Sabre Holdings looks to book an IPO but wants to see revenue growth first

Oct 18, 2009 (The Dallas Morning News - McClatchy-Tribune Information Services via COMTEX) -- TSG | Quote | Chart | News | PowerRating -- Sam Gilliland has really enjoyed keeping his company's business to himself the past three years.

"I don't like to share what we're doing with our competitors every quarter," said Gilliland, chairman of privately held Sabre Holdings Corp.

But now the Southlake-based travel services firm is on a path to rejoin the ranks of public companies with a public offering.

The question for Sabre, Gilliland said, is not if, but when.

"It will depend a lot on where the market is and where the economy is, but I do also think that we'll be looking for revenue growth before we do it," he said.

"We can fairly confidently say in the first couple of quarters next year, we'll see earnings growth and revenue growth," Gilliland said.

But the company wants more surety in its forecasts before it goes to Wall Street.

"If we can convey that message, it's probably time for us to take a look at going back out there" with an IPO, he said.

Sabre began life as the technology division of AMR Corp., where it developed the airline's reservations system. Since going public in 2000, Sabre has distanced itself from its former owner and branched out in different directions.

Today it's a 9,000-employee global player in travel reservations, management and software development -- perhaps best known for its online travel site, Travelocity.com and its Roaming Gnome character.

In late 2006, Sabre agreed to be bought by private equity firms Texas Pacific Group of Fort Worth and Silicon Valley's Silver Lake Partners in a deal valued at $5.4 billion.

While other private equity buyouts have crushed their target companies with debt during the recession, Sabre's move has allowed it to spend on its businesses in a way it probably couldn't have as a publicly traded firm trying to make earnings numbers, Gilliland said. The investments have:

-- Boosted technology for its travel distribution business to help travel agents on the Sabre Network and its airline technology consulting unit, helping it win new customers such as Jetblue Airways and WestJet.

-- Helped plaster Travelocity's Roaming Gnome across different media in the fierce marketing war among online travel agencies. Sabre will spend more marketing money in the upcoming year to gain greater market share.

-- Beefed up Sabre's GetThere business travel management unit to help it win new clients as companies look for ways to cut travel spending.

Gilliland is encouraged by reports from airlines showing that overall traffic volumes -- and especially premium business travel -- appear to have bottomed. Higher travel volumes help Sabre's global distribution system, which remains the world's largest and books 40 percent of all airline tickets.

Preparing for takeoff

Travel demand "could be bumping along the bottom for a little while," Gilliland said. But he added that his conversations with customers around the globe suggest the corporate outlook is brightening.

To take advantage of the nascent travel rebound, Sabre is offering more tools to the travel agencies that use its system, to the airlines that use its technology and to businesses trying to manage their travel. It's also growing quickly into new businesses, such as hotel management software.

For travel agents, Sabre wants to use its technology to squeeze the most out of agreements between agencies and airlines or hotels that pay the agents bonuses if they book a certain amount of travel.

Sabre's gear can analyze those agreements to ensure individual agents book the right airlines and hotels at any given moment. That way, the agency gets the biggest bonuses it can.

The company envisions travel agents using table-size touch-screens with slick applications to book, change and manage travel reservations. Sabre thinks the touch-screen model, which looks kind of like a big iPhone, is just three to five years away.

For airlines, Sabre sells software that runs critical functions such as scheduling and ticketing. Its Airline Solutions business has held steady as airlines have looked for money-saving technology, with overseas carriers representing a fast-growing market, said Tom Klein, the group's president.

In August, Sabre lost a bid to help Fort Worth-based American Airlines Inc. build a new reservations system when the carrier picked Hewlett-Packard Co. as the vendor. While Gilliland said Sabre could have done some things differently, he characterizes his company's relationship with American as good.

"If we do good work and continue to do good work for American, we have a lot of opportunities ahead for us there," Gilliland said.

Travel management

For businesses, Sabre offers a travel management software system that is being used by more than half the nation's 100 largest travel programs. The GetThere unit is now after more medium-size businesses that could benefit from its technology.

The fastest-growing part of Sabre's solutions business is its hotel software, which "was a double-digit, million-dollar-revenue business that's now over three digits," Klein said. That puts Sabre competing squarely against Dallas' Pegasus Solutions Inc. in a bid to help hotels run better.

As Sabre contemplates its future, some analysts believe it could decide to separate its marketing side -- Travelocity, primarily -- from its more hard-core technology side.

"Sabre may spin off Travelocity separately and perhaps keep Mother Sabre for its own IPO," speculated Forrester Research analyst Henry Harteveldt, who follows the travel distribution industry.

"It's possible that Sabre would look at the margins of its businesses and come to the conclusion that it's more profitable just to be a technology company," Harteveldt continued. "They look at what Cisco and other companies make out there, and it's real money."

Sabre's owners, Texas Pacific and Silver Lake, both declined to comment about their intentions for Sabre.

Filling gaps

Gilliland and Klein both said that Sabre is likely to be on the lookout for other companies to buy to fill holes in its offerings.

"We'll continue to be acquisitive," Gilliland said, noting the company has bought some smaller players recently outside the glare of Wall Street.

As for Sabre's likely IPO, Harteveldt said working in its favor is that the company is financially strong, kept its seasoned management team after the buyout and has spent prudently. But he said it still faces plenty of challenges.

"I think Sabre hasn't been as global as it would like to think it has been in the past years, and that could hurt them," Harteveldt said. "They've also stuck to some older technology that they probably shouldn't have and have been beaten to the punch on some online merchandising by competitors, so they're going to play catch-up there."

The battle for online travel agencies is particularly brutal, Harteveldt added, with Chicago-based Orbitz gaining on Travelocity and Bellevue, Wash.-based Expedia.com also trying to win market share.

Since going private, Sabre has taken several steps to rein in its expenses, including consolidating most of its 2,500 North Texas employees into two buildings and installing new servers to cut data costs.

Gilliland, who gave up his corner office for a not-spacious cubicle tucked in the corner of the fifth floor, said the cost-cutting has positioned Sabre's different business units to benefit from even small increases in overall travel volumes.

Being privately owned during this downturn "has been really positive," he said.

"The question will be at what point do we decide to be a public company once again."

AT A GLANCE: SABRE HOLDINGS

Headquarters: Southlake

Employees: 9,000 total, 2,500 in North Texas

Businesses:

-- Sabre Travel Network for travel agents. Its global distribution system books 40 percent of all air travel and processes 2 billion transactions each day.

-- Sabre Airline Solutions consulting. Builds and hosts software that handle reservations and back office services for airlines and hotels.

-- Travelocity.com, an online travel agency.

-- GetThere business travel management software and consulting services.

Challenges:

-- Find the right timing for an IPO.

-- Continue cost-cutting effort.

-- Develop faster-growing businesses, such as hotel operations consulting.

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