News for the Hospitality Executive
|By Kirsten Tagami, The Atlanta Journal-Constitution
Knight Ridder/Tribune Business News
Feb. 26, 2004 - The mahogany-paneled executive suite on the 21st floor of Worldspan's Cobb County office tower stands in stark contrast to the ongoing news of layoffs and cutbacks from the travel reservation company.
But in fact, the elegant offices -- once the headquarters of RJR Nabisco -- show how the company is pinching pennies, according to Rakesh Gangwal, a former head of US Airways who now leads Worldspan.
Before he arrived, Worldspan planned a new, $100 million headquarters building. Hard times in the travel industry, coupled with new ownership at Worldspan, made such a project a bit too extravagant.
It was one of several big investments in the works "that didn't really have a return for the company," Gangwal said. He negotiated with the owners of the Cobb Galleria building and got the annual lease cut by more than one-third.
Gangwal, 50, was named chairman, president and chief executive of Worldspan in July after the company was bought for a little less than $1 billion by a teachers pension fund in Canada and New York-based Citicorp Venture Capital.
The prior owners, Delta Air Lines, Northwest Airlines and American Airlines, had been relatively hands-off with Worldspan. But owing to their huge personal investments, the new board members are much more involved than at a typical publicly traded company, Gangwal said.
The private investors spent "tens of millions of dollars" investigating the company before buying it, he noted.
Worldspan runs one of the world's four large computer systems for booking airline, hotel and Internet travel reservations.
If you've ever booked a flight or reserved a hotel room through Expedia, Priceline, Orbitz, Delta's Web site or any number of brick-and-mortar travel agencies, you've used Worldspan's services. It provides software and behind-the-scenes processing to such clients for a fee.
Even before the ownership change, Worldspan faced increasing pressure to cut those fees and its own costs.
Travel agencies -- once the prime customers of Worldspan and its rivals -- are shrinking in number and retooling in the wake of airline moves to wipe out commissions.
Competition from Internet fares, meanwhile, has given airlines more power in negotiating fees, because customers now can bypass travel agencies, said Jake Fuller, a stock analyst who covers Worldspan competitor Sabre Holdings for Thomas Weisel Partners in New York.
"The airlines are using that leverage to drive (processing fees) down. All of the airlines have signed long-term contracts at discount rates," he said.
Worldspan has adjusted by emphasizing work for online travel sites. The company says it handled 60 percent of online travel agency bookings in 2002. Last fall it was in danger of losing Orbitz.com, but the two companies patched up what was described as a service dispute.
Despite growth online, total bookings and revenue growth have flattened, though the company has remained profitable, according to a regulatory filing related to the buyout.
About 1,400 of the company's 2,500 employees work from the Cobb headquarters or a data center near Hartsfield-Jackson International Airport.
The employee count has dropped for 2 1/2 years. The company laid off about 320 employees last year, and the cuts continue. Last week, about 50 people were let go. Another round of layoffs is expected soon. Existing employees have had to take a permanent 5 percent pay cut, even while top executives got millions in bonuses related to the buyout, according to regulatory filings.
Part of the pressure on Worldspan stems simply from changes in the way people buy tickets, said Timothy O'Neil-Dunne, a former Worldspan employee who now is a managing partner of T2 Impact, a consulting firm.
"Travel buyers have moved from assisted service to self-service, and that fundamental migration makes it unnecessary to have so many people," he said.
Some employees fear that many jobs will be shipped off to India, a prospect Gangwal -- a Calcutta native -- does not rule out.
For the past couple of years, the company has had a handful of low-level employees in Mumbai (Bombay) on an experimental basis, he said. Worldspan is behind its competitors in moving jobs overseas, he said.
"As a company, you have a couple of choices to make: Become cost-competitive or sell the product at a premium price," Gangwal said. "It's very difficult, if not impossible, to do the latter. Companies that have said, 'I'm going to charge more and get away with it,' they perish," he said.
Gangwal said no decisions have been made, and he added that the company still is weighing the benefits and tradeoffs, such as lost intellectual skills.
Gangwal's base annual salary is $1 million, with potential for a $1 million performance bonus, according to filings with the Securities and Exchange Commission. Prior to Worldspan, he spent five years in the executive offices at US Airways, rising to CEO in 1998. He left shortly after the 2001 terrorist attacks.
He also has worked for Air France and United Airlines.
Gangwal grew up in a well-to-do family, earned a master's degree in mechanical engineering from the prestigious Indian Institute of Technology and an MBA at the Wharton Business School at the University of Pennsylvania.
Although he plans eventually to move his wife and ninth-grade daughter to Atlanta, at present he lives in a Buckhead condo and commutes home on Delta to suburban Washington, D.C., each weekend. He uses the travel time to read reports from his staff.
The investors' ultimate goal, after making the company as lean as possible, is to make a profit by taking it public.
Gangwal acknowledges he didn't need the Worldspan job for the money. But he says he likes the challenge of "leaving an imprint" on the company.
"I don't think most of society works for compensation," he said. "I don't think you want to work just to chase an economic dream."
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