentals, and is a leading
provider of travel services such as electronic hotel reservation services,
specialized hotel programs and services and incentive travel programs. The
Company does not record the gross amount of the travel products and services
sold to consumers and travel agents, but rather records the commission and fee
revenue received by the Company from travel providers.

         The Company, following its initial public offering and the Combinations
of the Founding Companies in July 1997, focused for the remainder of 1997 on
forming a corporate headquarters, developing a technology strategy and acquiring
operating companies. During 1998, the Company focused on developing strategic
software applications, creating a marketing and branding strategy, expanding
call centers for cruise and domestic air operations, centralizing certain
activities at corporate headquarters and acquiring additional operating
companies. During 1999, the Company focused on expanding its presence and
on-line booking capabilities on the Internet, further developing and rolling out
its strategic software applications, integrating its cruise segment call center
operations, maximizing revenue opportunities and improving call center
operations. In addition, the Company anticipates making certain investments and
further integrating its operations to strategically position the Company for the
future.

         The Company operates and reports under the following segments: cruise,
outbound, lodging and other.

         The cruise segment is comprised of operating companies distributing
cruises through call centers, home-based agents and the Internet. Net revenues
include commissions and markups, volume override commissions, and royalty fees
and franchise fees from franchisees. The Company records net revenue when the
customer is no longer entitled to a full refund of the cost of the cruise, which
is generally 45 to 90 days prior to the cruise departure date. The Company
provides an allowance for cancellations and reservation changes, which is based
on historical experience.

         The outbound segment is comprised of operating companies distributing
European auto rentals, international airline tickets and international vacation
packages. Net revenues include commissions and markups. The Company records net
revenue when the reservation is booked and ticketed except for international
tour packages for which net revenue is recorded when the tour departs. The
Company provides an allowance for cancellations, reservation changes and
currency exchange guarantees, which is based on historical experience.

         The lodging segment is comprised of operating companies providing
electronic hotel reservation services to independent hotels and specialized
hotel programs and other reservation and after-hours travel services to travel
agencies. Net revenues include commissions and fees for reservation services,
and fees for subscriptions and advertising related to the hotel programs. The
Company records net revenue at the time the traveler checks out of the hotel for
hotel reservation services, when service is provided for after-hours travel
services to travel agencies, over the subscription period for hotel program
subscriptions, and when the hotel program publication is mailed for
advertisement fees. The Company provides an allowance for cancellations,
reservation changes and "no shows", which is based on historical experience.

         The other segment is comprised of operating companies providing
domestic airline tickets and incentive travel programs. Net revenues include
commissions, markups, volume overrides and segment, processing and delivery
fees. The Company records net revenue when the reservation is booked and
ticketed for domestic airline tickets and when the customer is no longer
entitled to a full refund of the cost of the incentive cruise, which is
generally 45 to 90 days prior to the cruise departure date, and ratably over
estimated economic lives of incentive travel programs. The Company provides an
allowance for cancellations, which is based on historical experience.

         For each segment, operating expenses include compensation of sales and
sales support personnel, commissions and remuneration paid to travel agents and
alumni associations, credit card merchant fees, telecommunications, mail,
courier, marketing and other expenses that generally vary with revenues.
Commissions and remuneration to travel

                                       18
<PAGE>
agents and alumni associations, respectively, are typically based on a
percentage of the gross amount of the travel services sold. The Company's sales
personnel are compensated either on an hourly basis, a commission basis or a
combination of the two, with the majority of agents receiving a substantial
portion of their compensation based on sales generated. The Company's
independent contractors selling cruises receive a portion of the commissions
earned by the Company. Conversely, the Company receives as a royalty a portion
of commissions earned by its franchisees selling cruises. General and
administrative expenses include compensation and benefits to management,
professional and administrative employees, fees for professional services, rent,
information services, depreciation, travel and entertainment, office services
and other overhead costs.

         The financial results presented by reporting segment represent the
historical information of the Company in the manner in which the Company's
management internally disaggregates financial information for the purpose of
assisting in making operational decisions. Excluded from the four reporting
segments are goodwill amortization, software amortization and support expenses,
expenses of corporate headquarters, interest expense, income taxes and certain
other expenses controlled by and recorded at corporate headquarters.

         The Company's business and growth strategies encompass many components,
including providing extensive expertise in specific travel segments and high
levels of customer service, embracing multiple selling models and distribution
channels, including the Internet, implementing cross selling opportunities
across travel segments, implementing state-of-the-art technology infrastructure,
and pursuing selected strategic acquisitions.

CONSOLIDATED FINANCIAL REVIEW

         The following table sets forth certain historical financial data, also
stated as a percentage of net revenues, for the years indicated (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
                                                    1997                  1998                   1999
                                            --------------------- --------------------- -----------------------
<S>                                            <C>        <C>        <C>        <C>        <C>          <C>
Net revenues                                   $62,813    100.0%     $129,855   100.0%     $187,042     100.0%
Operating expenses                              38,810     61.8%       70,920    54.6%       115,202     61.6%
                                            --------------------- --------------------- -----------------------
Gross profit                                    24,003     38.2%      58,935     45.4%       71,840      38.4%
General and administrative expenses             19,209     30.6%      34,550     26.6%       55,378      29.6%
Goodwill amortization                              513      0.8%       2,628      2.0%        4,316       2.3%
                                            --------------------- --------------------- -----------------------
Income from operations                           4,281      6.8%      21,757     16.8%       12,146       6.5%
Other income (expense), net                       (30)      0.0%        (28)      0.0%          112       0.1%
                                            --------------------- --------------------- -----------------------
Income  before   provision  for  income
   taxes                                         4,251      6.8%      21,729     16.7%       12,258       6.6%
Provision for income taxes                         770      1.2%       9,310      7.2%        4,903       2.6%
                                            --------------------- --------------------- -----------------------
Net income                                      $3,481      5.5%   $12,419        9.6%       $7,355       3.9%
                                            ===================== ===================== =======================

Diluted earnings per share                       $0.53                 $0.99                  $0.53
                                            ===========           ===========           ============
</TABLE>

         The Company reported net income of $7.4 million, or $0.53 diluted
earnings per share, in 1999, compared to net income of $12.4 million, or $0.99
diluted earnings per share, in 1998 and net income of $3.5 million, or $0.53
diluted earnings per share, in 1997. The increases from 1997 to 1998 were
primarily the result of increased sales volume, increased gross profit margins,
the Combinations and acquisitions. Net revenues increased 106.7% in 1998,
primarily the result of increased sales volume, the Combinations and
acquisitions. The decrease in income before taxes from 1998 to 1999 was related
to declining profits in the cruise segment. Overall, net revenues increased
66.8% in 1999, primarily as the result of increased sales volume in the outbound
and other segments and acquisitions.

         Gross profit margins improved in 1998 because certain operating costs
decreased as a percentage of net revenue primarily as a result of realizing
higher net revenues per transaction and the semi-variable nature of certain
expenses classified as operating expenses. In 1999, however, gross profit
margins declined as a result of the cruise segment due to lower commission deals
and increased operating costs, in particular, advertising resulting in lower
gross profit margins.

                                       19
<PAGE>
         General and administrative expenses increased $20.8 million, or 60.3%,
in 1999, of which $8.2 million was attributable to expenses associated with
corporate headquarters and $12.6 million was costs incurred by operating
companies. Of the $8.2 million increase at corporate headquarters, $7.5 million
resulted from increases in operating expenses for capitalized software now in
production and increased staff. Of the $12.6 million increased costs incurred by
operating companies, $4.4 million was due to the AHI and LVI acquisitions that
took place in 1999. General and administrative expenses increased $15.3 million,
or 79.9%, in 1998, of which $6.9 million was attributable to expenses associated
with corporate headquarters and $8.4 million was costs incurred by operating
companies. The increase at corporate headquarters was the result of operating
the headquarters for all of 1998 compared to five months in 1997, various
centralization initiatives introduced at corporate headquarters over the course
of 1998, bonuses accrued for executives at headquarters and operating companies
and non-capitalizable operating costs associated with technology and
telecommunications initiatives totaling $1.5 million in 1998. The Company
expects its expenses associated with technology will increase in 2000 as more
systems are rolled out and once capitalized software costs are amortized as
particular software releases are ready for their intended use.

         Goodwill amortization increased $1.6 million and $2.1 million
respectively in 1999 and 1998 as a result of the Combinations and several
acquisitions accounted for under the purchase method of accounting.

         Provision for income taxes, as a percentage of income before provision
for income taxes, was 40.0% in 1999, 42.8% in 1998, and 18.1% in 1997.
Fluctuations in the effective tax rates from 1997 to 1998 were the result of the
impact of a deferred tax benefit recorded in 1997 by Auto Europe, the accounting
acquiror, and the impact of varying historical effective tax rates and tax
structures of acquired companies accounted for using the pooling of interests
method of accounting. In 1999, the Company undertook certain corporate
restructuring initiatives, which reduced the Company's effective tax rate.

CRUISE REPORTING SEGMENT FINANCIAL REVIEW

         The following table sets forth certain historical financial data, also
stated as a percentage of net revenues, for the years indicated (dollars in
thousands):
<TABLE>
<CAPTION>
                                                       1997                   1998                   1999
                                               ---------------------- ---------------------- ---------------------
<S>                                               <C>         <C>        <C>         <C>        <C>        <C>
Net revenues                                      $23,537     100.0%     $58,673     100.0%     $60,325    100.0%
Operating expenses                                 11,690      49.7%      26,796      45.7%      42,481     70.4%
                                               ---------------------- ---------------------- ---------------------
Gross profit                                       11,847      50.3%      31,877      54.3%      17,844     29.6%
General and administrative expenses                 7,752      32.9%      14,268      24.3%      18,085     30.0%
                                               ---------------------- ---------------------- ---------------------
Income from operations                              4,095      17.4%      17,609      30.0%       (241)     -0.4%
Other income (expense), net                          (28)       0.1%         325      -0.6%         744      1.2%
                                               ---------------------- ---------------------- ---------------------
Income before provision for income taxes(1)       $4,067       17.3%     $17,934      30.6%        $503      0.8%
                                               ====================== ====================== =====================
</TABLE>
(1)  Excludes goodwill amortization, software amortization and support expenses,
     expenses of corporate headquarters, interest expense, income taxes and
     certain other expenses controlled and recorded at corporate headquarters.

         Cruise reporting segment reported income before taxes of $503,000 in
1999, compared to $17.9 million in 1998, and $4.1 million in 1997. The 1998
increase was primarily the result of increased sales volume, increased gross
profit margins, operating leverage, the Combinations and acquisitions. The 1999
decrease in profitability was the result of a decline in the gross profit margin
and increased general and administrative expenses. Net revenues increased 149.3%
and 2.9%, respectively, in 1998 and 1999, primarily because of the Combinations,
acquisitions, and increases in volume. Companies acquired under the pooling of
interests method of accounting (and which are included in net revenues for the
three years) contributed 36.2% of 1998 net revenues; net revenues for these
companies increased 35.7% in 1998, as a result of a 14.7% increase in passengers
and an increase in net revenue per transaction.

         Gross profit margins decreased in 1999 as a result of increased
marketing, compensation and other operating costs and a lower effective
commission rate. The Company, based in part on significant internal growth
experienced in 1998, substantially increased marketing expenditures and the
number of sales personnel at its cruise call centers during late 1998 and early
1999. Despite these initiatives, cruise transaction volumes during 1999 were
significantly lower than expected. Accordingly, gross profit margins were
eroded. The Company believes the decreased growth rate in the

                                       20
<PAGE>
cruise reporting segment resulted primarily from lower than expected consumer
acceptance of the new Company marketing programs including a new brand name
introduced in the first quarter. In response, the Company adjusted the number of
sales personnel during the second quarter and, commencing in May 1999, began
making several changes to its marketing program, including refocusing on its
formerly successful cruise brand names such as Cruises Only, Gold Coast Cruises
and Cruises Inc.

         General and administrative expenses increased $3.8 million, or 26.8%,
in 1999 and increased as a percentage of net revenues primarily as a result of a
lower revenue base per general and administrative dollar due to earning less net
revenues per transaction. Cruise line contracts for 1999 provided for a base
commission, in some cases, of one to two percent less than in effect for 1998;
this decrease in base commission was offset by incremental override commissions,
however, none of these were achieved in 1999. In addition, increased overhead
resulted due to a buildup of operations to handle excepted business growth.
These costs included, for example, rent for expanded call centers. General and
administrative expenses increased $6.5 million, or 84.1%, in 1998 and decreased
as a percentage of net revenues primarily as a result of the impacts of
centralizing certain marketing and revenue management functions at corporate
headquarters in the second half of 1998 and spreading remaining expenses over a
larger revenue base.

OUTBOUND REPORTING SEGMENT FINANCIAL REVIEW

         The following table sets forth certain historical financial data, also
stated as a percentage of net revenues, for the years indicated (dollars in
thousands):
<TABLE>
<CAPTION>
                                                       1997                  1998                  1999
                                               ---------------------  --------------------  --------------------
<S>                                              <C>        <C>         <C>      <C>          <C>      <C>
Net revenues                                     $34,450    100.0%      $45,560  100.0%       $73,347  100.0%
Operating expenses                                24,437     70.9%       29,122   63.9%        41,516   56.6%
                                               ---------------------  --------------------  --------------------
Gross profit                                      10,013     29.1%       16,438   36.1%        31,831   43.4%
General and administrative expenses                7,382     21.4%        5,476   12.0%         9,202   12.5%
                                               ---------------------  --------------------  --------------------
Income from operations                             2,631      7.6%       10,962   24.1%        22,629   30.9%
Other income (expense), net                         (139)     0.4%          494   -1.1%         1,872    2.6%
                                               ---------------------  --------------------  --------------------
Income before provision for income taxes(1)       $2,492      7.2%      $11,456   25.1%       $24,501   33.4%
                                               =====================  ====================  ====================
</TABLE>
(1)  Excludes goodwill amortization, software amortization and support expenses,
     expenses of corporate headquarters, interest expense, income taxes and
     certain other expenses controlled and recorded at corporate headquarters.

         Outbound reporting segment reported income before taxes of $24.5
million in 1999, compared to $11.5 million in 1998 and $2.5 million in 1997.
Operating results for the first seven months of 1997 include only the results of
Auto Europe, the accounting acquiror, and do not reflect the impact of
contractual decreases in salaries, bonuses and benefits to former owners and key
management of Auto Europe (the "Compensation Differential"). Increases in
reported income before taxes in 1998 and 1999 were primarily the result of
increased sales volume, increased gross profit margins, operating leverage, the
Compensation Differential and acquisitions.

         Net revenues increased in 1998 and 1999 due to increased sales volume
and acquisitions.

         The gross profit margins improved in 1998 and 1999 as a result of lower
commissions, salaries, advertising and telephone costs per transaction.
Commission expense decreased because of increased sales directly to consumers
and a portion of the international airline tickets being sold to travel agents
at a net fare rather than for a commission in 1998. Salaries and advertising
costs as a percentage of revenues decreased due to spreading these costs over a
larger revenue base. Telephone costs as a percentage of net revenues decreased
in 1998 due primarily to lower rates.

         In February 1999, the Company acquired AHI International Corporation, a
company specializing in distributing European vacation packages through
university alumni associations. During 1999, this operating company was included
in the outbound reporting segment. AHI experiences a greater gross profit margin
than the other companies in the outbound segment due to selling directly to
consumers thus avoiding the travel agent commission expense.

                                       21
<PAGE>
         General and administrative expenses decreased $1.9 million, or 25.8%,
in 1998, primarily as a result of Compensation Differential of Auto Europe and
the International Air Companies. General and administrative expenses increased
$3.7 million in 1999, of which $3.2 million was a result of the acquisition of
AHI.

                                       22
<PAGE>
LODGING REPORTING SEGMENT FINANCIAL REVIEW

         The following table sets forth certain financial data, also stated as a
percentage of net revenues, for the years indicated (dollars in thousands):
<TABLE>
<CAPTION>
                                                                       1998                         1999
                                                               ---------------------        ----------------------

<S>                                                              <C>       <C>                <C>        <C>
 Net revenues                                                    $12,431    100.0%            $25,717    100.0%
 Operating expenses                                                6,476     52.1%             13,967     54.3%
                                                               ---------------------       ---------------------
 Gross profit                                                      5,955     47.9%             11,750     45.7%
 General and administrative expenses                               2,626     21.1%              5,561     21.6%
                                                               ---------------------       ---------------------
 Income from operations                                            3,329     26.8%              6,189     21.4%
 Other income (expense), net                                          31      0.3%                133      0.5%
                                                               ---------------------       ---------------------
 Income before provision for income taxes(1)                      $3,360     27.0%             $6,322     27.0%
                                                               =====================       =====================

(1)  Excludes goodwill amortization, software amortization and support expenses,
     expenses of corporate headquarters, interest expense, income taxes and
     certain other expenses controlled and recorded at corporate headquarters.

         Lodging reporting segment reported income before taxes of $6.3 million,
compared to $3.4 million in 1998. Lexington and ABC were acquired in June and
July 1998, respectively, and were accounted for using the purchase method of
accounting. Accordingly, the Company did not report any data for the Lodging
Reporting Segment in 1997.

         Gross profit margins declined in 1999 primarily as a result of ABC
which historically experienced better margins in the second half of the year as
a result of the publication of its hotel program guide.

OTHER REPORTING SEGMENT FINANCIAL REVIEW

         The following table sets forth certain financial data, also stated as a
percentage of net revenues, for the years indicated (dollars in thousands):
<CAPTION>
                                                       1997                  1998                  1999
                                               ---------------------  --------------------  --------------------
<S>                                                <C>       <C>        <C>        <C>         <C>      <C>
Net revenues                                       $4,826    100.0%     $13,191    100.0%      $27,653  100.0%
Operating expenses                                  2,683     55.6%       8,526     64.6%      17,239   62.3%
                                               ---------------------  --------------------  --------------------
Gross profit                                        2,143     44.4%       4,665     35.4%      10,414   37.7%
General and administrative expenses                 1,802     37.3%       2,980     22.6%       5,101   18.4%
                                               ---------------------  --------------------  --------------------
Income from operations                                341      7.1%       1,685     12.8%       5,313   19.2%
Other income (expense), net                            57      1.2%         158      1.2%         435    1.6%
                                               ---------------------  --------------------  --------------------
Income before provision for income taxes(1)          $398      8.3%      $1,843     14.0%      $5,748   20.8%
                                               =====================  ====================  ====================
</TABLE>
(1)  Excludes goodwill amortization, software amortization and support expenses,
     expenses of corporate headquarters, interest expense, income taxes and
     certain other expenses controlled and recorded at corporate headquarters.

         Other reporting segment reported income before taxes of $5.7 million in
1999, compared to $1.8 million in 1998 and $398,000 in 1997.

         Net revenues increased 109.6% and 173.3% in 1999 and 1998,
respectively. The increases were the result of increased sales volume, revenue
per transaction, and acquisitions. Of the $14.5 million increase in 1999, $8.9
million was attributable to Travel 800 and related volume increases.

         Gross profit margins increased in 1999 primarily as a result of LVI.
LVI, acquired in February 1999, experienced a greater gross profit percentage
than the other companies in the segment. The decrease in 1998 was primarily as a
result of lower net revenue per domestic air ticket sold and increased
compensation, shipping and credit card merchant fees (operating costs) per
ticket.

                                       23
<PAGE>
         General and administrative expenses increased $1.2 million, or 65.5%,
in 1998 and $2.1 million or 71.2% in 1999. The increase in 1998 was due to
Travel 800, which was acquired as part of the Founding Companies in 1997 and was
included for five months in 1997 as compared to twelve months in 1998. The
increase in 1999 was due to LVI, an acquisition that took place in February 1999
and accounted for using the purchase method of accounting. In addition, Travel
800 overhead base increased in 1999 due to expansion into a second call center
in Albuquerque, New Mexico.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL TRANSACTIONS, INCLUDING ACQUISITIONS

         The Company's three primary sources of liquidity and capital resources
are cash flow from operating activities, borrowings under its Credit Facility
and issuance of Common Stock.

         For the years ended December 31, 1998 and 1999, net cash provided by
operating activities was approximately $14.8 million and $16.0 million,
respectively, capital expenditures were $11.1 million and $16.0 million,
respectively, borrowings under the Credit Facility, Term Loan and other loans
were $30.7 million and $24.0 million, respectively, and repayment of debt was
$32.4 million and $9.6 million, respectively.

         The Company issued 538,928 shares of common stock and paid $25.6
million (net of cash acquired) cash consideration in 1999 in connection with two
acquisitions consummated during the period. Both acquisitions were accounted for
using the purchase method of accounting.

         The Company spent an aggregate of $16.0 million during 1999 for capital
expenditures, including approximately $10.4 million for development of
"Universal Technology" software applications for internal use. The remainder of
the 1999 capital expenditures related to purchases of computer hardware and
personal computers, telecommunications equipment, leasehold and building
improvements and furniture and fixtures. In addition, the Company expects to
spend approximately $9.7 million for all capital expenditures in 2000, including
approximately $5.7 million for development of Universal Technology software
applications for internal use.

LONG-TERM DEBT AND CREDIT FACILITY

         The Company is a party to a credit facility agreement with NationsBank,
N.A. ("NationsBank") that provides a $35.0 million revolving line of credit (the
"Credit Facility") and a term loan facility of $1.9 million (the "Term Loan").
Borrowings under the Credit Facility and Term Loan are due October 15, 2001. The
Credit Facility may be used for acquisitions, general corporate purposes and
letters of credit. Letters of credit issued under the Credit Facility may not
exceed $15.0 million in the aggregate. As of December 31, 1999, there were
outstanding borrowings of $14.7 million and letters of credit totaling $11.1
million under the Credit Facility. All amounts repaid under the Credit Facility
may be reborrowed. Interest on outstanding balances of the Credit Facility and
Term Loan are computed based on the Eurodollar Rate plus a margin ranging from
1.25% to 2.0%, depending on certain financial ratios. During 1998 and 1999 the
margin was 1.25%. As of December 31, 1999, the Company had interest rate swap
hedge agreements totaling $16.4 million that mature in October 2000 which were
entered into as a requirement of the previous credit facility. These agreements
exchange floating rate obligations for fixed rates. On March 20, 2000, the
Company canceled the hedge agreements.

         The Credit Facility is secured by substantially all the assets of the
Company, is guaranteed by all its subsidiaries, and requires the Company to
comply with various loan covenants, including maintenance of certain financial
and coverage ratios and restrictions on additional indebtedness, liens,
guarantees, advances, capital expenditures, sale of assets and dividends. At
December 31, 1999, the Company was in compliance with the loan covenants.

         The Company believes that the current cash balances of the Company,
together with cash flow from operating activities and borrowings under its
Credit Facility, should be adequate to meet the Company's capital requirements
over the next 12 months. However, future modifications to the Company's
strategies may affect the Company's liquidity and capital requirements.

                                       24
<PAGE>
YEAR 2000 PREPAREDNESS

         The Company suffered no material adverse effects from the Year 2000
problem either as a result of the Company's own systems or those of any third
party. However, due to the pervasive nature of the Year 2000 problem, the
Company can give no assurance that third parties did not experience problems not
currently known to it which could impact its business, financial condition or
results of operations in the future.

SEASONALITY AND QUARTERLY FLUCTUATIONS

         The results of the Company are subject to quarterly fluctuations caused
primarily by the seasonal variations in the travel industry, especially the
leisure travel segment. Seasonality also varies depending on the nature of the
travel products and services. Net revenues and operating income of the outbound
reporting segment are generally higher in the first and second quarters; net
revenues and operating income of the cruise reporting segment are generally
higher in the second and third quarters; and net revenues and operating income
of the lodging segment are generally higher in the third and fourth quarters.
The Company expects the seasonality and quarterly fluctuations to continue.

         The Company's quarterly results of operations may also be subject to
fluctuations as a result of changes in the mix of services offered by the
Company, fare wars by travel providers, net daily rates charged to travelers by
hotels, changes in relationships with certain travel providers (including
commission rates and programs), changes in the timing and payment of overrides
by travel providers, extreme weather conditions or other factors affecting
travel or the economy, and the timing and cost of acquisitions.

         The following table represents summary data basis for each of the most
recent quarterly periods (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
                           THREE MONTH PERIODS ENDED,
                -----------------------------------------------------------------------------------------------
                   MAR-98      JUN-98      SEP-98       DEC-98      MAR-99      JUN-99      SEP-99      DEC-99
                ----------  ----------  ----------  ----------- -----------  ---------- -----------  ----------
<S>              <C>           <C>         <C>          <C>         <C>         <C>         <C>         <C>
Net revenue       $26,523       $37,033     $33,992      $32,307     $41,352     $56,793     $48,534     $40,363

Gross profit       11,867        17,803      14,619       14,646      15,021      23,520      18,602      14,697

Income from         3,636         8,629       5,334        4,158       1,653       6,348       2,716       1,429
   Operations

Net income         $2,173        $4,739      $3,146       $2,361        $992      $3,809      $1,629       $ 925
                 ========     =========   =========   ==========  ==========   =========  ==========   =========
Diluted
earnings per        $0.20         $0.41       $0.23        $0.17       $0.07       $0.28       $0.12       $0.07
share            ========     =========   =========   ==========  ==========   =========  ==========   ========

</TABLE>
ACCOUNTING STANDARDS AND POLICIES

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards of accounting
for derivative instruments including specific hedge accounting criteria. SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000, although earlier adoption is allowed. We have not yet
quantified the impacts of adopting SFAS No. 133 and have not determined when we
will adopt SFAS No. 133. However, as we do not presently have derivative
instruments, we do not expect SFAS No. 133 to have a material impact on us.

                                       25
<PAGE>
         In December 1999, the U.S. Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"),
which provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. The Company believes its
revenue recognition practices are in conformity with the guidelines prescribed
in SAB 101.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to the impact of interest rate changes and
foreign currency fluctuations. In the normal course of business, the Company
employs established policies and procedures to manage its exposure to changes in
interest rate and fluctuations in the value of foreign currencies using a
variety of financial instruments.

         The Company has utilized derivative financial instruments to reduce
financial market risks. The Company has managed its interest rate risk on its
Credit Facility through use of interest rate swaps pursuant to which the Company
exchanges its floating rate interest obligations for fixed rates for at least
50% of the outstanding borrowings. The fixing of the interest rates offsets the
Company's exposure to the uncertainty of floating interest rates during the term
of the Credit Facility and Term Loan.

         The Company has foreign currency denominated liabilities and
reservation commitments to foreign travel providers. To mitigate potential
adverse trends, the Company's operating strategy takes into account changes in
exchange rates over time. Accordingly, the Company enters into various contracts
that change in value as foreign exchange rates change to protect the value of
its existing foreign currency denominated liabilities and commitments. The
principal currencies hedged are Italian Lira, Deutsche Marks, British Pounds and
French Francs.

         It is the Company's policy to enter into foreign currency and interest
rate transactions only to the extent considered necessary to meet its objectives
as stated above. The Company does not enter into foreign currency or interest
rate transactions for speculative purposes; however, interest rate swaps entered
into in connection with borrowings under the Credit Facility may remain
outstanding if such borrowings are repaid, and in that instance are recorded at
the prevailing market rate.

                                       26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA; INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

                       TRAVEL SERVICES INTERNATIONAL, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                     PAGE
TRAVEL SERVICES INTERNATIONAL, INC.:
<S>                                                                                                   <C>
   Report of Independent Certified Public Accountants............................................     28
   Consolidated Balance Sheets as of December 31, 1998 and 1999..................................     29
   Consolidated Statements of Income for the Years Ended December 31, 1997, 1998 and 1999........     30
   Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
      December 31, 1997, 1998 and 1999...........................................................     31
   Consolidated Statements of Cash Flows for the Years Ended December 31,
      1997, 1998 and 1999........................................................................     32
   Notes to Consolidated Financial Statements....................................................     33
   Schedule II - Valuation and Qualifying Accounts...............................................     49
</TABLE>

                                       27
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To Travel Services International, Inc.:


         We have audited the accompanying consolidated balance sheets of Travel
Services International, Inc., and subsidiaries as of December 31, 1998 and 1999,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of three years ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Travel
Services International, Inc., and subsidiaries as of December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years ended December 31, 1999, in conformity with accounting standards generally
accepted in the United States.

         Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.




Arthur Andersen LLP


West Palm Beach, Florida
    February 8, 2000 (except with respect to the matters discussed in Note 9 and
    16, as to which the date is March 29, 2000).

                                       28
<PAGE>
              TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                       ----------------------------------------------
                                                                               1998                     1999
                                                                       ----------------------   ---------------------
                                ASSETS
Current Assets:
<S>                                                                              <C>                     <C>
     Cash and cash equivalents                                                   $26,084,000             $16,032,000
     Accounts receivable, less allowances for doubtful accounts
       of $1,443,000 and $2,102,000 in 1998 and 1999, respectively                15,460,000              20,509,000
     Receivables and notes from affiliates and employees                             250,000                 235,000
     Prepaid income taxes                                                          2,920,000               4,391,000
     Deferred income taxes                                                           827,000               1,228,000
     Prepaid expenses  and other current assets                                    4,856,000              11,069,000
                                                                       ----------------------   ---------------------
         Total current assets                                                     50,397,000              53,464,000

Property and equipment, net                                                       22,504,000              34,446,000
Goodwill, net                                                                    105,773,000             142,189,000
Notes receivables from employees                                                     410,000                 346,000
Other assets                                                                       1,045,000               1,039,000
                                                                       ----------------------   ---------------------
         Total assets                                                           $180,129,000            $231,484,000
                                                                       ======================   =====================

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Current portion of long-term debt                                              $257,000                $264,000
     Trade payables and accrued expenses                                          27,412,000              42,282,000
                                                                       ----------------------   ---------------------
         Total current liabilities                                                27,669,000              42,546,000

Borrowings under line of credit                                                            -              14,700,000
Long-term debt, net of current portion                                             2,888,000               2,623,000
Deferred income taxes                                                              3,774,000               8,627,000
Other long-term liabilities                                                          501,000                 449,000
                                                                       ----------------------   ---------------------
         Total liabilities                                                        34,832,000              68,945,000
                                                                       ----------------------   ---------------------
Commitments and contingencies (Note 15)

Stockholders' Equity:
     Preferred stock, $0.01 par value;  1,000,000 shares authorized;
     none outstanding                                                                      -                       -
Common stock, $0.01 par value;  50,000,000 shares authorized;
       13,376,969 and 13,962,086 shares outstanding, respectively                    134,000                 140,000
     Additional paid-in capital                                                  129,623,000             139,504,000
     Retained earnings                                                            15,540,000              22,895,000
                                                                       ----------------------   ---------------------
         Total stockholders' equity                                              145,297,000             162,539,000
                                                                       ----------------------   ---------------------
         Total liabilities and stockholders' equity                             $180,129,000            $231,484,000
                                                                       ======================   =====================

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

                                       29
<PAGE>
              TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------------------
                                                            1997                   1998                   1999
                                                      ------------------     ------------------     -----------------
<S>                                                         <C>                   <C>                   <C>
Net revenues                                                $62,813,000           $129,855,000          $187,042,000
Operating expenses                                           38,810,000             70,920,000           115,202,000
                                                      ------------------     ------------------     -----------------
         Gross profit                                        24,003,000             58,935,000            71,840,000
General and administrative expenses                          19,209,000             34,550,000            55,378,000
Goodwill amortization                                           513,000              2,628,000             4,316,000
                                                      ------------------     ------------------     -----------------
         Income from operations                               4,281,000             21,757,000            12,146,000
                                                      ------------------     ------------------     -----------------
Other income (expense):
Interest income                                                 370,000              1,204,000             1,920,000
Interest expense                                              (438,000)            (1,381,000)           (1,232,000)
Other, net                                                       38,000                149,000             (576,000)
                                                      ------------------     ------------------     -----------------
         Total other income (expense)                          (30,000)               (28,000)               112,000
                                                      ------------------     ------------------     -----------------
         Income before provision for income taxes             4,251,000             21,729,000            12,258,000

Provision for income taxes                                      770,000              9,310,000             4,903,000
                                                      ------------------     ------------------     -----------------
         Net income                                          $3,481,000            $12,419,000            $7,355,000
                                                      ==================     ==================     =================
Basic earnings per share                                          $0.54                  $1.03                 $0.53
                                                      ==================     ==================     =================
Diluted earnings per share                                        $0.53                  $0.99                 $0.53
                                                      ==================     ==================     =================
Weighted average shares outstanding in
     computing basic earnings per share                       6,394,843             12,075,044            13,840,750
                                                      ==================     ==================     =================
Weighted average shares outstanding in
     computing diluted earnings per share                     6,533,769             12,516,195            13,884,610
                                                      ==================     ==================     =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.

