HOW DID IT FIND TROUBLE?
Optimism overbooked? Fundamentals overboard? Travel Services International (TSI) once had the perfect itinerary. Venture was its ultimate adventure as the company sought out and then bought out more than a dozen travel-related companies.
With its shares trading as high as $38 last year, it seemed as if the sky would be the limit for this fiscal globetrotter. Then the sky fell. The consolidator of consolidators had a bout of indigestion. The travel industry, already hit by commission cutting in the airline sector, remained sluggish. The company overspent ramping up its ocean cruise booking services, which had accounted for 43% of TSI's sales last year.
That one-way ticket to paradise? Cancelled.
TSI went public two years ago as a travel consolidator. It buys up blocks of cruise ship cabins, airplane seats, and hotel nights at a discount and then serves as a reseller. Along the way it has also bought smaller competitors in bulk -- 18 already in its brief public life.
TSI is the country's largest provider of global hotel reservations through its Lexington subsidiary. Lexington performs fulfillment services for 3,000 hotels representing 375,000 rooms in 60 different countries.
TSI also provides cruise and air travel booking services. Through Auto Europe, one of the four original pieces of the TSI that went public, the company also provides car rentals overseas.
Income Statement 12-month sales: $135.1 million 12-month income: $13.3 million 12-month EPS: $1.04 Profit Margin: 9.8% Market Cap: $107.9 million Balance Sheet Cash: $26.8 million Current Assets: $49.6 million Current Liabilities: $29.5 million Long-term Debt: $2.9 million Ratios Price-to-earnings: 7.6 Price-to-sales: 0.8
HOW COULD YOU HAVE SEEN IT COMING?
Earlier this year as the company reported its 1998 earnings, it warned of softness in its cruise bookings. While the company was still comfortable with earnings of at least $1.20 a share for the year ahead, it was shy of the $1.39 a share consensus at the time.
Downward earning revisions often bring on even lower revisions. For TSI this proved to be the case when the company concluded its March quarter and warned that earnings would come in at less than half of the $0.14 a share that was projected and the $0.18 a share the company had earned the year before. Annual estimates have now dropped to as low as $0.75 a share this year and a buck a share next year.
The double downgrade dip came from a logical chain of tumbling dominoes. Last year, with the airliners slashing commission rates, companies like TSI, PriceLine.com (Nasdaq: PCLN), and Preview Travel (Nasdaq: PTVL) rushed to diversify. TSI, being based in the cruise-heavy port state of Florida, looked to the sea for respite.
In the process it bulked up its cruise reservation system. However, as any telemarketer knows, and as anyone who has gotten that unsolicited phone call over dinner with someone reading off a card can attest to, novices do not immediately have the refined skills of phone-jockeying veterans. That move dropped the company's call-to-bookings ratio earlier this year, and the poorly skilled additions hurt the top line while the padded infrastructure hurt the bottom line.
WHERE TO FROM HERE ?
TSI paid the price for loading up on cruise reservation specialists this past quarter, but there might be some lucrative payback down the road. The cruise industry is booming, at least in terms of capacity. Last year seaworthy newcomer Disney (NYSE: DIS) launched its first cruise ship, the Disney Magic. In August Disney Wonder joins the Mickey Mouse conglomerate's fleet.
Over the next four years Carnival (NYSE: CCL) plans to add four new ships. Royal Caribbean (NYSE: RCL) will launch three more vessels over the next three years. Princess Cruises, home of Captain Stubing's Love Boat, plans to ring in 2001 with a pair of new "love" boats. Celebrity Cruises has four new ships on the drawing board, and these new ships are also bigger than their older siblings. In November Royal Caribbean's Voyager of the Seas enters service as the largest passenger ship in the world at 142,000 tons and with capacity for 3,114 passengers. The hypercruisers are coming -- and TSI will be there to fill those cabins.
Cruising is no longer the domain of wealthy retirees. With companies like Carnival catering to young adults and Disney slinging for the family market, the industry is pulling up anchor and coasting into wider demographic seas. TSI is well-served to be emphasizing this segment even if the growing pains have not been well-received by Wall Street.
The salty sea revival will probably lead to one of two scenarios. The TSI-friendly outcome has the cruise companies, anxious to fill up berths, bending over backwards with travel agent incentives to keep bookings coming their way. The darker flip side has those same companies, in a cutthroat attempt to fill the ships by slashing prices and costs, cutting agent commissions and trying to angle prospective passengers into calling and booking directly with the cruise company.
Either way it will all boil down to how well TSI positions itself to the retail client as the ideal way to book a cruise. While the company plans to soup up its online offerings to eventually allow online cruise bookings later this year, this is a much more specialized service than simply spitting out rock bottom airfares or deeply discounted hotel nights. Different cabins have different restrictions. Something as subtle as choosing an early or late dinner seating can require a bit of handholding to decide on.
That is why TSI, experienced offline and coming of age online, seems to be in decent shipshape in the long term. While electronically proficient, it is still a sturdy value-added reseller in an industry where going the extra frequent flyer mile often lands the booking. Is that one-way ticket to paradise still available?
-Rick Aristotle Munarriz (email@example.com)
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