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To our shareholders:
The year 2002 was a year that most of us are pleased to have behind us. While it included several significant accomplishments by your company, sustained value creation was not one of them.
When the year started there were reasons to be optimistic. It looked like 2002 was shaping up to be a recovery year for an industry decimated by the terrorist attacks of 9/11. As an industry leader in travel commerce, we expected to garner more than our fair share of growth. However, after several months of steady improvement to begin the year, travel demand stalled. By late spring it was clear we were in for a year in which earnings plans would be achieved through aggressive cost management.
Even under these demand-challenged conditions, three of our four companies performed well – meeting or exceeding their earnings targets for 2002. Unlike many major players in the travel industry, Sabre Holdings turned a solid profit. Unfortunately, that performance did not drive an increase in the value of your Sabre Holdings shares.
Share Performance
Heading into 2002, the industry and our stock price were both rebounding nicely from post-9/11 lows. As a matter of fact, by the end of March our share price had more than doubled to $46.71 per share, up from the post-9/11 low of $21.22. These gains reflected investors’ confidence that Sabre Holdings was well-positioned to benefit from an industry recovery. We shared that confidence. In April, we completed a successful equity offering. We raised approximately $400 million, by selling an additional nine million shares at $44.50 per share, to replenish our balance sheet following the buy-in of the Travelocity shares that we didn’t already own.
But then the industry hit a wall in late spring. When the enplanement data for the major airlines in North America leveled off last May, investors quickly lost confidence in a broad travel industry recovery. Our share price dropped sharply – off 15 percent in May, well beyond the decline experienced by major tracking indices such as the Standard & Poor’s 500 (down 1 percent in May).
Sabre Holdings shares continued to trade in line with that of the major airline index for the remainder of 2002. That’s somewhat understandable, given our heritage as a set of businesses built around airline ticket transactions and the sale of technology products to airlines around the world. But in our view, it doesn’t reflect our true value and breadth. And it only doubles our resolve to demonstrate how Sabre Holdings is moving beyond that heritage to become the industry’s most successful “travel commerce” company. We will review our progress on that front shortly. But first, let’s take a closer look at our financial performance in 2002.
Financial Highlights
For the year, Sabre Holdings earned $1.50 per diluted share (on a GAAP basis), compared to $0.24 per diluted share in 2001. Our revenues from continuing operations totaled $2.06 billion in 2002, a decrease of 4.1 percent from $2.15 billion in the prior year. This revenue decline is the direct result of worse-than-expected travel demand. Even so, by aggressively managing costs, we turned in a solid performance in operating earnings. We began the year with a strong balance sheet, and we ended the year with an even stronger balance sheet.
Investing in Travel Commerce
Throughout 2002 we continued to execute on our strategy for long-term growth by taking steps to shift the company more toward the travel commerce business models. We are working to expand our portfolio so that we become less reliant on traditional airline booking fees, and better positioned to grow through the retailing of travel products and through multiple distribution channels. This will enable us to increase our revenue per transaction, while also enhancing our ability to merchandise travel in a way that matches how consumers want to shop for and buy travel today.
A growing percentage of people now shop for travel online. At the same time, those who use travel agents are asking their agents to do more for them, to find great deals, and to make the whole travel experience easier. Travel packages have become more popular, and more people are discovering the appeal of last-minute travel bargains.
To meet these demands, we made significant investments in 2002 in fast-growing market segments such as online leisure travel and online business travel – including our buy-in of Travelocity and our acquisition of Site59 during the second quarter. We accelerated our “merchant model” efforts – taking travel products on consignment (such as hotel rooms) and offering attractive deals to travelers through a variety of distribution channels. At the same time, we invested in technologies that improve our online capabilities. All of these steps will provide critical fuel for future growth.
We’ve continued to expand our portfolio across the travel value chain. Sabre Holdings has four distinct businesses with strong positions in key market segments of the travel industry. Let’s take a closer look at how these businesses performed in 2002.
Travelocity
Although our consumer direct travel unit leads the industry in a host of important areas (including total membership), Travelocity had a disappointing 2002. The core issue: Travelocity was too slow in embracing the merchant model and in addressing the packaged travel business more broadly. Clearly we have the capability to do so. Our long-standing leadership position in the online cruise business is proof positive of our ability to leverage our technology to merchandise travel. Since the buy-in was completed in April, we’ve moved quickly to address these opportunities. The Travelocity company has new leadership, and we’re making significant investments to bolster its merchant model product set. Based on Travelocity’s fourth quarter progress and new initiatives, we’re confident that we have both the strategy and the people in place to take this business – one of the all-time great dot.coms – to the next level.
