Cendant has forecast lower fourth quarter earnings due to problems at its travel distribution services division and cast out senior management due to “unacceptable setbacks in its performance.”
British online travel agency Ebookers has been singled out as producing “reduced return expectations” for Cendant.
The travel distribution services “has clearly fallen short of its 2005 targets due principally to our international online businesses, particularly ebookers.”
Addressing the poor performance would not require “quick fixes but significant new investments, including the development of a single, global online platform.”
Samuel Katz has also been ousted as CEO of Cendant’s Travel Distribution Services (TDS) division after ten years at the company and four years at TDS. He aims to “pursue other business interests,” after Cendant.
In response to the disappointing forecasts, which saw a dip in its share price on Wall Street, Tuesday, CEO Henry Silverman said “with hindsight our past projections were too high.”
But Silverman went on to paint a stronger picture of its online travel program—“TDS is a strong business that we expect will achieve approximately 11 percent growth next year (before interest and tax).
“Its strengths have been widely recognized, most recently at the World Travel Awards in November, where we were named ‘Best Travel Distribution Services Company’ in a category that included the industry’s toughest competitors. With its global scale, powerful brands and deep industry expertise, TDS has the fundamental strengths to compete successfully in its markets.”
Following a final budget review conducted over the past two weeks, Cendant now projects full-year earnings in 2006 to be in the range of $575 to $625 million (before interest and tax).
Cendant plans to split into four new divisions that will cover travel distribution, hospitality, vehicle rental and real estate.
But the new proposed hospitality company will now include its timeshare business. These businesses were previously proposed to become part of the new TDS firm.
Cendant Chief Financial Officer Ronald Nelson told the Wall Street Journal that bookings at ebookers were far short of the company’s projections, describing it as an internal problem because the European online-travel market has been growing.
“The market is growing at 40 percent to 50 percent a year. We, by and large, have been flat,” he said. Mr. Nelson said ebookers’ technology wasn’t strong enough, its platform wasn’t consumer-friendly enough to compete, and it would be at least another year before the issues are fixed.
Brands in Cendant’s portfolio include, car rental firm Avis, travel sites Orbitz, Cheap Tickets, Travelwire and Days Inn.