                                       30
<PAGE>
              TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
                                                    Common       Common        Additional Paid-        Retained          Total
                                                    Shares       Stock            In Capital           Earnings
                                             ---------------- ------------- -------------------  ----------------  ----------------
<S>                                               <C>             <C>                <C>               <C>               <C>
Balances as of December 31, 1996                  3,080,678       $31,000            $475,000          $109,000          $615,000

Net income                                               -             -                   -          3,481,000         3,481,000

Distributions                                            -             -         (1,904,000)         (469,000)       (2,373,000)

Initial Public Offering and
 Combinations,  net of offering costs             7,698,392        77,000          49,447,000                -         49,524,000

Acquisition of Trax Software                         32,985            -                   -                 -                 -

Amortization of unearned compensation                    -             -               10,000                -             10,000

                                             ---------------- ------------- -------------------  ----------------  ----------------

Balances as of December 31, 1997                 10,812,055       108,000          48,028,000         3,121,000        51,257,000

Net income                                               -             -                   -         12,419,000        12,419,000

Secondary Offering, net of offering costs         2,025,000        20,000          65,603,000                -         65,623,000

Purchase Acquisitions                               508,295         5,000          15,519,000                -         15,524,000

Options Exercised                                    31,619         1,000             442,000                -            443,000

Amortization of unearned compensation                    -             -               31,000                -             31,000

                                             ---------------- ------------- -------------------  ----------------  ----------------

Balances as of December 31, 1998                 13,376,969      134,000          129,623,000        15,540,000       145,297,000

Net income                                               -             -                   -          7,355,000         7,355,000

Purchase Acquisitions                               542,936         6,000           9,256,000                -          9,262,000

Options Exercised                                    42,181            -              594,000                -            594,000

Amortization of unearned compensation                    -             -               31,000                -             31,000

                                             ---------------- ------------- -------------------  ----------------  ----------------

Balances as of December 31, 1999                 13,962,086      $140,000        $139,504,000       $22,895,000      $162,539,000
                                             ================ ============= ===================  ================  ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.

                                       31
<PAGE>
              TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                1997                   1998                1999
                                                                           ------------------     -----------------   --------------
<S>                                                                              <C>                 <C>                 <C>
     Net income                                                                  $3,481,000          $12,419,000         $7,355,000

     Adjustments to reconcile net income to net cash provided by operating
     activities:
         Depreciation and amortization                                            1,759,000            4,905,000          8,622,000
         Amortization of unearned compensation                                       10,000               31,000             31,000
         Interest rate swap                                                               -              280,000           (280,000)
         Deferred tax provision (benefit)                                            35,000            3,604,000          4,451,000
         Changes in operating assets and liabilities:
              Accounts receivable                                               (1,063,000)           (6,540,000)        (3,814,000)
              Receivables and notes from affiliates and employees                 (118,000)             (164,000)           128,000
              Prepaid taxes and expenses                                           (18,000)           (4,776,000)          (553,000)
              Other current assets                                                 548,000            (1,545,000)             9,000
              Trade payables and accrued expenses                               (1,400,000)            6,541,000             23,000
                                                                          ------------------     -----------------   ---------------
         Net cash provided by operating activities                               3,234,000            14,755,000         15,972,000
                                                                          ------------------     -----------------   ---------------

Cash flows from investing activities:
     Capital expenditures                                                       (3,037,000)          (11,062,000)       (16,035,000)
     Sale and disposal of property and equipment                                    54,000               140,000            580,000
     Cash paid for acquisitions, net of cash acquired                          (18,208,000)          (50,571,000)       (25,604,000)
                                                                          ------------------     -----------------   ---------------
         Net cash used in investing activities                                 (21,191,000)          (61,493,000)       (41,059,000)
                                                                          ------------------     -----------------   ---------------

Cash flows from financing activities:
     Proceeds from long-term debt and lines of credit                              991,000            30,700,000         24,000,000
     Payments on long-term debt and lines of credit                             (3,731,000)          (32,385,000)        (9,559,000)
     Net proceeds from stock offering                                           33,219,000            65,623,000                  -
     Net proceeds from options exercised                                                 -               433,000            594,000
     Consideration paid to former stockholder of accounting acquiror            (5,000,000)                    -                  -
     Distributions to stockholders                                                (179,000)                    -                  -
                                                                          ------------------     -----------------   ---------------
         Net cash provided by financing activities                               25,300,000           64,371,000         15,035,000
                                                                          ------------------     -----------------   ---------------

Net increase (decrease) in cash and cash equivalents                              7,343,000           17,633,000        (10,052,000)

Cash and cash equivalents, beginning of year                                      1,108,000            8,451,000         26,084,000
                                                                          ------------------     -----------------   ---------------
Cash and cash equivalents, end of year                                           $8,451,000          $26,084,000        $16,032,000
                                                                          ==================     =================   ===============

Supplemental cash flow information:
     Cash paid for interest                                                        $428,000           $1,265,000         $1,512,000
                                                                          ==================     =================   ===============

Supplemental disclosure of non-cash financing and investing activities:

     Assets distributed to stockholders                                          $2,194,000           $-                 $-
                                                                          ==================     =================   ===============

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

                                       32
<PAGE>
              TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) ORGANIZATION:
   --------------

Travel Services International, Inc. (the "Company") and subsidiaries provide
specialized distribution of leisure travel products and services. The Company
was founded in Delaware in April 1996. On July 28, 1997, the Company consummated
its initial public offering of common stock and acquired five specialized
distributors of travel services (the "Founding Companies") in separate
combination transactions accounted for using the purchase method of accounting
(the "Combinations"). Effective December 31, 1998, the Company changed its state
of incorporation from Delaware to Florida.

Auto Europe, one of the Founding Companies, was designated as the "accounting
acquiror" for financial statement presentation purposes in accordance with SEC
Staff Accounting Bulletin No. 97, which states that the combining company which
receives the largest portion of voting rights in the combined corporation is
presumed to be the acquiror for accounting purposes. Accordingly, the historical
financial statements for each year presented represent those of Auto Europe and
companies acquired in 1997 and 1998 under transactions accounted for using the
pooling of interests method of accounting (the "Pooling Acquisitions"), as well
as balances and transactions of the Company and four other Founding Companies
since July 28, 1998 and other companies acquired and accounted for using the
purchase method of accounting subsequent to the date of acquisition.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
   --------------------------------------------

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

REVENUE RECOGNITION

The Company's revenues are derived primarily from selling travel products,
including cruise vacations, airline tickets, European auto rentals, by providing
electronic hotel reservation services to independent hotels, by providing
various programs and services to independent travel agencies, by providing
travel incentive programs for structured discounts to consumers for various
forms of leisure travel, and by selling packaged vacations to individuals that
are members of university alumni associations. Revenues primarily consist of
commissions and markups on travel products sold and fees for services including
processing and delivering tickets, franchisee support, hotel reservations, after
hours travel reservation services and hotel guide publication.

The Company records net revenues when earned as follows: for cruise bookings
when the customer is no longer entitled to a full refund of the cost of the
cruise, which is generally 45 to 90 days prior to the cruise departure date, for
airline tickets and car rentals at the time a reservation is booked and
ticketed, for hotel reservation services at the time the traveler checks out of
the hotel, packaged vacations at time of departure and for other services when
the service is provided. The Company recognizes revenues from franchise fees
when the Company has fulfilled all contractual obligations required by the
agreements signed with the franchisees. The Company defers franchise renewal
fees and amortizes those fees to revenues over the applicable one-year period.

The Company provides allowances for cancellations, reservation changes,
"no-shows" and currency exchange guarantees based on historical experience. The
allowances provided as reduction of net revenues are not material in the three
years ended December 31, 1999. However, actual cancellations and reservation
changes could vary significantly based upon changes in economic and political
conditions that may impact leisure travel patterns. The Company has also
recorded an allowance for doubtful accounts receivable totaling $1,443,000 and
$2,102,000 at December 31, 1998 and 1999, respectively.

                                       33
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards of accounting
for derivative instruments including specific hedge accounting criteria. SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000 although earlier adoption is allowed. We have not yet
quantified the impacts of adopting SFAS No. 133 and have not determined when we
will adopt SFAS No. 133. However, as we do not presently have derivative
instruments, we do not expect SFAS No. 133 to have a material impact on us.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" ("SAB 101"), which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
The Company believes its revenue recognition practices are in conformity with
the guidelines prescribed in SAB 101.

USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

Preparation of 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 from those estimates.

Significant accounting estimates include allowances for doubtful accounts
receivable, cancellations, reservation changes, "no shows" and currency exchange
guarantees.

SEGMENTS OF AN ENTERPRISE

The Company has adopted Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS
No. 131 establishes standards for the way information about operating segments
is reported in financial statements and establishes standards for related
disclosures about product and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate resources and in
assessing performance. The Company's reportable operating segments include
cruise, outbound, lodging and other. Refer to Note (5) for information and
disclosures regarding reporting segments.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a maturity of
three months or less at the date of purchase to be cash equivalents. Cash and
cash equivalents at December 31, 1998 and 1999 include interest bearing demand
deposits and highly liquid investments of $24,878,000 and $14,491,000,
respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, receivables, trade
payables, and debt are reflected in the accompanying consolidated financial
statements at cost, which approximates fair value. All long-term receivables and
debt obligations bear interest.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are used by the Company principally in the
management of its interest rate and foreign currency exposure.

As of December 31, 1999, the Company had outstanding interest rate swap hedge
agreements totaling $16.4 million that mature in October 2000 which were entered
into as a requirement of the previous credit facility. These agreements exchange
floating rate obligations for fixed rates.

Foreign currency forward purchase contracts are entered into to hedge
substantially all of its foreign currency denominated liabilities and
reservation commitments to foreign travel providers. The hedging minimizes the
impact of foreign exchange rate movements on the Company's operating results
because gains and losses on these contracts generally offset losses and gains on
the liabilities being hedged. At December 31, 1998 and 1999, the Company had
outstanding forward purchase contracts of $2.1 million and $4.1 million,
respectively. The average maturity of these purchase contracts was 58 days. The
risk of loss on liabilities not hedged is not considered significant.

                                       34
<PAGE>
CAPITALIZED SOFTWARE COSTS

Pursuant to American Institute of Certified Public Accountants Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", once the preliminary project stage has been
completed, the Company capitalizes certain direct costs related to strategic
systems development projects during the application development stage. Software
development costs incurred during the preliminary project stage are charged to
expense as incurred.

Capitalized software development costs are reported at the lower of unamortized
costs or net realizable value and are included as a component of property and
equipment. Once the software reaches the stage for its intended general use for
each significant release of each software applications, applicable costs are
amortized based on the straight-line method over the estimated useful life.
Accumulated amortization at December 31, 1998 and 1999 was $74,000 and $606,000,
respectively.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is provided over
estimated useful lives of the respective assets on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis over periods not
exceeding the respective terms of the leases.

Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, that extend the useful lives of
existing equipment are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the costs and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of income.

INTANGIBLE ASSETS AND AMORTIZATION

The Combinations and certain other acquisitions were accounted for using the
purchase method of accounting. The cost of the acquisition is first allocated to
all identifiable assets acquired and to the liabilities assumed, at their
estimated fair values at the date of acquisition. The excess of the cost of the
acquired business over the sum of the amounts assigned to identifiable assets
acquired less liabilities assumed is recorded as goodwill.

In most cases, because of the nature of the operations of the business acquired,
including its customers base, and because of the short-term duration of the
businesses' contracts, intangible assets such as customer lists, distribution
agreements, employee workforce, computer systems, franchisee agreements and
trademarks are not separately identified for allocation of acquisition costs.

At the time of an acquisition accounted for using the purchase method of
accounting, allocations of purchase price are initially assigned and recorded
based on preliminary estimates of fair value and may be revised as additional
information concerning valuation of such assets and liabilities become
available, normally within one year of the date of the acquisition. Additional
information necessary for certain acquisitions may include final determinations
of such matters as the amount of income taxes reimbursable to sellers, the
amount of contingent consideration related to the acquisition, and total legal
and accounting costs associated with the acquisitions. The Company does not
believe there will be any material change to allocations of purchase prices as
of December 31, 1999.

Goodwill is being amortized on a straight-line basis generally over 35 years (5
years for goodwill related to an acquired software development business),
representing the approximate useful life of acquired intangible assets.
Accumulated amortization totals $3,141,000 and $7,455,000 at December 31, 1998
and 1999, respectively. In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed", subsequent to an acquisition, the Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining net book value may warrant revision or may not be
recoverable. If factors indicate that the net book value of any acquisitions
should be evaluated for possible impairment, the Company

                                       35
<PAGE>
in measuring whether such cost is recoverable will use an estimate of the
acquired business's undiscounted operating income in excess of net assets of the
acquired businesses.

INCOME TAXES

The Company follows Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that some
portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change.

STOCK COMPENSATION PLANS

Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires adoption of a fair value method of
accounting for stock-based compensation plans for non-employees and permits
continuation of accounting using the intrinsic value based method under
Accounting Principals Board ("APB") Opinion No. 25, "Accounting for Stock issued
to Employees", for stock options granted to employees.

The Company has chosen to account for stock options issued to employees using
the intrinsic value based method prescribed in APB Opinion No. 25 and,
accordingly, does not recognize compensation expense for these stock option
grants made at an exercise price equal to or in excess of the fair market value
of the stock at the date of grant. Pro forma net income and earnings per share
amounts are presented in Note (12) as if the fair value method had been adopted.

COMPREHENSIVE INCOME

The Company follows Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. For all periods presented, there were no
differences between reported net income and comprehensive income.

EARNINGS PER SHARE

The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). Basic earnings per common share ("EPS")
calculations are determined by dividing net income by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
per common share calculations are determined by dividing net income by the
weighted average number of common shares and dilutive common share equivalents
outstanding (all related to outstanding stock options discussed in Note (12).

A reconciliation of shares used in the calculation of basic and diluted earnings
per share for 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
                                                              1997              1998               1999
                                                              ----              ----               ----
<S>                                                          <C>              <C>              <C>
Basic common shares outstanding                              6,394,843        12,075,044       13,840,750

Dilutive effective of options                                  138,926           441,151           43,860
                                                          ---------------  -------------     --------------

Dilutive common shares outstanding                           6,533,769        12,516,195       13,884,610
                                                        ==============     =============    =============

Anti-dilutive options not included in above                          -         1,265,076        2,056,250
                                                        ==============     ==============  ==============
</TABLE>
NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended
by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000,
although earlier adoption is allowed. The Company will be required to adopt SFAS
No. 133 for fiscal year 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. Under SFAS No. 133, all
derivative instruments must be

                                       36
<PAGE>
recognized as either an asset or liability measured at its fair value.
Management believes the impact of adopting this statement will not have a
material effect upon the Company's results of operations or financial position.

(3) ACQUISITIONS:
    -------------

As a result of the Combinations which were consummated on July 28, 1997, the
Company acquired the outstanding capital stock of the Cruises, Inc. ("Cruises
Inc.") and D-FW Tours, Inc. and D-FW Travel Arrangements, Inc. (collectively,
"D-FW Tours"), and acquired substantially all of the assets of Auto Europe, Inc.
(Maine) ("Auto Europe"), Cruises Only, Inc. ("Cruises Only") and 800-Ideas, Inc.
("Travel 800"), each a Founding Company. The consideration for the Combinations
consisted of cash of $29.1 million (including $5 million paid to the former
stockholder of Auto Europe, the accounting acquiror, and working capital
adjustments and estimated reimbursements to stockholders of three of the
Founding Companies that had elected S Corporation status under the Internal
Revenue Code for certain taxes that will be incurred by them in connection with
the Combinations) and 3,422,225 shares of common stock.

Since November 1997, the Company has acquired eight operating companies under
transactions accounted for using the pooling of interests method of accounting,
(collectively, the "Pooling Acquisitions"). Accordingly, the consolidated
financial statements for the periods presented have been restated to include the
Pooling Acquisitions.

On November 19, 1997, the Company acquired all of the outstanding capital stock
of CruiseOne, Inc., Cruise World, Inc., and The Anthony Dean Corporation (d/b/a
Cruise Fairs of America). The aggregate consideration paid was 880,196 shares of
common stock. On November 21, 1997, the Company acquired all of the outstanding
capital stock of Ship 'N' Shore Cruises, Inc., Cruise Time, Inc., SNS Coachline,
Inc., Cruise Mart, Inc. and SNS Travel Marketing, Inc. The aggregate
consideration paid was 471,508 shares of common stock.

On March 31, 1998, the Company acquired all of the outstanding capital stock of
CruiseMasters, Inc. The aggregate consideration paid was 152,835 shares of
common stock. On May 21, 1998, the Company acquired all of the outstanding
capital stock of Landry & Kling, Inc. The aggregate consideration was 163,078
shares of common stock.

On May 31, 1998, the Company acquired all of the outstanding capital stock of
Goodfellow Enterprises, Inc. The aggregate consideration paid was 179,727 shares
of common stock.

On August 31, 1998, the Company acquired all of the outstanding capital stock of
Cruise Outlets of the Carolinas, Inc. The aggregate consideration paid was
150,000 shares of common stock.

