A crisis makes reputations. Sabre's top bosses have seen the pandemic render useless their old playbook for handling a collapse in demand. They have to get creative.
Over a few decades, Sabre has managed to bounce back after recessions. After crises in 2001 and 2008, the Southlake, Texas-based travel technology business returned to fat years after living through lean ones without much delay.
But the pandemic may delay a rebound in international corporate travel relative to other sectors. That could be problematic for Sabre. International corporate travel fuels some of its most profitable activities.
Sabre derives the bulk of its software-processing revenue from helping airlines sell plane tickets through travel management companies and leisure agencies like Expedia and helping airlines manage their operations. Roughly a quarter of its income comes from helping hotels and other travel companies with marketing and distribution.
Sabre saw international corporate travel evaporate in the second quarter.
“Normally we’d see corporate being 50 to 55 percent of bookings [Sabre processes] with leisure as 45 to 50 percent of bookings,” said Douglas Barnett, chief financial officer during an earnings call on Friday. But currently, leisure bookings are accounting for 75 percent of bookings.
“A corporate booking fee is typically about 30 percent higher than leisure, but there is a corresponding similar increase in incentive rates [that Sabre pays to travel agencies] on that,” Barnett said.
Many analysts believe that international corporate travel has driven more margin for Sabre in its distribution business, compared to domestic leisure and business bookings. The company’s management hinted as much in comments during a Friday earnings call but didn’t explicitly say so.
Before the crisis, new international bookings averaged about 55 percent of Sabre’s distribution services mix relative to leisure. Right now, domestic reservations take up about 70 percent of the mix, Barnett said.
“Here there is a bit more of an impact because the international booking fee [Sabre charges airlines] is about twice for a domestic booking fee, and, quite honestly, the [incentive payments per booking to agencies] are not that dissimilar [for domestic reservations],” said Barnett. “So there’s more of a financial impact from the domestic to international [mix shift] impact than in the corporate to leisure.”
Corporate travel may not march upward in tandem with an economic rebound as it has in past economic recoveries, said a late July forecast by the International Air Transport Association. A worry is that some companies may, at least temporarily, substitute video conferencing and virtual meetings for in-person trips and large conferences.
Expressing Long-Term Optimism
Sabre executives hedged their responses when forecasting. They cautioned that the company’s revenue would be slow to rebound in the short-term. But Sean Menke, president and CEO, described himself as “an optimist” when looking at the long-term, expressing skepticism that the world will see a “structural,” or enduring, reduction in international corporate travel volumes.
“I’ve been through the 9/11-related downturn, and the global financial crisis and people said then that business travel wouldn’t recover to full levels, but in fact it did,” Menke said.
Menke cited his own experience running Sabre. On the one hand, Menke said his company had accomplished more than he expected while working remotely and without travel. It has put in place restrictions on future business travel this year partly to ensure worker safety.
But Menke said he also felt that many people are tired of spending so much time in Zoom calls. Many sense they could be more productive with a return to in-person business meetings.
Adapting Sabre to New Travel Realities
Whether international business travel regains its former glory or not long-term, Sabre said it expected many obstacles to making money across its business lines in the coming year.
“Although we exited the quarter with positive net air bookings in June for the first time since early March and a stronger improvement in hotel bookings, the overall travel environment remains severely depressed,” said Menke.
During the three months to June 30, Sabre generated $83 million in revenue, compared to $1 billion in the year-ago period. It reported a net loss attributable to common stockholders of $384 million, compared to a net income, or measure of profit, of $28 million in the same quarter a year earlier.
If booking volumes don’t recover quickly, what can Sabre do? Run more smoothly and steal business from rivals, executives said. They’ve taken several efforts to slim down and run more faster.
Sabre this year trimmed its workforce by about 15 percent, which Skift estimated has left it with about 7,800 workers now. The cuts, voluntary early retirements, furloughs, and related cost-saving measures will save the company $275 million in 2020, executives said.
The job cuts fit into a longer story. The company’s expenditure on employees and contractors has fallen close to 25 percent since January 2017, when Menke became CEO and began to reorganize the company’s units into groupings by function.
In a separate press conference Friday, Menke said he believed the company had done all the year’s major job cuts.
Sabre will continue to revamp operations, such as by migrating its information technology infrastructure to Google Cloud for greater cost-effectiveness and fewer glitches. Sabre said this week it would outsource the running of many of its mission-critical systems to DXC. This consultancy handles systems for more than 270 Fortune 500 companies.
“Because of the progress we’ve made on our cloud migration, we have successfully scaled down processing capacity during this time of reduced travel volumes, resulting in significantly lower technology costs,” Menke said.
Sabre said the downturn had allowed its teams to do some work at a more accelerated rate than forecasted.
“We are accelerating our transition to Google Cloud and have completed the necessary integration work to start migrating workloads in the second half of 2020,” Barnett said.
Executives said the company has enough liquidity, with a cash balance of $1.3 billion in cash and cash equivalents on hand to cope with continued turmoil. It has no near-term expected uses for that cash.
“In a zero bookings environment, we continue to expect approximately $150 million in revenue [per quarter] and $240 million of cash burn per quarter,” Barnett said.
Recent Business Wins
Sabre’s had a glimmer of positive news earlier this week when it said it had extended its global distribution agreement with United. The carrier provides travel agents access to its airfares and other content through the Sabre travel marketplace.
Sabre achieved “level four” certification on Thursday as an aggregator for distribution via more modern retailing and technology methods known as the new distribution capability. Its partners are United Airlines and Flight Centre for the first phase of the effort, certified by the International Air Transport Association.
United and Sabre said they would continue to collaborate on bringing to market extra functionality enabled by new distribution capabilities. The goal is to give corporate travel agents and customers access to more relevant and personalized offers. For more context, see “Airlines, Travel Agencies Ponder How Best to Spend Tech Dollars in These Lean Times.”
Sabre also re-signed Finnair into a global distribution contract. That ended a spat between the companies since last November as first reported by Skift.
Sabre and Lufthansa continue to tussle over contract terms. Still, Menke spoke warmly about the conversations. He noted that the German airline group continues to distribute content through the company’s reservation systems.
Expedia Group recently said it was exploring the use of outside vendors to help it run some processes more efficiently. Sabre executives said they were having more than the usual number of sales conversations with the online travel agency conglomerate, which is already its largest online leisure agency customer in North America.
Sabre also signed travel agency clients in the quarter, and it expected this move would deliver incremental market share gains.
Last week, Sabre’s larger rival Amadeus said it had recently signed an airline that had boarded more than 40 million passengers a year to use one of its passenger service systems, a key piece of operational technology for airlines. Sabre Friday all-but-said it wasn’t business taken from their client list.
Sabre said it saw opportunities for new wins for its SabreSonic passenger services system, particularly among low-cost carriers who want to upgrade to software that offers more functionality.
“We believe one of our competitors has entered a renewal cycle,” Menke said, which means that some airlines are considering switching providers. Sabre also recently acquired Radixx, a passenger service system used by many low-cost carriers. Sabre can try now to pitch its more fully-featured offering to those Raddix customers.
Another area of resilience for Sabre was in its hotel services business. More than 40,000 properties use the company’s Synxis central reservation system. Sabre’s Synxis processed 11 million transactions during the quarter, down 61 percent. Many hoteliers looking to simplify their technology stacks may turn to Sabre’s system, management implied in comments.
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Photo credit: A United Airlines 787 Dreamliner. This week United said it had extended its global distribution agreement where it provides travel agents access to its airfares and other content through the Sabre travel marketplace. United