The Interview: Sabre rattler who dropped a surprise Lastminute bomb

Sam Gilliland, Chairman and chief executive, Sabre Holdings
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The Independent Online

Sam Gilliland used to work in the arms industry. On Thursday he dropped a different kind of bomb on the stock market by unveiling a £577m all-cash bid for Lastminute.com, the internet travel business that epitomised all the irrational exuberance of the dot.com era.

Sam Gilliland used to work in the arms industry. On Thursday he dropped a different kind of bomb on the stock market by unveiling a £577m all-cash bid for Lastminute.com, the internet travel business that epitomised all the irrational exuberance of the dot.com era.

Rather like the secrecy surrounding the US defence business, not everything is clear about the Lastminute deal. Shareholders, for instance, do not know the exact size of the cost savings envisaged by Sabre and Lastminute; workers are in the dark about how many of them might end up without a job when the company is merged with Sabre's other main online travel offering, Travelocity.

No doubt all will be revealed in good time, but for the moment Mr Gilliland is keeping schtum. "I was at Lockheed Missiles and Space. I was an electrical engineer designing circuit boards; I can't tell you what they were for. It's like this offer," he says.

Although there are no hard numbers to attach to the deal at the moment, he is clear as to where the financial dieting will occur. Like all dot.coms, Lastminute loves spending money - it got through a £37.3m sales and marketing budget in the six months to 31 March compared with £29.2m last year, not including £25.8m on "general and administration" costs.

"We think there are opportunities to streamline marketing spend," Mr Gilliland says diplomatically, a well-mannered and relaxed Californian who moved to Texas to work on Lockheed's missile and space programme before joining Sabre, another Texas-based company, in 1988.

Sabre came from American Airlines' seat-reservation system but while the company still provides technology to airlines, it has branched out into travel retail. Now separately quoted, it has sales of $2.1bn (£1.1bn) and employs 6,800 people, soon to expand with the surviving Lastminute staff.

Measured by dot.com years Mr Gilliland is rather ancient, having reached his 43rd birthday, which means he has been around long enough to have witnessed the complete domination of online retailing, particularly in travel, by US groups.

Ebay and Amazon have shown the way in global expansion. In travel, Lastminute represented the last girl at the dance, having seen rivals such as Expedia and Ebookers swept off by IAC/Interactive Corporation and Cendant respectively.

The Americans have been snapping up everything, starting with their domestic market, and are now in foreign fields.

"The growth of the European online market has been quite rapid. According to some estimates, if you look at the penetration of online booking it is reckoned to have been 9 per cent of the market in 2004 and will be 20 per cent by 2006. So it is growing at a very fast clip. In the US market, penetration is already in the 20 to 25 per cent range."

So Europe is where the growth is. But there are one or two intriguing aspects to the Lastminute deal. The first is timing and the other is price. At £577m, Mr Gilliland's 165p-a-share offer for Lastminute represents a 57 per cent premium to the company's share price before news broke that it had received an offer. Quite a sum for what is basically a brand name supported by lots of expensive kit replicated by a plethora of other online retailers.

Surely consumers are famously promiscuous when it comes to online shopping habits, going for the best deal is rather than displaying such soft and cuddly traits as brand loyalty? "Clearly our view is that brand does matter. I think we've shown that in the US market. We're beginning to show that in the European market with Travelocity. So often people believe it's all about price. We believe it's about brand and customer relationship and customer advocacy. Price is huge, it's important but it's not all about price. It's about an emotional connection with the company as well."

As for timing, Mr Gilliland seems to have got this spot on, which is good for Sabre shareholders but raises questions for Lastminute. Any travel agent will tell you the best time to sell a travel business is soon after the summer, when you can display what a good company you are with bumper bookings.

Selling on the back of figures up to the end of March, which Lastminute has done, cannot show a travel business at its best. Why not wait a few months and then sell when you can display more?

Brent Hoberman, Lastminute's co-founder and chief executive who will stay on to run Sabre's enlarged European business and marshal his £26m stake in the group, is adamant the offer was simply too good to be ignored. He implied the company was happy to continue on its own.

Mr Gilliland refuses to comment on timing but admitted now was a better time to buy than later in the year. The truth is Lastminute could probably see the writing on the wall. As analysts have said, the online travel market is getting more cut-throat, dominated by bigger players with deeper pockets than Lastminute. Shacking up with Sabre's Travelocity business is about getting bigger to survive.

The danger for all of these websites is that the airlines and hotel companies whose inventory of seats and rooms they sell, will simply do it themselves - disintermediation in the jargon.

"The difference between supplier sites and a site like Travelocity or Lastminute is that it is multibrand, it's about choice and diversity of offering. We're selling car rentals, airline seats and hotels. It's an experience rather than just one component of a trip.

"We've thought this [deal] through carefully. We've thought about the opportunity. If this deal closes, we will be the leading online travel provider in Europe and we would like to be in that position."

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