Sabre Sees Gains After Tech Investment Turnaround

What a difference a year makes. On August 1, 2017 Sabre was laying off 10 percent of its workforce and reported a net loss of $6 million for the second quarter. A year after those changes, the company’s turnaround appears to be bearing fruit.

On Tuesday, the Southlake, Texas-company reported its second-quarter earnings, which echoed first-quarter earnings in that the company appears to be heading in the right direction after a period of sluggish growth.

Revenue rose 9 percent to $984 million. Sabre earned net income of $92 million compared with a quarterly loss of $6 million a year earlier.

On July 23, Doug Barnett became the company’s chief financial officer and executive vice president, as the past chief financial officer, Rick Simonson, stepped aside. The move represented the latest C-suite change since Sean Menke took the CEO job 18 months ago. Earlier in the month, Sabre made other technology leadership hires and blended its distribution network and airline units under new regime.

Expedia and Booking.com Play Roles

Distribution is Sabre’s largest segment. The unit saw revenue rise 13.2 percent to $720 million, year-over-year. Menke said the growth was broad-based across North America, Europe, and Asia-Pacific.

One of Sabre’s largest customers in North America is Expedia, which saw air booking volumes rise 6 percent in the second-quarter, and this flowed through to Sabre in the form of fees. In Europe, Sabre won some more travel management company contracts.

Worldwide, Sabre claimed that it gained about a percentage of market share against its distribution technology rivals Amadeus and Travelport, bringing it to 37 percent. The other companies calculate share in divergent ways.

Booking.com Deal

In one initiative, Sabre will be the first of the distribution tech giants to give its travel agencies access to all of Booking.com’s listings, including for alternative accommodation, later this year. Sabre hopes to add inventory from other suppliers, such as European bedbanks, too.

On a call with investors on Tuesday, Menke said, “Given the number of negotiated rates out there, a property may have several rates available [on any given date] and it can be a challenge [for agents] to get a holistic view of all the content out there.”

Menke said the new feature should give agents a fuller sense of what’s available, especially in alternative lodging, which is of increasing interest to corporate travelers.

In Asia Pacific, Sabre saw bookings grow 23.5 percent in the quarter, most of which was thanks to it signing major Australia-based travel agency Flight Centre — a contract stolen away from rival Travelport.

Sabre said it ceased being a distribution provider for an online travel agency in Latin America — executives wouldn’t say, but Despegar is a likely candidate — and in India — Travelport recently announced it is the main distribution provider to the largest in-market agency, MakeMyTrip.

Net income in the distribution business only grew 6.9 percent, year-over-year, partly because the company saw an increase in operating expenses. Capital expenditure dropped about $12 million for the quarter.

Margin Compression

David Togut, an analyst at research firm Evercore ISI, asked on the call how the company’s business model is evolving, noting that the CEO had pivoted Sabre toward an embrace of new technical standards to help airlines market their high-margin ancillaries.

Menke said he sees the opportunity in two ways. By expanding agencies and travel management companies’ ability to sell more products, Sabre expects to see more transactions using its existing fee-based model, out of which it pays agencies incentives.

New commercial models are emerging, though. “Everyone is still working through what will [companies like] Sabre receive from airlines or even hotels and what incentive passes through to the agencies,” Menke said. Sabre had entered into a few agreements on new models, but Menke said it was still too early to know how things will shake out generally.

Sabre has been in distribution talks with Europe’s three largest airline groups, which have added surcharges on bookings going through global distribution systems.

Menke claimed that Lufthansa has stopped seeing a shift from indirect to direct channels in what in September will be the third year of the pioneering surcharge. International Airlines Group — which owns British Airways and Iberia — has shifted some business out of Sabre into its direct channels, Menke said. Negotiations with Air France-KLM are ongoing.

The company said that it is moving away from data centers it manages itself to a hybrid model that uses Amazon Web Services and Microsoft Azure.

The most significant response by investment analysts to Sabre’s recent moves came in May, when Bank of America Merrill Lynch analyst John King upgraded his price target for Sabre from $18 to $29 on the strength of expected momentum in earnings growth, a technology update, and a move to next-generation, internet-based subscription services.

Hotel Software Prospects

Sabre’s hospitality business grew 10.4 percent to $68 million in the second quarter. The unit completed the installation of its central reservation system SynXis and property management system for Wyndham, one of the world’s largest hotel groups.

Sabre hasn’t announced a new enterprise customer and it can take time between signing a customer and implementing a product. Menke said, “We would all like it to move a little faster.”

Rival company Amadeus has also been bringing to market its central reservation system and property management system, as Skift noted last week.

On Tuesday’s call, analysts queried Sabre executives about how their platform compares with Amadeus’s.

Sabre’s outgoing chief financial officer Rick Simonson said, “They started from a rebuild of Holidex system. It’s taken a number of years… We chose not to go that route. We went to build from a small platform from the ground up and we have proved it works at scale [with the Wyndham implementation]. And we like our hand. We know they’re coming to market.”

Menke said, “We already had other competitors, and we’ll continue to compete vigorously in the market.”

The company has allowed a decline in revenue for its hotel digital marketing services. Executives said that the product amounted to custom development work. They have decided the company should not do custom development work unless the project might open doors for sales for its more scalable platform services, such as its guest reservation system.

Menke said, “We will focus on critical customers that can be strategic, but we don’t want to do one-offs that aren’t.”