Aggregate net revenues and income before provision for income taxes generated by
the Pooling Acquisitions prior to the date of acquisition and included in the
accompanying consolidated statements of income were as follows:

                                                        1997             1998
                                                        ----             ----

     Net revenues                              $ 18,483,000     $    2,983,000
                                               ============     ==============

     Income before provision for income taxes  $   1,125,000    $       949,000
                                               =============    ===============

Since December 1997, in addition to the Combinations, the Company has acquired
one software development company and seven operating companies under
transactions accounted for using the purchase method of accounting. Accordingly,
the financial results of these operating companies have been included in the
accompanying consolidated financial statements from the date of acquisition.
Except for Lexington and AHI International Corporation ("AHI"), the historical
operations of these operating companies are not individually significant when
compared to the historical operations of the Company.

On December 2, 1997, the Company acquired all of the outstanding capital stock
of Trax Software, Inc. ("Trax"). The aggregate consideration paid was 32,985
shares of common stock. Trax developed software products designed for
specialized distributors of leisure travel services. This software is the
foundation of the booking functionality of the Company's air reservations system
under development.

                                       37
<PAGE>
On January 20, 1998, the Company acquired substantially all of the assets and
assumption of substantially all of the liabilities of Diplomat Tours, Inc. and
International Airline Consolidators (collectively, "Diplomat"). The aggregate
consideration paid for was 21,821 shares of common stock and $2.0 million in
cash. Diplomat is a specialized distributor of international airline
reservations and had net revenues of approximately $2.0 million in 1998.

On February 9, 1998, the Company acquired all of the outstanding capital stock
of Gold Coast Travel Agency Corporation, Inc. ("Gold Coast"). The aggregate
consideration paid was 163,755 shares of common stock and $7.25 million in cash,
including $1 million of contingent consideration paid in February 1999. Gold
Coast is a specialized distributor of cruise reservations and had net revenues
of approximately $7.7 million in 1998.

Effective April 1, 1998, the Company acquired all of the outstanding capital
stock of The Cruise Line, Inc. ("Cruise Line Inc.") from another corporation.
The aggregate consideration paid was $12.5 million in cash. Cruise Line Inc. is
a specialized distributor of cruise reservations and had net revenues of
approximately $7.3 million in 1998.

Effective June 1, 1998, the Company acquired all of the outstanding partnership
interests of Lexington. The aggregate consideration paid was 283,990 shares of
common stock and $24.0 million in cash, including $4.0 million in contingent
consideration paid in 1998. Lexington is an electronic hotel reservation
services company and had 1998 net revenues of approximately $13.5 million. The
historical operations of Lexington are significant when compared to the
historical operations of the Company.

Effective July 1, 1998, the Company acquired substantially all of the assets of
ABC Corporate Services ("ABC") from another corporation. The aggregate
consideration paid was $4.25 million in cash. ABC had net revenues of
approximately $6.1 million in 1998. ABC is a leading provider of services to
independent travel agencies, including the publication of a hotel guide and
after-hours travel services for certain travel agencies' corporate accounts.

On August 7, 1998, the Company acquired all of the outstanding capital stock of
1-800-CRUISES, Inc. and Jubilee Enterprises, Inc. (collectively
"1-800-CRUISES"). The aggregate consideration paid consisted of 36,546 shares of
common stock and $500,000 in cash. Among the assets acquired were toll-free
telephone numbers 1-800-CRUISES and 1-800-CRUISING and the website address,
www.1-800-CRUISES.com. In addition, the entities operate a small cruise
reservation call center and had net revenues of approximately $327,000 in 1998.

Effective February 1, 1999, the Company acquired all of the outstanding capital
stock of AHI International, Inc. ("AHI"). The aggregate consideration paid was
145,400 shares of common stock and $24.0 million in cash. AHI develops markets
and sells packaged European vacations to individuals that are members of over
200 university and college alumni associations. AHI is also a longstanding
provider of alumni tour packages to college bowl games. The acquisition was
accounted for using the purchase method of accounting. AHI had net revenues of
approximately $15.8 million in 1998. The historical operations of AHI are
significant when compared to the historical operations of the Company.

Effective February 1, 1999, the Company acquired all of the outstanding capital
stock of Lifestyle Vacation Incentives, Inc. and All Seasons Smart Traveler,
Inc., an affiliated company (collectively, "LVI"). The aggregate consideration
paid was 248,600 shares of common stock and $6.25 million in cash paid at
closing and, pursuant to an amendment to the merger agreement, 144,928 shares of
common stock and $750,000 in cash paid in August 1999. The additional purchase
consideration was not met and no further consideration is due to former LVI
stockholders. LVI's proprietary travel incentive programs provide structured
discounts to consumers for various forms of leisure travel, including airline
tickets, cruise vacations, rental cars, hotel rooms and vacation packages. The
acquisition is accounted for using the purchase method of accounting. The
historical operations of LVI when compared to the historical operations of the
Company are not significant.

                                       38
<PAGE>
(4) PRO FORMA RESULTS AND EARNINGS PER SHARE:
    -----------------------------------------

Pro forma operating results and pro forma diluted earnings per share presented
below for the Company give effect to results of the Company combined with the
Founding Companies as if the initial public offering, the Combinations, and the
acquisition of Lexington had occurred on January 1, 1997, and as if the
acquisition of AHI had occurred on January 1, 1998, along with certain
adjustments associated with the Combinations, Lexington and the Pooling
Acquisitions.

The pro forma results include the effects of: (i) the Combinations, Lexington
and AHI; (ii) amortization of goodwill resulting from the Combinations,
Lexington, and AHI; (iii) certain adjustments to salaries, bonuses, and
management fees and benefits to former owners and key management of the Founding
Companies, Lexington, AHI and the Pooling Acquisitions, to which such persons
have agreed prospectively ("Compensation Differential"); (iv) reversal of
acquisition costs associated with Pooling Acquisitions; and (v) provision for
income taxes as if pro forma income was subject to corporate federal and state
income taxes during the periods.

These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually would
have resulted had the Founding Companies, Lexington and AHI been under common
control prior to the Combinations and the acquisition of Lexington and AHI, or
which may result in the future.

                                       39
<PAGE>
Pro forma operating results and diluted pro forma earnings per share follow:
<TABLE>
<CAPTION>
                                                           1997            1998                1999
                                                           ----            ----                ----
<S>                                                       <C>               <C>              <C>
Net revenues                                         $ 93,829,000      $150,833,000      $187,559,000
                                                     =============     ============      ============

Income before taxes - historical                     $  4,251,000      $ 21,729,000      $ 12,259,000

Income of Founding Companies and
      Lexington in 1997 and 1998, and AHI
      in 1998 and 1999, prior to acquisition dates      5,276,000         4,194,000          (654.000)
                                                     ------------      ------------       -----------

Pro forma income, before adjustments                    9,527,000        25,923,000        11,604,000

      Compensation Differential                         5,406,000         1,774,000                 -
      Acquisition costs                                   748,000            33,000                 -
      Goodwill amortization                            (1,517,000)       (1,125,000)          (66,000)
      Interest Expense                                          -        (1,680,000)         (140,000)
                                                     ------------      ------------       -----------
Pro forma income before taxes                          14,164,000        24,925,000        11,398,000

Pro forma provision for income taxes                    5,949,000         9,970,000         4,559,000
                                                     ------------      ------------       -----------

Pro forma net income                                 $  8,215,000      $ 14,955,000       $ 6,839,000
                                                     ============      ============       ===========

Diluted pro forma earnings per share                 $       0.71      $       1.15       $      0.49
                                                     ============      ============       ===========
Weighted average shares outstanding                    11,506,499        12,951,700        13,896,727
                                                     ============      ============       ===========
</TABLE>

(5)  REPORTING SEGMENTS:

The Company's reporting operating segments are cruise, outbound, lodging and
other. The cruise segment is comprised of operating companies distributing
cruises through call centers, home-based agents and the Internet, directly to
consumers in the United States. The outbound segment is comprised of operating
companies distributing European auto rentals, international airline tickets and
international vacation packages through travel agencies and directly to
consumers, primarily in the United States. The lodging segment is comprised of
operating companies providing electronic hotel reservation services to
independent hotels and other specialized hotel programs and services to travel
agencies, primarily in the United States. The other segment is comprised of an
operating company providing domestic airline tickets through a call center
directly to consumers in the United States, an operating company providing
incentive cruise programs to corporations in the United States and an operating
company that provides travel incentive programs for structured discounts.

The accounting policies of the reporting operating segments are the same as
those described in the summary of significant accounting policies, except for
goodwill amortization and software amortization and support expenses which are
recorded at the corporate level and which are not allocated to reporting
operating segments. This is consistent with the basis and manner in which the
Company's management internally disaggregates financial information for the
purposes of assisting in making internal operating decisions. The Company
evaluates performance based on aggregated reporting operating segment income
before taxes and excluding goodwill amortization, software amortization and
support expenses, expenses of corporate headquarters, interest expense, income
taxes and other expenses controlled by and recorded at corporate headquarters.

Revenues are attributed to geographic areas based on the location of the assets
producing the revenues.

The Company does not currently have any material portion of its assets or
operations outside the United States. Financial results for reporting operating
segments, including a reconciliation of the totals reported to the applicable
line items in the consolidated financial statements, are as follows (in
thousands):

                                       40
<PAGE>
<TABLE>
<CAPTION>
                                                                                               ADJUSTING
                                                                                               AND REC.
1999                                    CRUISE        OUTBOUND       LODGING       OTHER       ITEMS (1)      TOTAL
----                                  ------------  -------------  ------------  -----------  ------------  ----------
<S>                                      <C>              <C>           <C>          <C>               <C>    <C>
Net revenues                             $60,325        $73,347       $25,717      $27,653           $-     $187,042
Operating expenses                        42,481         41,516        13,967       17,238            -      115,202
                                      ------------  -------------  ------------  -----------  ------------  ----------
Gross profit                              17,844         31,831        11,750       10,415            -       71,840
General and administrative                16,636          8,110         5,069        4,887       16,370       51,072
     expenses
Depreciation expense                       1,449          1,090           492          214        1,061        4,306

Goodwill amortization                          -              1             -            -        4,315        4,316
                                      ------------  -------------  ------------  -----------  ------------  ----------
     Income (loss) from operations          (241)        22,630         6,189        5,314      (21,746)      12,146

Other income (expense), net                  744          1,871           133          434       (3,071)         112
                                      ------------  -------------  ------------  -----------  ------------  ----------
     Income before income taxes              503         24,501         6,322        5,748      (24,817)      12,258

Provision for income taxes                     -              -             -            -        4,903        4,903
                                      ------------  -------------  ------------  -----------  ------------  ----------
     Net income                             $503        $24,501        $6,322       $5,748     $(29,720)      $7,355
                                      ============  =============  ============  ===========  ============  ==========

Total assets                             $21,040        $19,348       $10,016       $9,061     $172,019     $231,484
                                      ============  =============  ============  ===========  ============  ==========
<CAPTION>
                                                                                               ADJUSTING
                                                                                               AND REC.
1998                                    CRUISE        OUTBOUND       LODGING       OTHER       ITEMS (1)      TOTAL
----                                  ------------  -------------  ------------  -----------  ------------  ----------
<S>                                        <C>            <C>           <C>          <C>               <C>  <C>
Net revenues                             $58,673        $45,560       $12,431      $13,191           $-     $129,855
Operating expenses                        26,796         29,122         6,476        8,526            -       70,920
                                      ------------  -------------  ------------  -----------  ------------  ----------
Gross profit                              31,877         16,438         5,955        4,665            -       58,935
General and administrative                13,385          4,660         2,475        2,847        8,905       32,272
     expenses
Depreciation expense                         883            815           151          133          296        2,278
Goodwill amortization                          -              1             -            -        2,627        2,628
                                      ------------  -------------  ------------  -----------  ------------  ----------
     Income from operations               17,609         10,962         3,329        1,685      (11,828)      21,757

Other income (expense), net                  325            494            31          158       (1,036)         (28)
                                      ------------  -------------  ------------  -----------  ------------  ----------
     Income before income taxes           17,934         11,456         3,360        1,843      (12,864)      21,729

Provision for income taxes                     -              -             -            -        9,310        9,310
                                      ------------  -------------  ------------  -----------  ------------  ----------
     Net income                          $17,934        $11,456        $3,360       $1,843     $(22,174)     $12,419
                                      ============  =============  ============  ===========  ============  ==========


Total assets                             $26,630         $9,522        $7,529       $5,963     $130,485     $180,129
                                      ============  =============  ============  ===========  ============  ==========
</TABLE>
                                       41
<PAGE>
<TABLE>
<CAPTION>
                                                                                               ADJUSTING
                                                                                               AND REC.
1997                                    CRUISE        OUTBOUND       LODGING       OTHER       ITEMS (1)      TOTAL
----                                  ------------  -------------  ------------  -----------  ------------  -----------

<S>                                      <C>            <C>                <C>      <C>              <C>     <C>
Net revenues                             $23,537        $34,450            $-       $4,826           $-      $62,813
Operating expenses                        11,690         24,437             -        2,683            -       38,810
                                      ------------  -------------  ------------  -----------  ------------  -----------
Gross profit                              11,847         10,013             -        2,143            -       24,003
General and administrative                 7,366          6,618             -        1,719        2,259       17,962
     expenses
Depreciation expense                         386            764             -           83           14        1,247
Goodwill amortization                          -              -             -            -          513          513
                                      ------------  -------------  ------------  -----------  ------------  -----------
     Income from operations                4,095          2,631             -          341       (2,786)       4,281

Other income (expense), net                  (28)          (139)            -           57           80          (30)
                                      ------------  -------------  ------------  -----------  ------------  -----------
     Income before income taxes            4,067          2,492             -          398       (2,706)       4,251

Provision for income taxes                     -              -             -            -          770          770
                                      ------------  -------------  ------------  -----------  ------------  -----------
     Net income                           $4,067         $2,492            $-         $398      $(3,476)      $3,481
                                      ============  =============  ============  ===========  ============  ===========

Total assets                             $13,735         $6,997            $-       $2,568      $46,866      $70,166
                                      ============  =============  ============  ===========  ============  ===========
</TABLE>
 (1) Adjusting and reconciling items includes goodwill amortization, software
     amortization and support expenses, expenses of corporate headquarters,
     interest expense, income taxes and other expenses controlled and recorded
     at corporate headquarters. On a consolidated basis, inter-segment sales
     were immaterial.

(6) CONCENTRATIONS OF RISK:
    -----------------------

TRAVEL SERVICE PROVIDERS

Within the cruise segment, the Company markets and provides reservation services
for a variety of cruise lines. Six cruise lines in 1997 and 1998, and four
cruise lines in 1999, each represented greater than 10% of cruise segment net
revenues and represented in the aggregate approximately 74%, 85% and 70%,
respectively, of the Company's cruise net revenues in 1997, 1998 and 1999.

Within the outbound segment, the Company markets and provides reservation
services for rental car companies located in various European countries. Two
auto rental travel providers each represented greater than 10% of outbound
segment net revenues and represented in the aggregate approximately 87%, 84% and
77%, respectively, of the Company's net revenues from European auto rentals in
1997, 1998 and 1999.

Within the other segment, the Company sells domestic airline tickets. Three
airlines each represented greater than 10% of the other segment's net revenues
and represented in the aggregate approximately 63%, 51% and 55% respectively, of
the Company's net revenues from domestic airline tickets in 1997, 1998 and 1999.

