Jeff Clarke

Travelport CEO Jeff Clarke

Article originally appeared in Voice of the Deal magazine, Vol. 5, No. 27.

The page 1 story in the July 27 Wall Street Journal painted an unflattering picture of Travelport Ltd. under Blackstone Group LP, its owner for the past year. The travel-reservation conglomerate epitomized the draconian job slashing that has been "unfolding at companies around the nation" under private equity owners, the paper said. Many such businesses send legions of workers packing while the new owners siphon off profits "at warp speed" through debt-funded dividends.

The implication: Buyout moguls are enriching themselves at the expense of rank-and-file employees.

A recent interview with Travelport's CEO, Jeff Clarke, paints a different picture. In April 2006, Travelport's former owner, Cendant Corp. (now Avis Budget Group Inc.) hired Clarke, who had helped lead the integration of Compaq Computer Corp. into Hewlett-Packard Co., to prep Travelport for a sale or a spinout.

Ultimately Blackstone and Technology Crossover Ventures, a Palo Alto, Calif., venture capital firm, bought it for $4.3 billion last August. Within two months, Parsippany, N.J.-based Travelport laid off 841 workers, about 10% of its work force, cutting annual costs by nearly $150 million, or about 25% of Ebitda.

Just seven months after the buyout, Blackstone and TCV raked off a $1.1billion dividend, recouping their entire equity investment. Was the dividend the payoff from the layoffs? Clarke sees it differently. The job cuts, he says, were one element of a much-needed reorganization.

"You have to have an emotional understanding of how difficult this can be" for those laid off, he says. "That said, the changes we're making are of a kind that drive innovation, that will allow us to stay competitive. We would have reengineered the business whether or not Blackstone owned us, whether we had zero debt or were heavily leveraged."

Travelport was an agglomeration of 20-odd operations Cendant had bought but never fully integrated, Clarke notes.

Indeed, Travelport's layoffs look minor compared to the 25,000 Clarke helped layoff in 2002 and 2003 after the Compaq-HP merger-two public companies. Those cuts ultimately yielded more than $3 billion in annual savings and laid the groundwork for the combined company to sail past Dell Inc. to become the world's biggest PC maker.

Just after the Travelport buyout, Clarke reorganized the businesses into three "stovepipes": the Orbitz Worldwide, now Orbitz LLC, online travel reservation business; Galileo, a computer-based system that feeds data about airline schedules and hotel rooms and rates to travel agents; and hotel room and travel package wholesaler Gulliver's.

The layoffs stemmed from melding those pieces. In some, there were duplicate jobs, in others, new technologies had made the jobs obsolete, Clarke says.

The biggest cuts came at Travelport's data operations center outside Denver. There, says Clarke, he dumped literally hundreds of costly new product research projects, channeling resources instead to 20 or so projects deemed most critical. Many of those laid off were senior product-development managers, he says.

The most dramatic move since the buyout was the initial public offering in July of Orbitz, in which Travelport sold 41% to the public. The sale raised $475 billion, which went to pay down debt.

The' restructuring has paid off tangibly. Travelport's revenue in the first half of 2007 rose 5% over the year-earlier period, to $1.4 billion. Fortified by the cost cuts, Ebitda climbed 24%, to $336 million. At Orbitz, net revenue was up 13% and Ebitda rose 39%.

For his next act, Clarke will tackle the integration of Galileo and Worldspan LP, a rival service Travelport bought for $1.4 billion on Aug. 22.

Galileo is already the industry's largest player in Asia and the Middle East. With Worldspan, it will rise from No.3 in the U.S. to run neck-and-neck with No.1 Sabre Holdings Corp.

Yes, more jobs will be excised, for additional annual savings of about $100 million, Clarke says. But when knit together, he adds, Galileo and Worldspan will be in a position to become the industry's most efficient operator, he argues.

"Worldspan always has run its IT more efficiently than the rest of the industry. It will help us offer better products to travel agents at lower cost."

In the end, he says, the company's transformation will result in more hiring for the company's fast-growing segments.

-DavidCarey