By Martin Kelly

EVER thought about creating a global travel content and distribution empire? The people at Cendant Corporation, based out of New York, certainly have.

And what’s more, they have done something about it. Over the past couple of years, Cendant has bought up big, with travel and real estate the major focus.

Over the past 12 months alone it has acquired Orbitz, ebookers and Gullivers Travel Associates.

Other travel brands it owns include Galileo, Avis,,  Budget, Ramada International, Howard Johnson etc.

I’m sure you get the idea; they are big – but how big?

Well, to give you an idea of scale, Cendant is capitalised at more than US$22 billion on the New York Stock Exchange, while Sabre Corporation (which apart from the GDS also owns Travelocity) is worth around US$2.5 billion.

But no-one said running a company of this size was going to be easy, as an analysis of its recent second quarter results reveals.

On the plus side, Cendant’s Travel Distribution Services division went well and is expected to continue its strong performance, driven largely by recent acquisitions and solid gains from established internet businesses, albeit from a low base.

“We expect growth to accelerate,” Cendant’s President and Chief Financial Officer, Ronald L. Nelson.

However, the Cendant accounts reveal that total net income for the company slumped 44% to US$387 million despite booming real estate and travel markets.

The reasons for this are a little hazy, although it’s safe to assume financial indigestion flowing from the challenges of integration are a significant factor.  

Meanwhile, as part a bid to focus on core activities, Cendant will sell its Marketing Services Division for US$1.83 billion and embark on a US$2 billion share buy back over the next 18 months.

See, not easy, a fact recognized by the stock market with Cendant’s share price going nowhere over the past year.

The second quarter result was undeniably patchy. It revealed steady demand for Global Distribution Services (Galileo) but issues in its Vehicle Rental and Hospitality Services divisions.

Highlights from Travel Distribution Services (excluding contributions from Orbitz, Gullivers and ebookers) include:

  • A 48% increase in revenue and 21% growth in pre-tax profit to US$143 million.
  • Organic growth of 47% in online gross bookings at Cendant’s travel agency businesses (or US$14 million increase in revenue). 
  • Strong growth and higher margins from, which has now migrated to the Orbitz technology platform. 
  • Steady result from GDS cash cow Galileo which generated 3% revenue growth – from US$396 million to US$410 million.
  • Global air traffic up 6% by GDS segment but US domestic air yields down.

Nelson claimed the recent acquisitions would really start to kick in during the second half of 2005 and through 2006.

However, analysis of the company’s overall forecasts reveal that total “income from continuing operations” will probably be down between 5% and 10% for the full year.

Once again, the strongest growth will come out of travel distribution, where Cendant is forecasting an increase in pre-tax earnings of up to 43%.

However, vehicle rental remains troublesome with decent revenue growth undermined by discounting combined with increased vehicle and depreciation costs.

“In order to offset these increased vehicle costs, we recently raised pricing at both Avis and Budget. To date, these price increases appear to have been successful,” said Nelson.

On face value, Cendant’s accommodation brands booked a solid quarter, with RevPAR increasing 10%, while revenue grew 12% to US$130 million.

Yet pre-tax profit was down 17% over the previous year due to marketing and other expenses.

Oh well, when running a global travel giant, you’ve got to be philosophical. You know, win some, lose some.


Share and Enjoy: