Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning.  Foxtrots – leading the industry in a dance. 


2007 March 30



Texas gets bigger. Buying into travel.


Coming soon to a neighbourhood near you. Two years ago it was the Cendant group that was moving into a position of world market dominance in the travel business – with substantial hotel interests plus a comprehensive retail distribution network, most particularly in online sales. 


That turned out to be a non-event as Cendant (inexplicably) decided to break itself apart as soon as it got itself together. 


Not quite the same is the new big player – Texas Pacific Group. In an extraordinary buying spree just before the end of 2006,
Texas agreed to buy Harrah’s (the
Las Vegas gambling operation and which is expected to move soon into
Macau in some form), Sabre (which includes Travelocity, Lastminute, and Zuji), and Qantas. And it already has equity in three
US airlines.


Whereas Cendant’s missing link in core travel business operations was and airline company, the gap for
Texas is the hotel business. So it would seem reasonable to expect that the group will succeed in buying a big hotel operation in the next few months. Although it is difficult to identify a pattern in the type of travel operations that
Texas is buying, there does seem to be a preference for US operations and the Pacific.


That would point to Shangri-La, but we do not believe that company would be for sale – even partially, although
Texas appears to prefer 100% buy-outs with other investment partners.


Of course, buying travel operations and running them effectively are not necessarily skills which are automatically concomitant. And the still-unanswered question is whether
Texas will seek to manage its new acquisitions in order to earn more from synergies, or will it leave them as unlinked investments that happen to be in the same industry?


We favour the management route, not least because Qantas at least is not having a good time. Its passenger loads in 2006 were falling, it has just been refused permission for closer cooperation with Air New
Zealand, and it faces ever-fiercer competition on its main Australia-Europe routes – from Qatar Airways, and the UAE’s Emirates and Etihad.


Also, the Sabre group has only recently acquired Lastminute and Zuji. These, together with Gullivers Travel, are widespread operations around the world – and Lastminute and Zuji may not yet be profitable. And they themselves need to work on synergies. 


This does not mean that
Texas has bought a package of trouble. As with the Cendant build-up, there are tremendous opportunities for the travel companies now under
Texas control. But it has bought companies which require crucial and quick management decisions.