Two travel IPOs in one week signal faith in a resurgence

By Danny King

IPOThough Sabre and Prestige Cruises International are two very different companies, their proposed IPOs share an assumption by private-equity owners that Wall Street will be willing to overlook years of losses in return for steady revenue growth opportunities in a resurgent travel industry.

Sabre, whose $2.35 billion in revenue for the first nine months of 2013 was about even with year-earlier figures, said it would try to raise as much as $100 million in its offering.

Prestige, whose 2013 revenue through Sept. 30 rose 7.3% from a year earlier, to $917.4 million, indicated it hoped to raise as much as $250 million.
Those values are likely to change; companies registering with the Securities and Exchange Commission (SEC) for public offerings traditionally employ such figures as placeholders in order to calculate registration fees.

Regardless, both companies have boosted revenue in recent years as travel spending has rebounded, and both are looking to leverage that growth to raise money in the equity markets in order to pay down debt.

Registration documents filed with the SEC reveal that Sabre’s full-year 2012 revenue of $3.04 billion marked a 7.3% increase over two years prior, while Prestige’s 2012 revenue of $1.11 billion marked a 48% jump over 2010.

“Sabre’s well-established, well-known and a leader in its industry,” said analyst John Fitzgibbon Jr. of IPOScoop, who cautioned that shares of the company had not yet been priced. “That’s opened the door for them to come public.”

Still, both companies have been beset by financial losses in recent years. Sabre, whose first passenger reservations system was developed by IBM for Sabre’s initial owner, American Airlines, in 1960, was spun off in a previous IPO by American in 2000.

Private-equity firms TPG Capital and Silver Lake Partners took Sabre private in 2007 with an investment totaling about $5 billion.

Since then, as the company racked up about $1.5 billion in losses during the past five years, TPG and Silver Lake’s equity has plunged from $365.7 million at the end of 2008 to a $1.01 billion deficit as of Sept. 30.

Much of those losses stemmed from Sabre’s Travelocity division, which has struggled to compete against Expedia and Priceline. In 2012, Sabre took a $611.4 million net loss, primarily because of the $500 million in impairment charges related to Travelocity. It took another $136 million in Travelocity asset writedowns through the first nine months of last year.

With that in mind, Sabre last August reached an agreement for Expedia, its biggest competitor in the U.S., to provide content and technology for Travelocity starting this year. And though Sabre officials insisted on the long-term viability of the Travelocity brand, some analysts called the agreement a de-facto merger and a necessary precursor to Sabre’s plans to go public.

“Travelocity was a major distraction,” said Max Starkov, CEO of hotel Internet marketing firm HeBS Digital. He added that Sabre would have been better off selling Travelocity outright and predicted that Travelocity will likely disappear as an independent brand within two years.

The agreement, he said, “served a very short, narrow-minded purpose of cutting their losses.”

Meanwhile, the offering by Prestige Cruises, which is majority-owned by Apollo Global Management, marks yet another effort by Apollo to realize a return on its extensive cruise-line investments in 2007, when the travel industry neared its recent low point. That year, Apollo took a 50% stake in Norwegian Cruise Line Holdings, acquired Oceania for $850 million and bought Regent Seven Seas for an undisclosed price. Finally, it combined Oceania and Regent under a common parent, Prestige.

Apollo took Norwegian public last January, and since then Norwegian’s stock has jumped about 45%.

Prestige took a $2.61 million loss in 2012 and lost a combined $131.9 million for 2010 and 2011.

Still, the company is clearly turning around its financial results. Prestige’s 2012 net yield per berth rose 1.7%, to $365.96. For the first nine months of 2013, the company’s net yield advanced 3.2% from a year earlier, to $395.90.

As a result, Prestige’s net income for the nine months ended Sept. 30 doubled to $47.6 million compared with the same period in 2012, as the company cut commission and depreciation costs. Also during those nine months, revenue rose 7.3%, to $917.4 million.

Recent losses notwithstanding, analysts projected that both travel agent bookings through GDSs and cruise revenue will continue to increase as U.S. travel spending grows at a predicted 5% clip during the next few years. PhoCusWright projected late last year that U.S. cruise revenue will increase 3% this year, to $15.5 billion, and will advance another 6% in 2015, to $16.5 billion.

PhoCusWright also estimated that travel agencies and travel management companies would account for 30% of the U.S. travel market in 2015, the same percentage as 2012.

So, while PhoCusWright Senior Analyst Douglas Quinby noted that traditional GDS operators face increased competition from entities such as online travel agencies and direct bookings on supplier websites, Hudson Crossing analyst Henry Harteveldt cited recent and successful IPOs by Twitter and Hilton as reasons Sabre’s timing might be good.

And PhoCusWright Research Director Bob Offutt noted that the strength of the Sabre Travel Network is an additional draw for potential investors.

“They have scored some big contracts and have a lot of resilience in the airline hosting [space],” Offutt said. “No matter how the channel goes, whether supplier direct or intermediary channel, they’re in a great position.”

Johanna Jainchill and Kate Rice in New York and Tom Stieghorst in Miami contributed to this report. 

IPO graphic courtesy of Shutterstock.com.

 

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