Travelocity Will Be Grounded If Wings Are Clipped

“You can’t be serious!” The trademark quip of tennistantrum artist John McEnroe leapt from my lips uponfirst hearing of travel Goliath Sabre’s (NYSE: TSG) plan to buy outTravelocity (Nasdaq: TVLY).

Already a 70 percent stakeholder in the 5-year-oldtravel site, Sabre launched its official offer ofUS$23 per remaining share on March 5th.

Much of the ensuingmelee has centered on the fairness of thatshare valuation. But a far more sore issue for me is thevery fact of Sabre’s hostile bid.

Regardless of purchase price, the buyout would hurtTravelocity more than it could help it.

Controlling Parent

Call me nostalgic, but the purist in me would hate tosee yet another holdover from the whimsical Internet boomyears absorbed into a stodgy multichannel operation.

Granted, in its March 5th filing with the U.S. Securities and Exchange Commission, Sabre said it would not tinker with Travelocity’s direction,management team or brand. Sure it wouldn’t.

One filing reads, “We believe that by makingTravelocity a wholly owned subsidiary, we will havegreater operating flexibility to make Travelocity anintegral component of our strategy to focus on servingthe traveler and delivering value to suppliers.”

As a closely run cog in the massive Sabre machine, Travelocity would lose its agility and could stagnate entirely.

Painful Past

Sabre has tried to play the role of savior, citingTravelocity’s rocky performance last year.

Indeed, Travelocity ceded market share to rivalExpedia (Nasdaq:EXPE) in 2001. Its share of total gross bookings inthe fourth quarter fell to 47 percent from 59 percentin the year-ago fourth quarter, according to Sabre financialadvisor GoldmanSachs (NYSE: GS).

Over the course of the year, Travelocity’s grossbookings declined 24 percent, from US$833.6 million to$630.2 million, while Expedia’s bookings grew 4percent, from $674 million to $704 million.

But Travelocity is anything but a sinking ship. On thecontrary, it is well positioned in the grand slammatch raging with Expedia.

Merchant Deals

Travelocity continues to rev up profits throughmerchant-model relationships with travel suppliers,which allow it to earn higher margins on negotiated dealswith wholesalers.

In fact, the company’s freshly inked deal with Disney,which includes hotel and vacation packages, has yet tobe matched by Expedia.

Since last April, when both Travelocity and Expedialogged their first profitable quarter,the rivals have battled neck-and-neck.

But this is no Microsoft-Netscape shellacking, despiteSabre’s attempts to convince the SEC and Travelocityshareholders otherwise. Forty-seven percent marketshare is not a travesty.

New Niche

What is more, Travelocity is making headway in nichetravel markets and specialty vacation packages, areaslong considered the domain of offline travel agents.

Prospective travelers can tailor vacations accordingto their hobbies and interests, and this service willonly improve as it matures this year.

Not surprisingly, though, Expedia is keeping pace in these areas.

Conflict of Interests

Sabre spin doctors said that as a wholly ownedsubsidiary, Travelocity will forge ahead with this and other existing strategies.

But if it is rolled into Sabre’s stable of travel software andservices, the truth is that Travelocity will be run exclusively for thebetterment of the parent as a whole.

In many cases, this goal will be at odds with Travelocity’sown best interests.

Streak Impediment

Travelocity advocates argue that Sabre lowballed thecompany with its US$23 per-share bid in anopportunistic attempt to reap maximum returns fromTravelocity’s presumed rebound.

Obviously. But what Sabre may not realize is that itsimperialistic move could backfire. Boggeddown in the machinery of a multibillion-dollarcorporation, Travelocity could lose the fiscalautonomy and management dexterity it needs in order to unseat Expedia.

My two cents for Sabre executives: Your 70 percentshare of today’s Travelocity may be worth more than100 percent of a Sabre-controlled Travelocity.