GEOGRAPHICAL

The table below provides information on the percentage of the Company's total
auto rentals occurring in significant geographical regions for the three years
ended December 31, 1999:

                                    1997         1998             1999
                                    ----         ----             ----

                Germany              18%          18%              17%
                United Kingdom       20%          19%              19%
                France               17%          16%              17%
                Italy                13%          13%              15%

                                       42
<PAGE>
(7) PROPERTY AND EQUIPMENT:
    -----------------------

Property and equipment consists of the following:
<TABLE>
<CAPTION>
                                       Useful Life                                     December 31,
                                         In Years                         ------------------------------------
                                                                                 1998               1999
                                                                          -----------------     --------------
<S>                                         <C>                               <C>                <C>
           Land                               -                             $     835,000      $     835,000
           Buildings                      27-40                                 4,933,000          5,064,000
           Vehicles                        5-10                                 1,372,000          1,346,000
           Furniture and fixtures           5-7                                 2,227,000          3,467,000
           Computers and equipment          3-5                                10,920,000         14,831,000
           Capitalized software               5                                 6,853,000         17,318,000
           Leasehold improvements           5-8                                   854,000          1,135,000
                                                                            --------------     -------------
                                                                            $  27,994,000      $  43,996,000
           Less: Accumulated depreciation
                     and amortization                                          (5,490,000)        (9,550,000)
                                                                            --------------     -------------

                                                                            $  22,504,000      $  34,446,000
                                                                            ===============   ==============
(8) TRADE PAYABLES AND ACCRUED EXPENSES:
    ------------------------------------

Trade payables and accrued expenses consist of the following:
<CAPTION>
                                                                                      December 31,
                                                                             -------------------------------
                                                                                1998               1999
                                                                             -------------    --------------
<S>                                                                             <C>               <C>
           Due to travel providers and customers                             $ 12,520,000      $  27,837,000
           Accrued compensation                                                 2,826,000          3,267,000
           Due to travel agents                                                 1,465,000            807,000
           Contingent  purchase consideration                                   1,044,000                  -
           Unearned revenue                                                       751,000          1,605,000
           Allowance for cancellations and refunds                                541,000            289,000
           Other                                                                8,265,000          8,477,000
                                                                             ------------      -------------
                                                                             $ 27,412,000      $  42,282,000
                                                                             ============       =============
(9) LONG-TERM DEBT:
    --------------

Long-term debt consists of the following:
<CAPTION>
                                                                                               December 31,
                                                                                      -------------------------------
                                                                                         1998               1999
                                                                                      -------------    --------------
<S>                                                                                      <C>               <C>
Borrowings under NationsBank Credit Facility                                        $         -      $  14,700,000

Mortgage note payable to NationsBank, bearing interest based on LIBOR rate plus
     a margin, payable in monthly principal installments of $12,000 plus
     interest through September 2001 and a balloon
     payment in October 2001.  Secured by certain real estate                         2,007,000          1,867,000

Mortgage note payable to Key Bank, bearing interest at prime payable in monthly
     principal installments of $7,000 plus accrued interest, matures in
     September 2011. Secured by certain real estate                                   1,063,000           979,000

Other notes payable                                                                      75,000            41,000
                                                                                   ------------      ---------------

     Total debt                                                                       3,145,000        17,587,000

     Less-current portion                                                              (257,000)         (264,000)
                                                                                   -------------     ---------------
</TABLE>
                                       43
<PAGE>
     Long-term debt, net of current portion  $    2,888,000       $ 17,323,000
                                             ===============      ==============


At December 31, 1999, maturities of long-term debt were as follows:

           2000                                  $     264,000
           2001                                     16,510,000
           2002                                         83,000
           2003                                         83,000
           2004                                         83,000
           Thereafter                                  564,000
                                                   -------------
                                                  $ 17,587,000
                                                   =============

On July 30, 1999, the Company closed on an amended and restated credit facility
agreement effective June 30, 1999 with Bank of America N.A. d/b/a NationsBank,
N.A. ("NationsBank") with respect to an increase in the revolving line of credit
to a maximum of $35.0 million (the "Credit Facility") and the continuation of a
term loan facility of $1.9 million (the "Term Loan"). Borrowings under the
Credit Facility and the Term Loan are due October 15, 2001. The Credit Facility
may be used for acquisitions, general corporate purposes and letters of credit.
Letters of credit issued under the Credit Facility may not exceed $15.0 million
in the aggregate. As of December 31, 1999, there were outstanding borrowings of
$14.7 million and letters of credit totaling $11.1 million under the Credit
Facility. At June 30, 1999, the Company wrote-off $337,000 of deferred financing
costs related to the prior credit facility. All amounts repaid under the Credit
Facility may be reborrowed. Interest on outstanding balances of the Credit
Facility and the Term Loan are computed based on the LIBOR Rate plus a margin
ranging from 1.25% to 2.0%, depending on certain financial ratios. During 1998
and 1999, the margin was 1.25%. As of December 31, 1999, the Company had
outstanding interest rate swap hedge agreements totaling $16.4 million that
mature in October 2000 which were entered into as a requirement of the previous
credit facility. On March 20, 2000, the Company canceled the hedge agreements.

The Credit Facility is secured by substantially all the assets of the Company,
is guaranteed by all its subsidiaries, and requires the Company to comply with
various loan covenants, including maintenance of certain financial and coverage
ratios and restrictions on additional indebtedness, liens, guarantees, advances,
capital expenditures, sale of assets and dividends. At December 31, 1999, the
Company was in compliance with the loan covenants.

On March 30, 1998, $3 million previously pledged to Barnett Bank was released in
exchange for a guarantee by the Company of outstanding debt of one of the
Founding Companies. Such debt, totaling $3,141,241, was repaid on April 28,
1998, including $1,901,838, which was refinanced using the proceeds of the Term
Loan.

(10) INCOME TAXES:
     -------------

Prior to July 28, 1997, Auto Europe, the accounting acquiror, had elected S
Corporation status as defined by the Internal Revenue Code and was not subject
to taxation for federal purposes. Upon the consummation of the Combinations,
Auto Europe adopted SFAS No. 109 and recorded a deferred tax asset and a
corresponding reduction of income tax expense of $543,000, representing the net
deferred taxes at July 28, 1997 which were not previously recorded because of
Auto Europe's previous tax status.

The provision for income taxes consists of the following:

                                   1997              1998             1999
                                   ----              ----             ----
           Federal             $ 628,000         $ 7,215,000       $ 4,409,000
           State                 142,000           2,095,000           494,000
                               ---------         -----------       -----------
                               $ 770,000         $ 9,310,000       $ 4,903,000
                               =========         ===========       ===========

           Current             $ 735,000         $ 5,706,000       $   452,000
           Deferred               35,000           3,604,000         4,451,000
                               ---------         -----------       -----------
                               $ 770,000         $ 9,310,000       $ 4,903,000
                               =========         ===========       ===========

                                       44
<PAGE>
A reconciliation of the difference between the expected provision for income
taxes using the federal statutory tax rate and the Company's actual provision is
as follows:
<TABLE>
<CAPTION>
                                                                      1997                1998         1999
                                                                      ----                ----         ----
<S>                                                                    <C>                 <C>           <C>
       Income tax computed at the Federal
           statutory tax rate                                    $1,488,000         $  7,605,000      $ 4,290,000
       State and local taxes (net of federal
           benefit)                                                  48,000            1,521,000          451,000
       Non-deductible goodwill                                      112,000              234,000          305,000
       Tax benefit to record deferred
            taxes at July 28, 1997                                 (543,000)                   -                -
       Other, net                                                  (335,000)             (50,000)        (143,000)
                                                                 -----------        -------------     -------------
                                                                 $   770,000        $  9,310,000      $  4,903,000
                                                                 ===========        =============     ============

Net deferred income tax assets and liabilities are comprised of the following:
<CAPTION>
                                                                                 December 31,
                                                                            1998              1999
                                                                            ----              ----
Current net deferred income taxes:
<S>                                                                    <C>               <C>
     Conversion from cash to accrual method of accounting              $     34,000      $     (8,000)
     Accrued liabilities and deferred income                                599,000           337,000
     Provision for doubtful accounts receivable                             284,000           789,000
     Other, net                                                             (90,000)          110,000
                                                                        -----------       -----------
          Current net deferred tax assets                              $    827,000      $  1,228,000
                                                                         ==========       ===========

Non-current deferred income taxes:
     Capitalized software                                              $(2,707,000)      $(6,363,000)
     Goodwill basis                                                       (952,000)       (2,427,000)
     Other, net                                                           (115,000)          163,000
                                                                        -----------       -----------
          Non-current net deferred income liabilities                  $(3,774,000)      $(8,627,000)
                                                                        ===========       ===========
</TABLE>
Cash paid by the Company for income taxes excluding cash paid by subsidiaries
prior to dates of acquisition was $823,000 in 1997, $7,627,000 in 1998 and
$3,770,000 in 1999.

(11) STOCKHOLDERS' EQUITY:
     ----------------------

In May 1997, the Company effected a 5,444.45-for-one stock split of its common
shares. In addition, the Company increased the number of authorized shares of
common stock to 50,000,000 and authorized 1,000,000 shares of $.01 par value
preferred stock. The effects of the common stock split and the increase in the
shares of authorized common stock have been retroactively reflected in the
accompanying consolidated financial statements for all periods presented.

In May 1997, the stockholders exchanged 2,484,501 shares of common stock for an
equal number of shares of restricted voting common stock. Common stock and the
restricted common stock are identical except that the holders of restricted
common stock are only entitled to four-tenths of one vote for each share on all
matters.

On July 28, 1997, the Company issued an aggregate of 6,297,225 shares of Common
Stock in connection with the Combinations (3,422,225 shares) and the initial
public offering (2,875,000 shares). Shares issued in connection with the initial
public offering were sold to the public at $14.00 per share. The net proceeds to
the Company from the initial public offering (after deducting underwriting
discounts, commissions and estimated offering expenses) were approximately $33.2
million. Of this amount, $29.1 million represents the cash portion of the
purchase price relating to the Combinations. The remaining $4.1 million has been
used for general corporate purposes.

On July 21, 1998, the Company consummated a secondary stock offering. An
aggregate of 4,025,000 shares of Common Stock were registered and sold,
including 2,025,000 shares sold by the Company and 2,000,000 shares sold by
certain selling stockholders. All of the shares were sold to the public at a
price of $34.50 per share. Net proceeds to the Company from the secondary stock
offering (after deducting underwriting discounts and commissions and estimated

                                       45
<PAGE>
offering expenses) were approximately $65.6 million, of which $28.6 million was
used to repay borrowings under the Credit Facility. The Company did not receive
any proceeds from shares sold by selling stockholders.

Effective December 31, 1998, the Company changed its state of incorporation from
Delaware to Florida.

On January 28, 1999, the Company adopted a Share Purchase Rights Plan (the
"Rights Plan"), and in connection therewith, declared a dividend distribution of
one Common Stock Purchase Right on each outstanding share of the Company's
common stock. The dividend distribution was made on February 5, 1999 to
shareholders of record on January 28, 1999. The Rights Plan is intended to
enable the Company's stockholders to realize the long-term value of their
investment in the Company. It will not prevent a takeover, but should encourage
anyone seeking to acquire the Company to negotiate with the Company's board of
directors prior to attempting a takeover.

Other transactions related to the Company's common stock are discussed in Notes
(1), (3) and (12).

(12) STOCK OPTION PLANS:
     -------------------

 In May 1997, the Company adopted two stock option plans (the "Plans"). Under
the Long Term Incentive Plan (the "Incentive Plan"), as subsequently amended and
restated, the maximum number of common shares that may be subject to outstanding
awards, determined immediately after the grant of any award, may not exceed 18%
of the aggregate number of shares of Common Stock outstanding. Options may be
granted to directors, officers, employees, consultants, and independent
contractors. Individual awards under the Plan may take the form of one or more
of: (i) either incentive stock options ("ISOs") or non-qualified stock options
("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted or deferred
stock; (iv) dividend equivalents; and (v) other awards not otherwise provided
for, the value of which is based in whole or in part upon the value of the
Common Stock.

Pursuant to the Non-Employee Directors' Stock Plan (the "Directors' Plan"), each
non-employee director and advisory director is automatically granted an option
to purchase 10,000 shares upon such person's initial election as a director. In
addition, the Directors' Plan provides for an automatic annual grant to each
Participant of an option to purchase 5,000 shares at each annual meeting of
stockholders. The Directors' Plan also permits participants to elect to receive,
in lieu of cash directors fees, shares or credits representing deferred shares
that may be settled at future dates as elected by the parties. The Company has
reserved 200,000 shares of Common Stock for issuance under the Directors' Plan.

The price at which the Company's options are granted under the plans are equal
to or in excess of the fair market value of the stock at the date of grant.
Generally, options granted under the Incentive Plan may remain outstanding and
may be exercised at any time up to three months after the person to whom such
options were granted is no longer employed or retained by the Company. Options
granted under the Directors' Plan may remain outstanding and may be exercised at
any time up to one year after termination of service as a director or advisor.
Substantially all of the outstanding options under the Incentive Plan vest at
the rate of 25% per year and options under the Directors' Plan are immediately
exercisable. Options granted under the Plans have maximum terms of not more than
10 years.

A summary of the status of the Company's two stock option plans at December 31,
1998 and 1999 and changes during the years then ended is presented in the table
and narrative below:
<TABLE>
<CAPTION>
                                                              1998                           1999
                                                   ----------------------------    --------------------------
                                                      Shares        Wtd Avg           Shares       Wtd Avg
                                                      (000)        Ex Price           (000)       Ex Price
                                                   ------------- --------------    ------------- ------------
<S>                                                     <C>             <C>          <C>             <C>
Outstanding at beginning of year                        962,000         $15.07       1,706,000       $22.80
Granted                                                 915,000          27.05          845,000       12.07
Exercised                                              (32,000)        (14.00)         (46,000)      (12.79)
Forfeited                                             (139,000)        (16.31)        (393,000)      (21.38)
                                                     ----------        -------       ----------      -------
Outstanding at end of year                           1,706,000         $22.80        2,112,000       $17.85
                                                     ==========        =======       ==========      =======
Exercisable at end of year                             250,000         $14.80          536,000       $19.95
                                                     ==========        =======       ==========      =======
Weighted average fair value of
     options granted                                                   $15.86                        $ 7.08
                                                                       =======                       =======
</TABLE>
                                       46
<PAGE>
Of the 2,112,000 options outstanding at December 31, 1999, 536,000 options, or
25.4%, are exercisable and have exercise prices between $10.375 and $50.00, with
a weighted average exercise price of $19.95 and a weighted average remaining
life of seven years and ten months. The remaining 1,576,000 options are not
exercisable and have exercise prices between $8.75 and $37.00, with a weighted
average exercise price of $14.49 and weighted average remaining contractual life
of eight years and ten months.

The Company applies APB Opinion No. 25 and related interpretations in accounting
for options granted to employees and directors. Accordingly, no compensation
cost has been recognized related to such grants. Had compensation cost been
recorded for the Company's awards under the Plans based on fair value at the
grant dates consistent with the methodologies of SFAS No. 123, the Company's
1998 and 1999 reported actual net income and earnings per share would have been
reduced to the pro forma amounts indicated below:


                                       1997           1998            1999
                                       ----           ----            ----

Net Income:           As Reported    $ 3,481,000     $12,419,000    $ 7,355,000
                      Pro Forma      $ 2,861,000     $10,326,000    $ 4,753,000

Basic EPS:            As Reported    $0.54           $1.03          $0.53
                      Pro Forma      $0.45           $0.86          $0.34

Diluted EPS:          As Reported    $0.53           $0.99          $0.53
                      Pro Forma      $0.45           $0.84          $0.34

Under SFAS No. 123, the fair value of each option granted is estimated on the
date of grant using the Black-Scholes model with the following assumptions for
grants in 1997, 1998 and 1999: expected volatility of 70%, risk-free interest
rate of 7.5%, expected dividends of $0 and expected term of four years.

The Company recorded expense of $10,000, $31,000 and $31,000 in 1997, 1998 and
1999, respectively, related to 10,000 options granted to a non-employee of the
Company. In determining the expense to be recorded, the Company applied the
Black-Scholes model using the same assumptions described above, including
expected term of four years.

(13) BENEFIT PLANS:
     --------------
The Company established a new 401(k) Plan effective July 1, 1998 under which
eligible employees of all Company subsidiaries may participate. Contributions to
the Plan are at the discretion of the Company's board of directors. At December
31, 1999, the Company had one 401(k) plan. At December 31, 1998 the Company had,
three 401(k) plans, one simple 401(k) retirement plan, and two simple IRA plans.
Contributions under the benefit plans were approximately $99,000 in 1997,
$283,000 in 1998 and $473,000 in 1999.

(14) RELATED PARTY TRANSACTIONS:
     ---------------------------
Included in assets at December 31, 1999 is a note receivable from an affiliate
with an outstanding balance of $138,000, which bears interest at 6% and is due
upon demand, and other notes receivable from three employees for an aggregate
balance of $346,000, which bear interest at 6% to 8%, with maturities in 2001
and 2002.

The Company leases office space from an employee under a lease that expires
November 2002. Total payments were approximately $106,000, $158,000 and
$155,000, respectively, in 1997, 1998 and 1999.

The Company leases office space from the brother of an affiliate under a lease
that expires February 2006. Payments were $201,000, $213,000 and $196,000 in
1997, 1998, and 1999, respectively.

The Company had a management service agreement with a company controlled by an
employee which was cancelled effective January 1, 1999. Total payments were
approximately $2,335,000 in 1998. In addition, the Company received $29,000 in
rent under a facilities agreement with this company.

The Company purchased $134,000 worth of computer equipment from a company
controlled by an affiliate in 1997.

                                       47
<PAGE>
(15) COMMITMENTS AND CONTINGENCIES:
     ------------------------------
OPERATING LEASES

The Company leases office space, vehicles and office equipment under operating
leases. The Company incurred approximately $1,795,000, $3,183,000 and $5,599,000
in rental expense under noncancellable operating leases in 1997, 1998 and 1999,
respectively.

