Q: What does the recently published annual report of Navigant
International tell us about the economics of the corporate travel
business?
A: Navigant continues to be the only publicly traded company
that is purely a corporate-oriented travel agency. Its annual
report provides revealing insights about the economics of the
business and the valuation of travel agencies today.
Above all, the report shows that corporate travel management
still can be quite profitable, even in the face of cuts, caps,
bypass, the Internet and labor shortages.
For 1999, Navigant's earnings before interest, taxes,
depreciation and amortization (or "Ebitda") were $38.9 million,
which was 17% of its revenue (i.e., commissions and fees) of $229
million. This 17% profit margin is a good performance standard to
apply to your own agency.
Navigant's labor costs, as a percentage of revenue, were 56% in
1999, up very slightly from 1998. If your labor costs are higher,
your profitability is probably suffering. Further, its revenue per
employee, based on the 3,500 employees it had at the end of 1999,
was $65,000. If your ratio is higher, you are to be
congratulated.
At the end of last year, Navigant had 560 offices, including
on-sites, yielding a ratio of $409,000 of revenue per office, and
6.25 employees per office. These parameters seem to be right on the
mark for industry averages.
Finally, here is how the stock market values Navigant. At the
end of 1999, Navigant's total value on the stock market (its
"market cap") was about $130 million; i.e., there were almost 13
million shares trading at about $10 per share. This market cap was
only 3.35 times Ebitda, and only 57% of Navigant's revenue.
Do these ratios mean that travel agencies are worth 3.35 times
their profits and 57% of one year's revenue? Professional
appraisers would say that these yardsticks are two methods of
determining any agency's value, and these ratios will probably be
used by most appraisers in the next year.
However, as an observer of the stock market, I know that
Navigant is undervalued. Wall Street has no idea what corporate
travel management is all about and assumes it will be replaced by
the Internet next week. Therefore, while evaluation ratios are
interesting, they are likely somewhat low.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the Crossroads Legal Issues forum. To contact Mark directly,
e-mail him at [email protected].