Sabre Predicts Clear Skies for Its Airline Distribution and Tech Businesses
Executives at Sabre believe the travel technology giant will enjoy stable growth in the near-term, despite talk by some airlines of trying to persuade more travel agencies to book directly with them.
Sabre doesn’t face the same distribution pressures that haunt its European-based peer companies like Amadeus and Travelport, said CEO Sean Menke during the Southlake, Texas-based company’s earnings call on Thursday.
The comments came as the company reported steady growth. In the third quarter, Sabre generated $984.2 million in revenue, up 1.4 percent year-over-year. It reported $63.8 million in net income, a measure of profit, down 12 percent year-over-year. Executives attributed the drop in net income to one-time factors.
Sabre reported that, in the third quarter, its global share of airline distribution services rose one percentage point, year-over-year, to 39.6 percent. The profitability of these third-party bookings rose for the first time in three years, meaning the fees it charges airlines had faster growth than the fees it pays agencies to work with it.
The bookings volume growth came especially in North America, where the company sources about half of the bookings it handles, the company said.
North American airlines and travel management companies were less incentivized to pursue aggressive steps in their direct distribution campaigns when it comes to the most lucrative segments of corporate travel and international tickets, Sabre executives said.
Airline expenses for distribution for direct and indirect channels have broadly converged in the U.S., thanks to industry consolidation, executives said. Airlines in North America would be less likely to copy ones in Europe in pushing hard on direct distribution because they have less money to save after the added expenses needed to pursue that path.
In other words, airlines in North America have consolidated, which has led to less pricing pressure from budget carriers and less urgency to push for direct distribution, the executives said.
Menke didn’t worry about Expedia Group’s travel management company Egencia inking a direct distribution deal with Lufthansa that partly reduces Sabre’s role.
“You do have agencies out there that are tech-savvy,” Menke conceded, in reference to Egencia and similar companies. But most agencies aren’t, and trying to bypass the so-called global distribution systems like Sabre can be an expensive and labor-intensive undertaking.
“We got to make sure that the carriers and the distribution points all have the appropriate level of technology to handle that mix in that basket of rich merchandising and retailing kind of transaction and structure,” said David Shirk, executive vice president and president of Sabre’s travel solutions division.
Sabre’s executives also waved away concerns about the U.S. Department of Justice lawsuit seeking to block its acquisition of a technology Farelogix.
The trial will begin in January 2020, and Sabre said it expects to “resolve” the lawsuit, which it argues reflects a mistaken view that Farelogix competes head-to-head with Sabre for airline bookings in the U.S.
It has cause for optimism, having recently won a round in a similar piece of litigation. In the third quarter, Sabre reported a $31.8 million gain related to the reversal of a previously accrued loss related to the US Airways suit.
Separately, Menke touted Sabre’s $110 million acquisition of airline passenger service system provider Radixx earlier this month. The vendor’s software will appeal to many budget airlines that Sabre hasn’t been able to reach with its more premium product SabreSonic. The company expects Raddix will “achieve scale and accelerated growth in the medium term.”
Separately, SabreSonic had lost some market share in the past few years, but Menke believes it will now retake share.
Executives hinted that additional acquisitions for the airline operations software business are likely.
“It’s not like you can just go hire people off the street and understand the world that we live in,” Menke said, explaining that acquiring companies with proven experience at particular skills can be the fastest way to plug talent gaps at Sabre. Vendors specializing in data analytics for airline and airport operations and planning seem high on the consideration list, to parse executive comments Thursday.
On the hospitality software front, Sabre now is less optimistic about growth for the year, expecting only between 7 and 9 percent revenue growth for the year. Clinton Anderson, president of the division, is leaving the company to become a chief executive elsewhere.
“I feel very good with what he has done within hospitality,” Menke said of Anderson.
Anderson had championed attempting to work with non-traditional players in hospitality, such as Airbnb.
“We have relationships with Airbnb and are producing things there now in terms of conversations about how we think about exposing traditional hotel content into their space,” Anderson said.
“It’s one of those areas where in order for that space to really grow to a full potential it will start to look more like other forms of distribution where you see that content, in a sense, the inventory, floating back and forth across channels of distribution,” Anderson said.
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