The Parking Spot was founded by Penny Pritzker and Martin Nesbitt to capitalize on the fragmented nature of the near-airport parking lot industry. With her background from the Hyatt Hotel, Penny viewed this space as part of the hospitality industry. When the financial crisis of 2008 hit, one of its creditors expressed concern that it might be vulnerable to the downturn and requested an industry analysis .
We conducted an industry analysis that correlated the performance of the company with Revenue Passenger Miles (RPMs) and Originations, which were practically interchangeable from the standpoint of indicating volume of air traffic. Unlike airline profitability, which is highly volatile, both Originations and RPMs are much more stable, and are the result of the airlines’ need for marginal revenue. That is, price is cut until the last seat is filled, and any idle airplane is simply fixed over head not being covered.
We also looked at the XAL option, which is comprised of 13 airline stocks. As a stock option, it is forward looking and gave some predictive insight. We also looked at oil price futures to cancel out any affect that fuel prices might have on the XAL option so that we could better isolate the affect of demand on the XAL option, and thus, give us an indication of the future of The Parking Spot.
Our conclusion? The creditor should hold its position. Demand for air travel is ultimately driven by population growth and GDP, and is relatively stable in comparison with the volatile fortunes of the airlines. And in a soft economy, there is some shifting from parking at the terminal to near-airport due to the price differential, both for the longer term consumer and business traveler.
The outcome? In November 2011, The Parking Spot was sold successfully with not only the debt paid at par, but the equity at a high valuation.
For more see: Industry Segment Analysis