GetThere
Heading into 2002, we said GetThere would grow revenue from our corporate customers by about 100 percent. We hit that target and maintained our leading share of more than half of the Fortune 200 companies.
Sabre Travel Network
Our global distribution system (GDS) business is the only Sabre Holdings unit that saw its 2002 revenue decline compared to 2001. Even so, Sabre Travel Network (formerly called Travel Marketing and Distribution) made significant contributions to our overall success. The business improved operating margins by several basis points, while maintaining the industry’s highest customer satisfaction scores. This business continues to generate a substantial share of the revenues and profits for all of Sabre Holdings. We continue to deliver new capability to improve the business environment for our large base of travel agency customers and travel suppliers.
Sabre Airline Solutions
Our Sabre Airline Solutions business had a terrific year, considering the fact that commercial airlines are its primary customer base. With so many airlines strapped for cash, we knew it would be a challenge to hit targets for modest revenue growth while improving operating margins. But that’s exactly what Sabre Airline Solutions did – by signing more than 300 new contracts in 2002 to provide a variety of airline support products and services.
2003 Outlook
Looking ahead, while we expect more uncertainty in the industry in 2003, we have set aggressive targets for each of our businesses.
We believe world events and economic pressures will continue to dampen travel demand in 2003. Despite these challenges, we are forecasting strong, even enviable, revenue growth for three of our four companies.
Our largest and most profitable business, Sabre Travel Network, will be dealing with the industry pressures discussed earlier and will find it difficult to grow revenue year over year. But we expect it will continue to generate healthy earnings.
The GDS business will also be forced to deal with the prospect of wrong-headed efforts by the government agency responsible for regulating parts of that business in the United States. Late in 2002, the U.S. Department of Transportation proposed new rules that would govern computer reservation systems. This proposed rulemaking is flawed in many areas and won’t be resolved any time soon. We are aggressively communicating our position and defending your rights as owners of our company. Our message is simple: Regulate us or deregulate us; either way works. But don’t rig the playing field to pick industry winners and losers.
We intend to set a fast pace in the travel marketplace and to continue to pursue our strategic agenda.
Now is not the time to cut back on our investments in emerging technologies and business areas. Instead, we will build on our solid foundation in the travel commerce arena. For instance, we will direct about 60 percent of our product development spending toward new online capabilities – to strengthen Travelocity and GetThere, and to create new or enhanced travel shopping and merchandising technologies across all four of our companies.
We will continue to build on our strengths in technology, distribution and retailing, and to leverage our assets across the travel value chain to best serve travelers, corporations, travel agents and travel suppliers. We are in a unique position today, and we are excited about the chance to leverage our strengths – on behalf of our customers and our shareholders – in 2003 and beyond.
William J. Hannigan
Chairman and Chief Executive Officer
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William J. Hannigan
Chairman and
Chief Executive Officer
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Sabre Holdings completed a cash tender offer for the outstanding publicly held shares of Travelocity common stock that it did not already own |
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Sabre Holdings completed the initial migration of its massive air pricing application to an open-system platform as part of the Air Travel Shopping Engine (ATSE) – a multi-year program to migrate air pricing, schedules and availability |
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Travelocity acquired Site59, the leading online seller of last-minute merchant model air, hotel and rental car inventory |
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GetThere achieved strong revenue growth of approximately 100 percent, year over year, from the corporate business |
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Sabre Travel Network launched the “Empowering Agenda” for travel agencies |
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The Sabre Airline Solutions resource management systems technology was selected by Unisys to assist the Transportation Security Administration (TSA) in managing its newly formed federal screener workforce at airports across the U.S.
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(From left to right)
William J. Hannigan
Chairman and Chief
Executive Officer
David A. Schwarte
Executive Vice President
and General Counsel
Jeffery M. Jackson
Executive Vice President
and Chief Financial Officer
Eric J. Speck
Executive Vice President
and Chief Marketing Officer
M. Sam Gilliland
Executive Vice President,
and President and Chief
Executive Officer, Travelocity
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