Minimum annual commitments under operating leases at December 31, 1999 are as
follows:

           2000                                   $  5,656,000
           2001                                      5,439,000
           2002                                      4,978,000
           2003                                      4,095,000
           2004                                      2,410,000
           Thereafter                                  542,000
                                                     ---------
                                                  $ 23,120,000
                                                  ============

INSURANCE

The Company carries a broad range of insurance coverage, including directors and
officers, prospectus liability, professional liability, general and business
liability, commercial property, workers' compensation, and general umbrella
policies. The Company has not incurred significant claims or losses on any of
its insurance policies during the periods presented in the accompanying
financial statements.

LETTERS OF CREDIT

The Company had outstanding irrevocable letters of credit totaling $11,180,000
at December 31, 1999. These letters of credit, which have terms of one year or
less, collateralize the Company's obligations to third parties for payment of
travel obligations. At December 31, 1999, letters of credit issued under the
Credit Facility totaled approximately $11.1 million.

LITIGATION

The Company is involved in various legal claims and actions arising in the
ordinary course of business. The Company believes that none of the claims and
actions currently pending will have a material adverse effect on its business,
financial condition or results of operations.

(16) SUBSEQUENT EVENTS:
     ------------------

On February 21, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Airtours plc, a corporation organized under the
laws of England ("Airtours"), and Blue Sea Florida Acquisition Inc., an indirect
wholly-owned subsidiary of Airtours (the "Purchaser"), pursuant to which the
Purchaser has completed a tender offer (the "Offer") to purchase all of the
outstanding shares of the Company's common stock, par value $0.01 per share, and
the associated common share purchase rights (and together with the Common Stock,
the "Shares"), for a cash price of $26.00 per Share as of March 29, 2000. The
validly tendered and not withdrawn shares constitute 95% of the outstanding
common stock of the Company. The Merger Agreement provides that as soon as
practicable following the satisfaction or waiver of the conditions set forth in
the Merger Agreement, the Purchaser will be merged (the "Merger") with and into
the Company, and those Shares that were not acquired in the Offer will be
converted into the right to receive $26.00 per Share in cash. The Merger is
expected to occur on or about May 1, 2000.

In March 2000, the Company agreed to a cash settlement of $2.0 million for a
legal dispute. No provision has been made in the accompanying financial
statements for this matter, as the event leading to this settlement occurred
after December 31, 1999.

                                       48
<PAGE>
             TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSICIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Description                                                      Balance at     Additions charged to    Balance at end
                                                             beginning of year   costs and expenses        of year

Reserves and allowances deducted from asset accounts:

Allowance for uncollectible
     accounts receivable
<S>                                                               <C>                      <C>                  <C>
     Year ended December 31, 1996                                $(141,000)                        -         $(141,000)

     Year ended December 31, 1997                                $(141,000)                        -         $(141,000)

     Year ended December 31, 1998                                $(141,000)               (1,302,000)      $(1,443,000)

     Year ended December 31, 1999                              $(1,443,000)                 (659,000)      $(2,102,000)
</TABLE>
                                       49
<PAGE>
ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          None.

                                    PART III
                                    --------

ITEM  10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         The following table sets forth information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME                                            AGE                        POSITION
----                                            ---                        --------
<S>                                              <C>                           <C>
Joseph V. Vittoria (1)......................     64       Executive Chairman; Director
Peter T. McHugh.............................     53       President and Chief Executive Officer
Patrick Doyle...............................     40       Senior Vice President and Chief Financial Officer
Suzanne B. Bell.............................     33       Senior Vice President, General Counsel and Secretary
Timothy Coleman.............................     54       Senior Vice President, Technology and Operations
John C. DeLano..............................     40       Senior Vice President, Internet Operations
Melville W. Robinson........................     44       Vice President, Corporate Development
George Del Pino.............................     37       Vice President, Corporate Controller
Wayne Heller ...............................     43       President-Cruises Only; Director
Elan J. Blutinger (1)(2)....................     44       Director
Tommaso Zanzotto (1)(2).....................     58       Director
Timothy R. Byrne............................     40       Director
James S. Jennings...........................     42       Director
Michael C. Lee..............................     52       Director
Peter F. Rothwell...........................     40       Director
Lars Thuesen................................     43       Director
Gregory J. McMahon..........................     39       Director
Christopher A. Mottershead..................     41       Director
Lorrie L. King..............................     35       Director
</TABLE>
-------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee

JOSEPH V. VITTORIA became Executive Chairman of the Company in April 2000. He
was Chairman and Chief Executive Officer of the Company from July 1997 to March
2000. From September 1987 to February 1997, Mr. Vittoria was the Chairman and
Chief Executive Officer of Avis, Inc., a multinational auto rental company where
he was employed for over 26 years. Mr. Vittoria was responsible for the purchase
of Avis, Inc. by creating one of the world's largest Employee Stock Ownership
Plans in 1987. He is a founding member of the World Travel and Tourism Council,
a global organization of the chief executive officers of companies engaged in
all sectors of the travel and tourism industry. He serves on the board of Travel
Industry International. He has been named travel executive of the year several
times by various travel media, including BUSINESS TRAVEL NEWS, TRAVEL WEEKLY,
TRAVEL AGENT TOUR AND TRAVEL NEWS-NORTH AMERICA. Mr. Vittoria serves on the
Board of Directors of Transmedia Europe, Transmedia Asia, Carey International,
Inc., ResortQuest International, Inc., Puradyn Filter Technologies, Inc., CD
Radio, Inc. and various non-profit associations.

PETER T. MCHUGH became the President and Chief Executive Officer of the Company
in April 2000. From January 1996 to October 1999, Mr. McHugh was the President
and Chief Operating Officer of Holland America Westours, Inc. From March 1988 to
December 1995, he was Chief Operating Officer of Pan American World Airlines.
Prior to that he held various senior positions at TWA. Mr. McHugh has over 25
years of experience in the travel industry.

PATRICK DOYLE became Senior Vice President and Chief Financial Officer in
October 1999. Mr. Doyle has served for the past ten (10) years as Senior Vice
President and Chief Financial Officer of Effjohn North America, a multinational
firm and subsidiary of Neptun Maritime, whose business included the operation of
two cruise lines. Mr.

                                       50
<PAGE>
Doyle has significant experience in financial planning and analysis, contract
negotiations and reporting and accounting systems. He is a certified public
accountant and previously served as a senior manager at KPMG.

SUZANNE B. BELL became Senior Vice President, General Counsel and Secretary of
the Company in July 1997. From July 1996 to July 1997, Ms. Bell was an attorney
at Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. From September 1991 to
July 1996, she was an attorney at Morgan, Lewis & Bockius LLP. Ms. Bell
concentrated her law practice in the areas of mergers and acquisitions and
securities laws, representing both public and private companies.

TIMOTHY COLEMAN became Senior Vice President of Technology and Operations of the
Company in September 1999. Most of Mr. Coleman's career has been spent with
United Airlines and Westin Hotels and Resorts. At United Airlines, he was
responsible for the development and implementation of corporate strategies for
route planning, electronic distribution and loyalty marketing. At Westin, he was
responsible for worldwide reservations, global distributions systems, frequent
guest programs, travel industry marketing alliances, pricing, revenue management
and management and market research. Most recently, Mr. Coleman owned his own
consulting firm, working with several major hotel chains in e-commerce,
distribution, and revenue management.

JOHN C. DELANO became Senior Vice President, Operations, of the Company in
January 1998 and Senior Vice President, Internet Operations, in 1999. Mr. DeLano
spent nearly twenty years in the auto rental industry, and from 1991 to 1997 he
served as Managing Director and National Operations Manager for Avis Australia,
where he coordinated the marketing, operations, human resources, information
technology, sales, fleet, accounting and field management functions. In 1992,
while under Mr. DeLano's supervision, Avis Australia was awarded the prestigious
Australian Quality Award (similar to the Malcolm Baldridge Award in the U.S.)
and the 1996 Australian Customer Service Award.

MELVILLE W. ROBINSON became Vice President, Corporate Development of the Company
in July 1997. From 1994 to July 1997, Mr. Robinson served as the Chief Financial
Officer of Cruises Only, one of the Founding Companies. From 1989 until 1993,
Mr. Robinson was the President and Chief Financial Officer of the Gale Group, a
U.S. based consumer products manufacturing firm. From 1986 to 1989, Mr. Robinson
was a Managing Director at PNC Merchant Banking Corp., where he founded and
managed the Growth Capital Group. From 1983 to 1986, Mr. Robinson was the Chief
Financial Officer of Drug Emporium Inc., a publicly-traded discount drugstore
chain.

GEORGE DEL PINO became Corporate Controller of the Company in August 1997, and
was promoted to Vice President and Corporate Controller in July 1998. From 1996
to 1997, Mr. Del Pino served as Controller of G.L. Homes of Florida, one of
Florida's largest real estate developers / homebuilding companies. From 1992 to
1996, Mr. Del Pino held various positions at Certified Vacations, including
Senior Director of Product Development (1995-1996), Director of Corporate
Accounting and Controller (1993-1995), and Chief Financial Officer and Treasurer
of The Travel Difference (a subsidiary of Certified Vacations) (1992-1993). From
1985 to 1992, Mr. Del Pino held various positions at KPMG, specializing in
auditing travel companies. Mr. Del Pino is a certified public accountant.

WAYNE HELLER became a director of the Company in July 1997. Mr. Heller has
served as the Chief Executive Officer of Cruises Only since its founding in 1985
and was previously employed with Norwegian Cruise Lines from 1980 to 1984. Mr.
Heller is a member of ASTA, NACOA and CLIA.

ELAN J. BLUTINGER has been a director of the Company since October 1996. Mr.
Blutinger is a Managing Director of Alpine Consolidated LLC, a consolidator of
highly fragmented businesses. From 1987 to 1995, he was the Chief Executive
Officer of Shoppers Express, Inc., an electronic retailing service, which he
founded. From 1983 to 1986, Mr. Blutinger was the Chairman and Chief Executive
Officer of DSI, a wholesale distributor for the personal computer industry until
its acquisition in 1986 by Independent Distribution Incorporated. Mr. Blutinger
is also a director and co-founder of ResortQuest International, Inc.

TOMMASO ZANZOTTO became a director of the Company in July 1997. Mr. Zanzotto is
the President of Toscana Ville E Castelli, a real estate development company
which owns and operates residential and commercial properties in the lodging and
hotel industry. From 1994 to 1996, he was the Chairman and Chief Executive
Officer of Hilton International. From 1969 to 1993, Mr. Zanzotto held various
positions with American Express Travel Related Services including President
International, American Express Financial and Travel Services (1990-1993);
President, American Express Corporate Card Division (1987-1990); President,
American Express Travelers Cheques (Europe, Africa, Middle

                                       51
<PAGE>
East). Mr. Zanzotto is a member of the World Travel and Tourism Council, and a
Governor of the Transportation and Travel Committee of the World Economic
Summit. Mr. Zanzotto is also a director of Compass International Services
Corporation.

TIMOTHY RUSSELL BYRNE became a director of the Company in March 2000 upon
completion of the tender offer. Mr. Byrne has been Group Managing Director of
Airtours plc since March 2000. He has served as Group Finance Director of
Airtours plc from December 1997 to March 2000. Prior to that, Mr. Byrne served
as Group Financial Controller of Airtours plc from 1993 to 1997.

JAMES SCOTT JENNINGS became a director of the Company in March 2000 upon
completion of the tender offer. Mr. Jennings has served as a Director and Vice
President of Blue Sea Florida Acquisition Inc. since formation in February,
2000, and as Director of Corporate Development of Airtours plc since November
1996. Previously, Mr. Jennings served as Director of Corporate Finance of
Rickitt Mitchell & Partners Limited from 1994 to 1996.

MICHAEL CHARLES LEE became a director of the Company in March 2000 upon
completion of the tender offer. Mr. Lee has served as a Director of Airtours plc
since 1993 and as Chairman of the Aviation Division of Airtours since October
1998. Mr. Lee served as Chief Executive of Airtours International Airways
Limited from 1990 to 1998.

PETER FRANCIS ROTHWELL became a director of the Company in March 2000 upon
completion of the tender offer. Mr. Rothwell has served as a Director of
Airtours plc since November 1999 and as Chief Executive of the UK Leisure Group
of Airtours since May 1998. Prior to that, Mr. Rothwell served as Managing
Director of Airtours Holidays Limited from 1995 to 1998.

LARS THUESEN became a director of the Company in March 2000 upon completion of
the tender offer. Mr. Thuesen has served as a Director of Airtours plc since May
1998 and as Chairman of the European Leisure Group of Airtours and Accommodation
Division of Airtours since November 1999. Mr. Thuesen previously served as
Chairman of the UK Leisure Group and the West European Leisure Group of Airtours
from 1997 to 1999. Prior to that, Mr. Thuesen served as Deputy Chief Executive
Officer and Chief Financial Officer of the Scandinavian Leisure Group of
Airtours from 1994 to 1997.

GREGORY JOSEPH McMAHON became a director of the Company in March 2000 upon
completion of the tender offer. Mr. McMahon has served as Group Company
Secretary and Head of Legal Services of Airtours, since September 1998. Mr.
McMahon was a Partner in Garretts from 1995 to 1998. Prior to that, Mr. McMahon
was a Partner in Addleshaw Sons & Latham from 1991 to 1995.

CHRISTOPHER ALAN LEIGH MOTTERSHEAD became a director of the Company in March
2000 upon completion of the tender offer. Mr. Mottershead has served as Director
and President of Blue Sea Florida Acquisition Inc. since formation in February
2000 and as President and Chief Executive Officer of North American Leisure
Group of Airtours since January 2000. Previously, Mr. Mottershead served as
Director of Airtours Holidays Limited from 1994 to 1999. Mr. Mottershead served
as Managing Director of Airtours Holidays Limited from May 1998 to December
1999.

LORRIE LYNN KING became a director of the Company in March 2000 upon completion
of the tender offer. Ms. King has served as a Director and Secretary of Blue Sea
Florida Acquisition Inc. since formation in February 2000 and as Executive Vice
President, Strategic and Business Development of North American Leisure Group of
Airtours since October 1999. Ms. King served as Chief Financial Officer of North
American Leisure Group of Airtours from 1998 to 1999. Previously, Ms. King was a
Partner with Arthur Andersen, from 1997 to 1998, and Senior Manager prior to
that time.


BOARD OF DIRECTORS

         The Board of Directors of the Company currently consists of 12
directors. Upon the merger of Blue Sea Florida Acquisition Inc. with and into
the Company, it is expected that the Board will be modified. The Board of
Directors has established an Audit Committee and Compensation Committee and may
establish other committees from time to time as the Board may determine.

                                       52
<PAGE>
         The Audit Committee consists of three members, two of whom are
independent directors. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and the results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, reviews recommendations
regarding the Company's accounting methods and the adequacy of its systems of
internal accounting controls, and reviews and approves financial press releases
and reports.

         The Compensation Committee consists of two members, each of whom is a
"disinterested director," as defined in the rules promulgated by the Securities
and Exchange Commission pursuant to the Exchange Act, and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code. The
Compensation Committee reviews and determines compensation for the Company's
executive officers, administers the Company's Long Term Incentive Plan and makes
recommendations to the Board of Directors with respect to the Company's
compensation policies.

         The Board of Directors does not have any other committees at this time,
although additional committees may be formed in the future. All officers serve
at the discretion of the Board of Directors, subject to the terms and conditions
of such officer's employment agreements with the Company. Airtours plc, as the
beneficial owner of 95% of the Company's common stock, has the ability to
control the designation of the members of the Board of Directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 and the
regulations of the Securities and Exchange Commission thereunder requires the
Company's officers and directors and persons who own more than ten percent (10%)
of the Company's Common Stock, as well as certain affiliates of such persons, to
file initial reports of ownership on Form 3 and changes of ownership on Form 4
and Form 5 with the Securities and Exchange Commission and The Nasdaq Stock
Market. Such persons are also required to furnish the Company with a copy of all
such forms filed.

         Based solely on its review of copies of such reports or written
representations from or on behalf of certain reporting persons that no other
reports were required for those persons, the Company believes that, during the
year ended December 31, 1999, all Section 16(a) filing requirements applicable
to such persons were satisfied.

