In a spinoff quandary? Add .com

By | April 22nd, 1999

Recent speculation that Sabre and its parent company, AMR Corp., may be planning to spin off the Travelocity division into a publicly held company got me thinking.

The airline industry is cyclical, meaning that its earnings hit peaks and valleys with some regularity. Assuming that the business just topped out, and that things are now starting to head south, might airline executives be looking for a way to pad the inevitable fall?

What better way to do that than to cash in on mind-blowing Internet stock valuations?

In other words: spin off your Web sites. AMR shouldn’t stop at taking Travelocity public; it should throw in for good measure. With the frenzy to bid up any stock that’s got a “.com” attached to it, AMR could easily get a valuation for that’s two or three times the price of the airline for which it books tickets.

It sounds unbelievable, but considering that Delta Air Lines’ stock warrants in are said to be worth more than the airline’s entire fleet, it’s not unreasonable. And best of all, there’s still time. I thought last week’s bloodletting in the technology sector would signal the beginning of the end, until the tech-heavy Nasdaq index roared back to a new record high. People are crazy for anything .com, and there’s no better time than now to capitalize on the mass hysteria.

What do the airlines think of this idea? Not much, although all are taking steps toward Internet distribution. “I doubt it will happen,” Trans World Airlines spokesman Jim Brown told me. “Our Web site is too much of an integral part of TWA’s efforts to sell its products.” I asked him if TWA might ever consider a spinoff. “We’ll never say never to anything. There is always room for consideration for future endeavors if they make sense to the company. But I can tell you that there are no plans in the immediate term to take public.”

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Brown said this the same day TWA announced it would set up a new electronic distribution department, focusing on Internet and electronic sales, within its sales department. Such timing makes you wonder.

United Airlines spokesman Matt Triaca couldn’t help but snicker when I asked him if his carrier planned to take its Web site public. “It’s not happening. Not to my knowledge,” he said. The more levelheaded of you readers probably will think the airlines are correct to be cautious. You’ll think that there is no precedent for spinning off a Web site like this. I mean, can you imagine US Airways taking its reservations department public? Or Southwest Airlines filing a registration statement to do a stock offering for its baggage handlers?

You’d be right, of course. You’d also be correct if you pointed out that a fraction of overall travel reservations are made on the Web. If that information ended up in a red herring-IPO parlance for a U.S. Securities and Exchange Commission registration statement — then investors would laugh the whole share offering off, right? Maybe, and maybe not. Yes, airline Web sites are small, highly dependent parts of the airlines they serve.

But it’s also true that investors have paid good money for less deserving enterprises. Take, for example, which despite awful reviews and zero profits soared through the stratosphere when it went public. What any of us wouldn’t give to be founder Jay Walker right now.

Right about now you could print a prospectus with empty pages, and as long as the name of the company had “.com” in it, you should expect a customary 500 percent rise in the stock’s value out of the starting gate. It doesn’t matter that or or is a more or less insignificant part of a big organization.

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Wall Street cares about only one thing: .com.

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