Is spinoff mania spinning out of control?

These are exciting times at United Airlines. Later this month, the company’s e-commerce unit moves into a new office building near its Elk Grove Village, IL, corporate headquarters.

Little is known about the spin-off of UAL’s dot-com division. According to Rick Collins, director of e-commerce marketing for the carrier, the consolidation of strategic partnerships like Buytravel.com, a yet-to-be-launched Disney co-branded site, and, of course, Orbitz, will “improve United’s speed to market for its e-commerce efforts.”

It’s still unclear what the new United unit will be called or how it will ultimately fit into UAL Corp.’s corporate structure. Or if it will even be a part of UAL Corp.

“There are still some decisions that have to be made,” says Collins.

One thing we do know: United isn’t alone. Down in Atlanta, rival Delta Air Lines just hired a public relations firm to represent its e-commerce initiatives. It isn’t presently known if the carrier is considering breaking its dot-com activities off from the rest of the company, but executives must be wondering if that part of the operation is undervalued. You probably would too if you found out that the warrants you had in Priceline.com were worth more than your entire fleet.

And in Philadelphia, travel agency Rosenbluth recently spun off an interactive division after acquiring Biztravel.com. (In the interests of full disclosure, I should note that I am a contractor for Biztravel.com. Even if I knew what Hal Rosenbluth’s plans were for his Interactive division, I wouldn’t say.)

All over the travel industry, big suppliers seem to be mulling a spin-off of some kind. But does it always make sense to break the cyberstore off from a parent company like AT&T did with Lucent a few years ago? Here are some of the risks – and rewards – of spinning off:

- Spin-offs create additional value. This happens through a decrease of what academics called “information asymmetry” – or, in plain English, it makes it less confusing for an investor to tell one business apart from another. In a paper delivered to a Financial Management Association International conference sponsored by the University of South Florida, researchers Tom Bates, Jay Coughenour, and Kuldeep Shastri found that “bid-ask” spreads (what separates the seller from the buyer in share transactions) fell by 3.11% for parent firms after spin-offs, which they claim, “is arguably an important source of value creation.” (Their interpretation: narrowing spreads are indicative of buyer interest.)

- Spin-offs increase innovation. That’s the gist of Asa Lindholm’s doctoral dissertation at Chalmers University in Sweden, as well as a number of other studies and surveys. Breaking a smaller unit from a large parent company, he writes, “is highly conducive to overall innovation and long-term growth, given certain conditions.” The reason I mention Lindholm’s work is that it focused on technology companies, which, it could be argued are most similar to the interactive divisions of the suppliers in question.

- Spin-offs are largely uncharted territory in our business. Maybe your CFO will wave numbers and statistics in front of you, such as the aforementioned. But the fact is, an online spin-off from a travel supplier hasn’t been done yet, unless you count Sabre’s divestiture of Travelocity.com. Look at The New York Times’ on-again, off-again plans to sell as much as $100 million of stock in Times Co. Digital on Wall Street, or even 3Com’s disastrous spin-off of Palm (not quite a dot-com stock, but close enough, according to some NASDAQ-weary investors). This is hardly the time, some pundits might argue, to separate a company’s online activities from a parent.

It’s difficult to generalize about the value of a spin-off for a travel company in the current economy – or in any economy. To set up a special division where efforts can be focused – which is what United says it is doing now – is one thing. But if the final goal is to completely break away from the parent, I can only hope the companies will think long and hard before filing their paperwork with the Securities and Exchange Commission.

In the 21st Century, online sales and marketing efforts should be pervasive throughout a travel supplier’s operations. What happens when they’re contained, isolated and disposed of for a quick buck?

We may be about to find out.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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