                                       53
<PAGE>
ITEM  11. EXECUTIVE COMPENSATION

         The following table sets forth the aggregate compensation paid to the
Company's Chief Executive Officer and four of the Company's other most highly
compensated executive officers whose total annualized salary and bonus was
$100,000 or more (the Chief Executive Officer and such other executive officers
are sometimes referred to herein as the "Named Executive Officers") with respect
to the years ended December 31, 1997, 1998 and 1999:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                        LONG TERM
                                                                                       COMPENSATION
                                                                                     -----------------
                                               ANNUAL COMPENSATION                        AWARDS
                               ----------------------------------------------------- -----------------
                                                                                        SECURITIES
                                                                      OTHER ANNUAL      UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITION    YEAR        SALARY (1)   BONUS         COMPENSATION       OPTIONS       COMPENSATION
                                           ($)          ($)           ($)                  (#)         ($)
------------------------------ ----------- ------------ ------------- -------------- ----------------- --------------
<S>                            <C>            <C>          <C>            <C>            <C>                <C>
Joseph V. Vittoria             1997           84,615       86,000          --            100,000               --
    CEO                        1998          200,000           (2)         --            250,000               --
                               1999          200,000           --          --            125,000               --

Timothy Coleman                1997               --           --          --                 --               --
    Sr. VP Operations          1998               --           --          --                 --               --
    and Technology (3)         1999           44,692      130,000          --             65,000           42,366 (4)

Suzanne B. Bell                1997           52,885       27,000          --             25,000               --
    Sr.VP/General Counsel      1998          125,000       71,100          --             40,000               --
                               1999          125,000           --          --                 --               --

George Del Pino                1997           38,462       20,000          --             15,000               --
    VP/Controller              1998          106,000       43,600          --             30,000               --
                               1999          115,000       15,000          --                 --               --

Melville W. Robinson           1997           52,885       27,000          --             50,000           21,345 (4)
     VP/Corporate              1998          125,000       47,400          --             40,000               --
      Development              1999          125,000           --          --                 --               --

Jill M. Vales                  1997           63,462       32,000          --             50,000           24,000 (6)
    Sr. VP/CFO(5)              1998          150,000       85,300          --             30,000               --
                               1999          150,000           --          --                 --          131,435 (7)
</TABLE>

-------------------

(1) With the exception of Mr. Coleman who commenced employment with the Company
    in September 1999, each of the Named Executive Officers commenced employment
    with the Company upon consummation of the initial public offering (July 28,
    1997). Annual salaries for 1997 were as follows: $200,000 for Mr. Vittoria;
    $125,000 for Ms. Bell; $105,000 for Mr. Del Pino; $125,000 for Mr. Robinson;
    and $150,000 for Ms. Vales.
(2) Mr. Vittoria chose to forego his bonus earned in 1998 in order to make funds
    available for payments to other executives of the Company.
(3) Mr. Coleman joined the Company on September 1, 1999. Bonus paid in 1999
    represents a signing bonus.
(4) Consists of relocation expenses paid during the year.
(5) Effective October 10, 1999, Ms. Vales resigned from her positions with the
    Company.
(6) Consists of consulting fees paid in 1997 prior to the consummation of the
    Company's initial public offering.
(7) Represents an accrual made at December 31, 1999 for severance payments,
    including accrued vacation, to be made to Ms. Vales through September 29,
    2000.

         The following table sets forth the stock options granted to the Named
Executive Officers during the year ended December 31, 1999:

                                       54
<PAGE>
                               STOCK OPTION GRANTS
<TABLE>
<CAPTION>
                                                                                                 GRANT DATE
                                                        INDIVIDUAL GRANTS                        VALUE(1)
                                   ------------------------------------------------------------- -------------------
                                     NUMBER OF
                                     SECURITIES   % OF TOTAL
                                     UNDERLYING   OPTIONS
                                     OPTIONS      GRANTED TO     EXERCISE OR                     GRANT DATE
                                     GRANTED      EMPLOYEES IN   BASE PRICE                      PRESENT VALUE
         NAME                        (#)          FISCAL YEAR    ($/SH)         EXPIRATION DATE  ($)
         --------------------------- ------------ -------------- -------------- ---------------- -------------------
<S>                                    <C>          <C>            <C>            <C>                 <C>
         Joseph V.Vittoria             125,000      15.5           12.75          7/18/09             934,000

         Timothy Coleman                65,000       8.0           11.25          9/27/09             429,000
         Suzanne B. Bell                    --        --              --               --                  --
         George Del Pino                    --        --              --               --                  --
         Melville W. Robinson               --        --              --               --                  --
         Jill M. Vales                      --        --              --               --                  --
</TABLE>

         (1) Calculated using the Black-Scholes valuation method.

         Each of the options set forth in the table above will vest in equal
installments on each of the first through four anniversaries of the grant date.

         There were no stock options exercised by the Named Executive Officers
during the year ended December 31, 1999.

DIRECTOR COMPENSATION; NON-EMPLOYEE DIRECTORS' STOCK PLAN

         Directors who are also employees of the Company or one of its
subsidiaries do not receive additional compensation for serving as directors.
During 1999, each director who was not an employee of the Company or one of its
subsidiaries received a fee of $2,000 for attendance at each Board of Directors'
meeting and $1,000 for attendance at each committee meeting. Directors are also
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or committees thereof incurred in their capacity as
directors.

         The Company's Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors, approved by the Company's
shareholders in 1997 and amended in 1999, provides for: (i) the automatic grant
to each non-employee director and Advisory Director (referred to herein as a
"Participant" or "Non-Employee Director") serving at the commencement of the
initial public offering of an option to purchase 10,000 shares of Common Stock
or such other securities as may be substituted for such shares of Common Stock
of the Company as stipulated in the Directors' Plan; and thereafter (ii) the
automatic grant to each Participant of an option to purchase 10,000 shares upon
such person's initial election as a director or appointment as an Advisory
Director. In addition, the Directors' Plan provides for an automatic annual
grant to each Participant of an option to purchase 5,000 shares at each annual
meeting of shareholders; provided, however, that if the first annual meeting of
shareholders following a person's initial election as a non-employee director or
appointment by the Board as an Advisory Director is within three months of the
date of such election or appointment, such person will not be granted an option
to purchase 5,000 shares of Common Stock at such annual meeting. These options
will have an exercise price per share equal to the fair market value of a share
at the date of grant. Options granted under the Directors' Plan will expire at
the earlier of 10 years from the date of grant or one year after termination of
service as a director or advisor, and options will be immediately exercisable.
In addition, the Directors' Plan permits Participants to elect to receive, in
lieu of cash directors' fees, shares or credits representing "Deferred Shares"
that may be settled at future dates, as elected by the Participants. The number
of shares or Deferred Shares received will be equal to the number of shares
which, at the date the fees would otherwise be payable, will have an aggregate
fair market value equal to the amount of such fees. The Company reserved 200,000
shares of Common Stock for use in connection with the Directors' Plan. Messrs.
Blutinger and Zanzotto, and Fraser Bullock and Leonard Potter each received
options to purchase 10,000 shares upon consummation of the initial public
offering and 5,000 shares following each of the 1998 and 1999 Annual Meeting of
Shareholders. In 1999, each Participant elected to

                                       55
<PAGE>
receive shares in lieu of cash directors' fees. The Company expects to terminate
the Directors' Plan upon consummation of the merger with Blue Sea Florida
Acquisition Inc.

EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

         The Company was initially incorporated in Delaware in April 1996,
however, it did not conduct operations or generate revenue and did not pay any
of its executive officers compensation as employees until July 1997. The Company
changed its state of incorporation to Florida effective January 1, 1999. During
1999, its most highly compensated executive officers were Messrs. Vittoria,
Coleman, Del Pino, Robinson and Ms. Bell.

         Mr. Vittoria has entered into an employment agreement with the Company
providing for an annual base salary of $200,000. Mr. Coleman, Mr. Del Pino, Mr.
Robinson and Ms. Bell each have entered into an employment agreement with the
Company providing for an annual base salary of $140,000, $125,000, $125,000 and
$125,000, respectively. Each of these agreements is for a term of three years,
commencing July 28, 1997 for Mr. Vittoria, Mr. Del Pino, Mr. Robinson and Ms.
Bell, and September 1, 1999 for Mr. Coleman. In addition, certain executive
officers of the operating companies, including Mr. Heller, a member of the
Board, have entered into employment agreements effective July 28, 1997. Mr.
Heller's employment agreement is for a term of three years (the "Initial Term").
Each employment agreement contains a covenant not to compete (the "Covenant")
with the Company for a period of two years immediately following termination of
employment or, in the case of a termination by the Company without cause in the
absence of a change in control, for a period of one year following termination
of employment. Under the Covenant, the executive officer is prohibited from: (i)
engaging in any travel service business in direct competition with the Company
within defined geographic areas in which the Company or its subsidiaries does
business; (ii) enticing a managerial employee of the Company away from the
Company; (iii) calling upon any person or entity which is, or has been, within
one year prior to the date of termination, a customer of the Company; or (iv)
calling upon a prospective acquisition candidate which the employee knew was
approached or analyzed by the Company, for the purpose of acquiring the entity.
The Covenant may be enforced by injunctions or restraining orders and shall be
construed in accordance with the changing activities, business and location of
the Company. Each agreement with respect to the acquisition by the Company of an
Operating Company also contains a similar covenant prohibiting sellers from
competing with the Company for periods following the consummation of the
respective acquisition.

         Each of these employment agreements provides that, in the event of a
termination of employment by the Company without cause during the Initial Term
the employee will be entitled to receive from the Company an amount equal to his
or her then current salary for the remainder of the Initial Term or for one
year, whichever is greater. In the event of a termination of employment without
cause after the Initial Term of the employment agreement, the employee will be
entitled to receive an amount equal to his or her then current salary for one
year. In either case, payment is due in one lump sum on the effective date of
termination. With the exception of Mr. Coleman's agreement which does not
contain such provisions, the agreements also provide that in the event of a
change in control of the Company (as defined in the agreements) during the
Initial Term, if the employee is not given at least five days' notice of such
change in control and the successor's intent to be bound by such employment
agreement, the employee may elect to terminate his or her employment and receive
in one lump sum three times the amount he or she would receive pursuant to a
termination without cause during the Initial Term. The employment agreement of
Mr. Heller also states, that in the event of a termination without cause by the
Company or a change in control, the employee may elect to waive the right to
receive severance compensation and, in such event, the noncompetition provisions
of the employment agreement will not apply. In the event the employee is given
at least five days' notice of such change in control, the employee may elect to
terminate his or her employment agreement and receive in one lump sum two times
the amount he or she would receive pursuant to a termination without cause
during the Initial Term. In such an event, the noncompetition provisions of the
employment agreement would apply for two years from the effective date of
termination. The employees have been provided notice of a pending change of
control. Mr. Heller has provided the Company with notice of his intent to
terminate his contract upon the change of control of the Company.

         Effective April 12, 1999, the Company appointed John B. Balson to the
positions of President and Chief Operating Officer. Mr. Balson has provided the
Company with notice of his intent to terminate his contract upon the change of
control of the Company. On April 28, 1999, Maryann Bastnagel resigned from her
position as Senior Vice President and Chief Information Officer of the Company.
Pursuant to a separation agreement with the Company, Ms. Bastnagel received a
$75,000 severance payment, representing six months salary, in addition to
payment of all accrued vacation time. On October 10, 1999, Ms. Vales resigned
from her position as Senior Vice President and Chief Financial Officer of the
Company. Pursuant to a separation agreement with the Company, Ms. Vales will
receive $150,000,

                                       56
<PAGE>
payable in installments through September 29, 2000. Ms. Vales also received
payment of accrued vacation time and will be reimbursed for COBRA payments
through September 29, 2000.

INDEMNIFICATION AGREEMENTS

         In 1997, the Company entered into indemnification agreements with each
of the Company's initial directors and executive officers. The indemnification
agreements require, among other things, that the Company indemnify its directors
and executive officers to the fullest extent permitted by law, and advance to
the directors and executive officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company must also indemnify and advance all expenses incurred by
directors and executive officers seeking to enforce their rights under the
Company's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Charter and Bylaws, it provides greater assurance
to directors and executive officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the shareholders to eliminate the rights it provides.
The Company also maintains directors and officers liability insurance.

         The Company has authority under Section 607.0850 of the Florida
Business Corporation Act to indemnify its directors and officers to the extent
provided in such statute. In general, Florida law permits a Florida corporation
to indemnify its directors, officers, employees and agents, and persons serving
at the corporation's request in such capacities for another enterprise, against
liabilities arising from conduct that such persons reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.

         The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for or
assenting to an unlawful distribution; and (d) willful misconduct or a conscious
disregard for the best interests of the Company in a proceeding by or in the
right of the Company to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.

                                       57
<PAGE>
         Article Seven of the Company's articles of incorporation (the "Florida
Articles") states that: "A director shall not be personally liable to the
Corporation or the holders of shares of capital stock or any other person for
monetary damages for any statement, vote, decision, act or failure to act, for
which such liability is precluded or otherwise eliminated under Section 607.0831
or otherwise under the Florida Business Corporation Act. If the Florida Business
Corporation Act is hereafter amended to authorize the further or broader
elimination or limitation of the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Florida Business Corporation Act, as so amended.
No repeal or modification of this Article VII shall adversely affect any right
of or protection afforded to a director of the Corporation existing immediately
prior to such repeal or modification. Article Eight of the Company's Florida
Articles states that: "The Corporation shall indemnify and may advance expenses
to, and may purchase and maintain insurance on behalf of, its officers and
directors to the fullest extent permitted by law as now or hereafter in effect.
Without limiting the generality of the foregoing, the Bylaws may provide for
indemnification and advancement of expenses to officers, directors, employees
and agents on such terms and conditions as the Board may from time to time deem
appropriate or advisable." In addition, the Company's Bylaws further provide
that the Company shall indemnify its officers, directors, advisory directors and
employees to the fullest extent permitted by law.

LONG-TERM INCENTIVE PLAN

         In May 1997, the Board of Directors and the Company's shareholders
approved the Company's 1997 Long-Term Incentive Plan, which was later amended
and restated effective July 28, 1998 and again amended and restated effective
September 28, 1999 (as amended and restated, the "Plan"). The purpose of the
Plan is to provide officers, employees, directors who are also employees,
consultants and independent contractors of the Company or any of its
subsidiaries, with additional incentives by increasing their ownership interests
in the Company. Individual awards under the Plan may take the form of one or
more of: (i) either incentive stock options ("ISOs") or non-qualified stock
options ("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted or
deferred stock; (iv) dividend equivalents; and (v) other awards not otherwise
provided for, the value of which is based in whole or in part upon the value of
the Common Stock. The Compensation Committee of the Board of Directors
administers the Plan and generally selects the individuals who will receive
awards and the terms and conditions of those awards. The number of shares
available for use in connection with the Plan may not exceed 18% of the
aggregate number of shares of Common Stock outstanding prior to the date of
grant.

                                       58
<PAGE>
         As of December 31, 1999, 2,513,175 shares were reserved for issuance in
connection with the Plan, of which 2,028,737 shares had been granted and were
outstanding. Shares of Common Stock which are attributable to awards which have
expired, terminated or been canceled or forfeited are available for issuance or
use in connection with future awards. All options, except for certain
premium-priced options granted to the Chief Executive Officer, were granted with
exercise prices equal to the fair market value at the time of grant. In December
1998, the Compensation Committee of the Board of Directors granted Mr. Vittoria
"premium-priced" options to purchase 150,000 shares at an exercise price of $50,
which price was in excess of the fair market value of the Common Stock on the
grant date. The vesting of these options will occur over four years, subject to
acceleration based upon thresholds of $50, $75 and $100 for the share price of
the Common Stock.

         The Plan will remain in effect until terminated by the Board of
Directors. The Plan may be amended by the Board of Directors without the consent
of the shareholders of the Company, except that any amendment, although
effective when made, will be subject to shareholder approval if required by any
Federal or state law or regulation or by the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted. Pursuant to the merger agreement with Airtours and Blue Sea, the Company
is not permitted to grant additional options under the Plan.

401(K) PLAN

         The Company established a 401(k) Plan effective July 1, 1998. Similar
plans existing at certain operating companies are either being suspended or
rolled into the Company's Plan. All employees of the Company, meeting certain
minimum eligibility requirements, are eligible to participate in the 401(k)
Plan. The 401(k) Plan provides that each participant may contribute up to 20% of
his or her pre-tax gross compensation (but not greater than a statutorily
prescribed annual limit). The percentage elected by certain highly compensated
participants may be required to be lower. The 401(k) Plan permits, but does not
require, additional contributions to the 401(k) Plan by the Company. All amounts
contributed by employee participants in conformance with Plan requirements and
earnings on such contributions are fully vested at all times. For the year ended
December 31, 1999, the Company accrued an aggregate matching contribution to the
Plan of $450,000, based on a match of 25% of employee contributions, up to a
maximum of 6% of compensation. The Board of Directors will determine on an
annual basis whether a matching contribution will be made and, if so, at what
level of contribution.

                                       59
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         During 1999, the Compensation Committee was composed of Tommaso
Zanzotto and Elan Blutinger. None of the members of the Compensation Committee
was an officer or an employee of the Company or any of its subsidiaries in 1999,
was formerly an officer of the Company or any of its subsidiaries, other than
Mr. Blutinger, who was an officer of the Company prior to the Company's initial
public offering, or had any relationship requiring disclosure by the Company
under the section Certain Relationships And Related Transactions.


