Sabre is engaged in a tough but necessary technology transition. Beyond the system outages it has experienced recently, some of the events impacting its financial results, namely the Jet Airways financial collapse and the Boeing 737 Max groundings, are beyond the company's control.
Sabre hosts the reservations system of Jet Airways, which suspended operations in mid-April. And Sabre said it faces a near-term impact from the Boeing 737 Max groundings as both airlines involved in the crashes, Lion Air and Ethiopian Airlines, are Sabre Airlines Solutions customers. Officials downplayed the impact from capacity reductions because of the Boeing Max jet groundings.
Sabre announced Tuesday in conjunction with the release of its first-quarter earnings that it expects revenue growth in 2019 in the 3 percent to 5 percent range, or $3.96 billion to $4.04 billion, down from the previously projected growth of 4 percent to 6 percent. Similarly, free cash flow is now projected to climb just 3 percent, to some $455 million, down from the previously forecasted 10 percent jump.
For the quarter, Sabre, which is coping with increased technology costs tied to its cloud migration and weeding out mainframes, saw net income decline of 35.3 percent to $56.8 million on revenue of $1.04 billion, a 6.2 percent jump. In prepared remarks, CFO Doug Barnett said “we continue to expect recovery to previously forecasted profitability levels in 2021.”
System Outages and Expedia-United Impasse
Sabre is making a big technology transition, and its tech costs rose $261 million, or 5 percent, in the first quarter.
Officials stressed the need for that transition in a number of areas, including a couple of recent system outages — including one Monday — and also because of the industry dynamics that the impasse in the Expedia-United negotiations highlight.
Sabre CEO Sean Menke said during the question and answer session with analysts that Sabre is still trying to determine the root cause of Monday’s system outage. Sabre apologized to customers for Monday’s system outage in a couple of tweets. Here’s one below when the system came back up.
A quick update: Systems are back online and customers are reporting normal or close to normal operations. We sincerely apologize for any resulting travel delays.
— Sabre (@Sabre_Corp) April 29, 2019
Menke also said there was a prior outage that was caused by surging volumes that slowed the system.
Also on the technology front, Menke said Sabre is aware of the impasse in negotiations between Expedia and United, both of which are customers.
He obliquely referenced United’s seeming unhappiness with the way Expedia sells United’s product and argued it points to “a gyration” in the marketplace, be it Expedia or others, that “we’ll continue to assess.”
“And at the end of the day, the other thing is they’re going to need the underlying technology that allows for those products to be sold,” Menke said, referring to United and Expedia, and perhaps others. “It’s going to be required for those products to be serviced. So I think that’s one thing that we’re just going to deal with in the marketplace going forward.”
Menke said this type of technology and business disruption is also taking place in Europe, where Lufthansa, British Airways, and Air France-KLM imposed surcharges for global distribution system bookings. He argued that Sabre’s tech evolution positions the company well for these types of changes.
In other highlights, Barnett said in his prepared remarks that “there was a bit of macro slowing in the first quarter,” although this was offset by market share gains and growth in average booking fees.
He said Sabre “outperformed the industry with 6 percent growth” in North America, and that was driven by an expanded partnership with CWT and share gains at “large travel management companies.”
Outside of North America, Sabre’s bookings were flat in Asia-Pacific because of Jet Airways’ demise, bookings dipped 3.5 percent in Latin America largely because of macro-economic issues, and fell 1 percent in Europe, Middle East, and Africa because of a decline in rail bookings.
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Photo credit: Sabre expects to take a financial hit because the FAA has grounded all Boeing 737 Max jets in the United States, and carriers around the world have done likewise. Pictured is a United Airlines Boeing 737 Max 9. United Airlines