Allegis to Sell Half of Lucrative Reservation Unit : System’s Annual Revenue $350 Million; Car Rental, Hotel Firms Also on Block
Giant Allegis Corp., parent of United Airlines, announced Thursday that it will dispose of half of its money-making Apollo computerized reservation system and confirmed that it plans to sell off its hotel and rental car businesses.
The announcement startled the airline and travel industries because Apollo brings in much business for the corporation’s own businesses and $1.85 for each reservation it makes for others. Its annual revenue is about $350 million, analysts said.
The action, taken at a board meeting here, “will permit additional cash distribution to shareholders,” the company said in a letter to its stockholders after the meeting.
“The board of directors has concluded that the best way to maximize the value of United Airlines to our stockholders is to refocus and concentrate the company’s efforts of strengthening United’s competitive position and improving its relations with its various employee groups,” the letter said.
Also on Thursday, the directors accepted the resignation of John L. Cowan, the corporation’s vice president and chief financial officer since 1985. Cowan had been one of the chief architects of the “integrated travel company” strategy of Chairman Richard J. Ferris, who was forced to resign over that issue on June 9.
Firm ‘Put in Play’
On May 1, the company changed its name from UAL Inc. to Allegis, a move intended to reflect Ferris’ strategy. Upon his resignation, the company said it intended to rename itself United Airlines Inc.
In Wall Street parlance, Allegis had been “put in play” April 5, when pilots of United, apparently unhappy with Ferris’ plan to make the corporation less dependent on the airline, offered to buy the carrier from the parent company in a deal worth $4.5 billion. Then, last month, an investment group named Coniston Partners said it had acquired 13% of Allegis and would try to take it over, divide up its parts and sell them off.
In an effort to fend off these and other potential suitors, Allegis on May 28 disclosed a $3-billion corporate restructuring plan that included a special payment to stockholders of $60 a share.
Allegis, which owns the Hertz rental car business and the Westin and Hilton International hotel chains, had been criticized by its shareholders for not generating sufficient returns on its stock. They blamed the firm’s business strategy.
On the day Ferris quit, the board said it probably would sell the three subsidiaries and distribute the proceeds to shareholders. It confirmed this Thursday, an action that scraps the $60-a-share plan.
Cowan’s resignation was no surprise because he was so closely tied to Ferris’ policies.
The corporation also said Thursday that John J. Hartigan, president and chief executive of the United Airlines subsidiary, had been made chairman of the carrier. Hartigan, who started with the company as a ticket agent in 1942, will be in charge of purchasing new airplanes and public relations. Observers said they view the Hartigan promotion as a “kick upstairs.”
The directors announced that Frank A. Olson, who was named on June 9 to succeed Ferris as the corporation’s chairman and chief executive, will assume the additional posts of president and chief executive of the airline.
On another matter, the board said it will try to improve its relationship with its unions. A criticism of Ferris had been his poor relationships with unions, especially with the pilots.
“We fully recognize that labor-management relations must be brought to a level of reasonable cooperation if United is to succeed,” the directors’ letter said. “We intend to solicit direct and continuing input from our employee groups. A key effort will be to develop a realistic program for wage and benefit concessions and productivity gains, a must if United Airlines is to compete effectively.”
Apollo is the nation’s second-largest computerized reservations system, with 29% of the market. American Airlines’ Sabre system is the largest with 38%. SODA, owned by Texas Air Corp., is third with 15% and PARS, owned jointly by Northwest Airlines and Trans World Airlines, has about 14%.
Allegis says the Apollo system serves 653 airlines worldwide, with 194,000 city pairs (origins and destinations). There are 14,289 hotels on the system, 17 car rental companies and 5,000 other locations including Amtrak, cruise companies and other travel-related services. Terminals at travel agencies total 8,650 worldwide.
The reservation systems, especially Apollo and Sabre, have been involved in controversy for some years. Other airlines and travel agencies accuse the services of unfairly putting the flights of the airlines that own them at the top of computerized screens so that travel agents would offer them to customers first. A number of government suits and investigations are pending on the matter.
Analysts said that the Apollo system would be a prize purchase for others. Timothy Pettee, airline analyst with the New York brokerage firm of Bear, Stearns, said the pending merger of USAir and Piedmont Airlines would most probably be interested in such a purchase. Delta Airlines, which has a system serving only 5% of travel agents, would also be interested, he said. A spokesman for USAir declined to comment Thursday and Delta officials could not be reached.
There were no authoritative estimates available Thursday of how much Allegis would receive for half of the Apollo system. TWA recently sold its half of its PARS system to Northwest for $140 million.