                                       60
<PAGE>
ITEM  12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of April 10, 2000 by:
(i) each person known to beneficially own more than 5% of the outstanding shares
of Common Stock; (ii) each of the Company's directors; (iii) each Named
Executive Officer; and (iv) all executive officers and directors as a group. All
persons listed have sole voting and investment power with respect to their
shares, unless otherwise indicated. The Company is not aware of any beneficial
owner of more than five percent of the outstanding shares of Common Stock of the
Company other than as set forth in the following table.
<TABLE>
<CAPTION>
         NAME AND ADDRESS OF BENEFICIAL OWNER (1)                            SHARES            PERCENTAGE OWNED
         ----------------------------------------                            ------            ----------------
<S>                                                                            <C>                   <C>
          Joseph V. Vittoria (2).................................          112,500                    *
          Suzanne B. Bell (2)....................................           22,500                    *
          Timothy Coleman........................................               --                   --
          George Del Pino (2)....................................           15,000                    *
          Melville W. Robinson (2)...............................           35,000                    *
          Wayne Heller...........................................               --                   --
          Elan J. Blutinger (3)..................................           22,600                    *
          Tommaso Zanzotto (3)...................................           22,963                    *
          Timothy R. Byrne (4)...................................               --                   --
          James S. Jennings (4)..................................               --                   --
          Michael C. Lee (4).....................................               --                   --
          Peter F. Rothwell (4)..................................               --                   --
          Lars Thuesen (4).......................................               --                   --
          Gregory J. McMahon (4).................................               --                   --
          Christopher A. Mottershead (5).........................               --                   --
          Lorrie L. King (5).....................................               --                   --
          Airtours plc (6).......................................       13,393,416                95.0%
          All Directors and Executive Officers
          as a Group (19 persons) (7)............................          274,313                 1.9%
</TABLE>
------------------
*   Less than 1.0%
(1) Unless indicated otherwise, the address of the beneficial owners is, c/o
    Travel Services International, Inc., 220 Congress Park Drive, Delray Beach,
    Florida 33445.
(2) Includes the following options that are currently exercisable or exercisable
    within the next 60 days: 112,500 shares for Mr. Vittoria; 22,500 for
    Ms.Bell; 15,000 shares for Mr. Del Pino; and 35,000 shares for Mr. Robinson.
(3) Includes 20,000 shares which may be acquired upon the exercise of
    exercisable options. Also, includes the following shares which are held in a
    deferred stock account for the benefit of these directors, pursuant to the
    Directors' Plan: 2,600 shares for Mr. Blutinger; 2,213 shares for Mr.
    Bullock; and 2,963 shares for Mr. Zanzotto.
(4) The business address of such individual is c/o Airtours plc, Parkway One,
    Parkway Business Centre, Manchester M14 7QU, United Kingdom.
(5) The business address of such individual is c/o North American Leisure Group,
    130 Merton Street, Toronto, Ontario M4S 1A4, Canada.
(6) Blue Sea Florida Acquisition Inc., an indirect wholly-owned subsidiary of
    Airtours plc, is the record holder of these shares. Carnival Corporation, a
    corporation organized under the laws of the Republic of Panama, owns
    approximately 26% of the outstanding voting equity securities of Airtours
    plc. Mr. Micky Arison, the Administrators of the Estate of Ted Arison and
    Ms. Shari Arison, through various corporations, partnerships and trusts,
    beneficially own approximately 45% of the outstanding voting equity
    securities of Carnival Corporation.
(7) Includes 268,750 shares that may be acquired upon the exercise of options.

                                       61
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Included in assets at December 31, 1999 is a note receivable from Imad
Khalidi, a former director of the Company and executive officer of a subsidiary
of the Company, with an outstanding balance of $138,000, which bears interest at
6% and is due upon demand.

         The Company leases office space from the brother of Robert G. Falcone,
a former director of the Company and executive officer of a subsidiary of the
Company, under a lease that expires February 28, 2006. Payments were $201,000,
$213,000 and $196,000 in 1997, 1998, and 1999, respectively.

                                       62
<PAGE>
                                     PART IV
                                     -------

ITEM   14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.   FINANCIAL STATEMENTS:

         Reference is made to the index set forth on page 24 of this Report.

    2.   FINANCIAL STATEMENT SCHEDULES:

         Reference is made to the schedule set forth on page 56 of this Report.

    3.   EXHIBITS:


         EXHIBIT NUMBER                      DESCRIPTION
         --------------                      -----------

              2.1           Agreement and Plan of Organization, dated as of May
                            9, 1997, among the Registrant, Auto-Europe, Inc.
                            (Maine), Imad Khalidi, Alex Cecil and Wilfred
                            Diller, as trustee for Thurston Cecil and Lila
                            Cecil.(1)

              2.2           Agreement and Plan of Organization, dated as of May
                            9, 1997, among the Registrant, Cruises Only, Inc.,
                            Wayne Heller and Judy Heller.(1)

              2.3           Agreement and Plan of Organization, dated as of May
                            9, 1997, among the Registrant, 800-Ideas, Inc. and
                            Susan Parker.(1)

              2.4           Agreement and Plan of Organization, dated as of May
                            9, 1997, among the Registrant, Cruises, Inc., Robert
                            G. Falcone, Judith A. Falcone and Pamela C. Cole.(1)

              2.5           Agreement and Plan of Organization, dated as of May
                            9, 1997, among the Registrant, D-FW Tours, Inc.,
                            D-FW Travel Arrangements, Inc., John W. Przywara and
                            Sharon S. Przywara.(1)

              2.6           First Amendment to Agreement and Plan of
                            Organization among the Registrant, Auto-Europe,
                            Inc. (Maine), Imad Khalidi Alex Cecil and Wilfred
                            Diller, as trustee for Thurston Cecil and Lila
                            Cecil.(2)

              2.7           First Amendment to Agreement and Plan of Merger,
                            dated as of June 30, 1997, by and among the
                            Registrant, Cruises, Inc., Robert G. Falcone, Judith
                            A. Falcone, and Pamela C. Cole.(2)

              2.8           First Amendment to Agreement and Plan of Merger,
                            dated as of June 30, 1997, by and among the
                            Registrant, Cruises Only, Inc., Wayne Heller and
                            Judy Heller.(2)

              2.9           First Amendment to Agreement and Plan of Merger,
                            dated as of June 30, 1997, by and among the
                            Registrant, D-FW Travel Arrangements, Inc., John W.
                            Przywara and Sharon Scott Przywara.(2)

              2.10          First Amendment to Agreement and Plan of Merger,
                            dated as of June 30, 1997, by and among the
                            Registrant, 800-Ideas, Inc. and Susan Parker.(2)

                                       63
<PAGE>
              2.11          Agreement and Plan of Merger, dated as of October
                            29, 1998, by and between the Registrant and the
                            predecessor company to the Registrant.(10)

              2.12          Merger Agreement, dated as of February 21, 2000,
                            among Airtours plc, Blue Sea Florida Acquisition
                            Inc. and the Registrant.(14)

              3.1           Articles of Incorporation of the Registrant.(13)

              3.2           Bylaws of the Registrant.(11)

              4.1           Rights Agreement, dated as of January 28, 1999,
                            between the Registrant and American Stock Transfer &
                            Trust Company.(11)

              4.2           Form of Restriction and Registration Rights
                            Agreement, dated as of July 28, 1997, between the
                            Registrant and the each of the persons listed on the
                            schedule thereto.(4)

              4.3           Amendment to the Share Purchase Rights Plan, dated
                            as of February 21, 2000, between Registrant and
                            American Stock Transfer & Trust Company, as Rights
                            Agent.(14)

              10.1          Amended and Restated Employment Agreement, dated as
                            of July 22, 1997, between the Registrant and Joseph
                            V. Vittoria.(4)
                            Amended and Restated Employment Agreement, dated as
                            of May 12, 1997, between the Registrant and Jill M.
                            Vales.(4)
                            Amended and Restated Employment Agreement, dated as
                            of June 6, 1997, between the Registrant and Michael
                            J. Moriarty.(4)
                            Employment Agreement, dated July 22, 1997, between
                            the Registrant and Mel Robinson.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Auto Europe, LLC and Imad Khalidi.(4)
                            Employment Agreement, dated July 18, 1997, among the
                            Registrant, Auto Europe, LLC and Alex Cecil.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Cruises, Inc. and Robert Falcone.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Cruises, Inc. and Judith Falcone.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Cruises, Inc. and Holley Christen.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Cruises Only, LLC and Wayne Heller.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Cruises Only, LLC and Judy Heller.(4)
                            Employment Agreement, dated July 22, 1997, among the
                            Registrant, Travel 800, LLC and Susan Parker.(4)

                                       64
<PAGE>
              10.2          Form of Indemnification Agreement, dated July 28,
                            1997, between the Registrant and each of the persons
                            set forth on the schedule thereto.(4)

              10.3          1997 Long Term Incentive Plan.(3)

              10.4          Non-Employee Directors' Stock Plan.(3)

              10.6          Employment Agreement, dated July 25, 1997, between
                            the Registrant and Suzanne B. Bell.(4)

              10.7          Employment Agreement, dated as of July 25, 1997,
                            between the Registrant and Maryann Bastnagel.(4)

              10.8          Credit Agreement, dated as of October 15, 1997, by
                            and between the Registrant and NationsBank, N.A.(4)

              10.9          Stock Purchase Agreement, dated as of October 28,
                            1997, among the Registrant, CruiseOne, Inc., Anthony
                            J. Persico and Charlotte Luna, as amended.(5)

              10.10         Stock Purchase Agreement, dated as of October 28,
                            1997, among the Registrant, Cruise World, Inc., and
                            the sellers named therein, as amended.(5)

              10.11         Stock Purchase Agreement, dated as of October 28,
                            1996, among the Registrant, Ship 'N' Shore Cruises,
                            Inc., Cruise Time, Inc., SNS Coachline, Inc., Cruise
                            Mart, Inc., SNS Travel Marketing, Inc. and Natalee
                            Stutzman, as amended.(5)

              10.12         Asset Purchase Agreement, dated as of February 9,
                            1998, among the Registrant, Gold Coast Travel Agency
                            Corporation, Inc. and Rhea Sherota.(6)

              10.13         Employment Agreement, dated as of January 19, 1998,
                            between the Registrant and John C. De Lano.(7)

              10.14         Stock Purchase Agreement, dated March 31, 1998,
                            among the Registrant, The Cruise Line, Inc. and the
                            shareholders named therein.(8)

              10.15         Employment Agreement, dated as of April 1, 1998,
                            among the Registrant and Spencer Frazier.(9)

              10.16         Purchase Agreement by and among the Registrant and
                            Lexington Services Associates, Ltd., a Texas limited
                            partnership (the "Partnership"), and the
                            Partnership's partners dated as of June 1, 1998.(9)

              10.17         Employment Agreement, dated as of July 25, 1998,
                            between the Registrant and George Del Pino(10)

              10.18         Purchase Agreement, dated as of January 8, 1999,
                            among the Registrant, AHI International Corporation,
                            Richard D. Small and Arlene P. Small (12)

              10.19         Employment Agreement, dated April 30, 1999 between
                            the Registrant and John Balson.(15) 10.20 Amended
                            and Restated Credit Agreement, dated June 30, 1999,
                            between the Registrant, as Borrower, and Bank of
                            America, N.A. d/b/a NationsBank, N.A., as
                            Lender.(16)

              10.21         Employment Agreement, dated September 1, 1999,
                            between the Registrant and Timothy M. Coleman.(17)
                            10.22 Employment Agreement, dated October 11, 1999,
                            between the Registrant and Patrick Doyle.(17)

                                       65
<PAGE>
              11            Schedule of Computations of Earnings Per Share.(18)

              21            Subsidiaries of the Registrant.(14)

              23.1          Consent of Arthur Andersen LLP.(18)

              27            Financial Data Schedule.(18)

              99.1          The Registrant's Registration Statement on Form S-1
                            (File No. 333-56567).(13)

              99.2          The Registrant's Proxy Statement for the 1998 Annual
                            meeting of Shareholders of the Registrant held on
                            July 28, 1998.(13)

              99.3          The Registrant's Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 1998.(13)

              99.4          The Registrant's Registration Statement on Form S-3
                            (File No. 333-61337).(13)

---------------------
(1)  Incorporated by reference to the same Exhibit number filed on May 14, 1997,
     with the Registrant's Registration Statement on Form S-1 (File No.
     333-27125).

(2)  Incorporated by reference to the same Exhibit number filed on July 1, 1997
     with the Registrant's Registration Statement on Form S-1 (File No.
     333-27125).

(3)  Incorporated by reference to the exhibit filed with the Registrant's
     Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(4)  Incorporated by reference to the exhibit filed with the Registrant's
     Quarterly Report for the quarter ended September 30, 1997.

(5)  Incorporated by reference to the exhibit filed on November 19, 1997 with
     the Registrant's Form 8-K.

(6)  Incorporated by reference to the exhibit filed on February 9, 1998 with the
     Registrant's Form 8-K.

(7)  Incorporated by reference to the exhibit filed with the Registrant's Annual
     Report on Form 10-K for the year ended December 31, 1997.

(8)  Incorporated by reference to the exhibit filed on March 31, 1998 with the
     Registrant's Form 8-K.

                                       66
<PAGE>
(9)  Incorporated by reference to the same exhibit number filed with the
     Registrant's Registration Statement on Form S-1 (File No. 333-56567).

(10) Incorporated by reference to the exhibit filed with the Registrant's
     Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

(11) Incorporated by reference to the exhibit filed on February 1, 1999 with the
     Registrant's Form 8-K.

(12) Incorporated by reference to the exhibit filed on February 16, 1999 with
     the Registrant's Form 8-K.

(13) Incorporated by reference to the same exhibit number filed with the
     Registrant's Registration Statement on Form 10-12g (File No. 001-13155).

(14) Incorporated by reference to the same Exhibit number filed on February 22,
     2000 with the Registrant's current report on Form 8-K.

(15) Incorporated by reference to the same Exhibit number filed on May 17, 1999
     with the Registrant's quarterly report on Form 10-Q.

(16) Incorporated by reference to the same Exhibit number filed on August 13,
     1999 with the Registrant's quarterly report on Form 10-Q.

(17) Incorporated by reference to the same Exhibit number filed on November 15,
     1999 with the Registrant's quarterly

(18) Filed herewith.

(b)  REPORTS ON FORM 8-K

     A report on Form 8-K was filed on October 12, 1999.


                                       67
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Delray Beach, State of Florida, on the 14th day of April, 2000.

                                     TRAVEL SERVICES INTERNATIONAL, INC.


                                     By: /s/ JOSEPH V. VITTORIA
                                        ----------------------------------------
                                         Joseph V. Vittoria, Executive Chairman


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
        SIGNATURE                                  TITLE                             DATE
        ---------                                  -----                             ----
         <S>                              <C>                                    <C>
         /s/ Joseph V. Vittoria
         -------------------------        Executive Chairman, Director           April 14, 2000
         Joseph V. Vittoria               (Principal Executive Officer)

         /s/ Patrick Doyle
         -------------------------        Senior Vice President,                 April 14, 2000
         Patrick Doyle                    Chief Financial Officer
                                          (Principal Financial Officer and
                                          Principal Accounting Officer)

         /s/ Wayne Heller
         -------------------------        Director                               April 14, 2000
         Wayne Heller


         -------------------------        Director                               April __, 2000
         Elan Blutinger


         -------------------------        Director                               April __, 2000
         Tommaso Zanzotto
</TABLE>

                                       68
<PAGE>
<TABLE>
<CAPTION>
        SIGNATURE                          TITLE                                     DATE
        ---------                          -----                                     ----
         <S>                              <C>                                    <C>
         /s/ Timothy R. Byrne
         ---------------------------      Director                               April 14, 2000
         Timothy R. Byrne

         /s/ James S. Jennings
         ---------------------------      Director                               April 14, 2000
         James S. Jennings

         /s/ Michael C. Lee
         ---------------------------      Director                               April 14, 2000
         Michael C. Lee

         /s/ Peter F. Rothwell
         ---------------------------      Director                               April 14, 2000
         Peter F. Rothwell

         /s/ Lars Thuesen
         ---------------------------      Director                               April 14, 2000
         Lars Thuesen

         /s/ Gregory J. McMahon
         ---------------------------      Director                               April 14, 2000
         Gregory J. McMahon


         ---------------------------      Director                               April __, 2000
         Christopher A. Mottershead

         /s/ Lorrie L. King
         ---------------------------      Director                               April 14, 2000
         Lorrie L. King

</TABLE>
                                       69

<PAGE>


                                 Exhibit Index


Exhibit No           Description

11            Schedule of Computations of Earnings Per Share.

23.1            Consent of Arthur Andersen LLP.

27            Financial Data Schedule.