04 August 2010

Travelport to Announce IPO Soon?

Ok the rumours are already flying... Travelport will make its announcement probably this week with their Q2 results. The announcement will come if its going to during the results call, scheduled for Thursday August 5th at 11AM EST.

In the past few days it has been ramping up its PR as a way to get some positive news into the market. This morning's mail box revealed a mailer for Travel Agents trumpeting the Continental Full Content Extension and on the website UA and TP announced their extension.

All this points to the announcement on Thursday. It first surfaced as a rumour on June 25th after the rather embarrassing pull back of its initial offering in London earlier this year. Amadeus got away nicely in Madrid so the stars should be aligned for Travelport.

Or maybe not...

Travelport still has some significant challenges. UDT - its star new product also called Universal Desktop now nearly 3 years late in deployment is not there yet. Early adopters trying to implement additional content are finding the interface and the data structures challenging. Its airline hosting business fails to excite and this is an essential part of a long term survival strategy for the core reservations based business. Its Orbitz partner/sibling/customer is also not setting the world on fire being squeezed out by the rise of Priceline.

The spin meisters will be working overtime to make the animal look good. But the investor community remains guarded. Enthusiasm for the deal was decidedly less than stellar with a strong set of issues on multiple levels that caused the collapse at the Feb 2010 IPO attempt in London. The fundementals of these issues have not gone away. The City Gnomes are not known for their forgiveness nor short term memory loss.

Greece (one of the reasons cited for the pull back) is just as sick if not worse. The retail climate is not as hot - retail sales failed to ignite the US market. But the investment climate is definitely better in the USA. Is that enough?

For investors who are still very weary of get rich quick schemes - they will be looking hard at what Travelport intends to do with the proceeds. If they are going for just debt retirement that will not be viewed positively. Savvy followers of the sector realize that there is a growing investment curve driven by the needs of the market for distribution of the unbundled airline products. Travelport has several areas that need investment such as its fare products as well as support of ancillaries. These are not trivial investments. With little airline reservation revenue supporting it - Travelport faces challenges.

Also worrying must be the amount of incentives and the resulting pressures on yields from increased marketing costs which are long term in nature. This was already highlighted in the Q1 results. The ability of some airlines to drive lower costs from their "Full Content" deals means that Travelport is more vulnerable to distribution pressures than Amadeus and Sabre are.

Of course the emergence of Google/ITA and new players such as Everbread in fare search systems challenge at a core level the concept of the legacy GDS that is the centerpiece of Travelport's business.

Travelport is therefore a riskier investment than its class members.

So this is definitely a story that will be interesting to watch. Let's see if the Professor is right.


No comments: