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Airline distribution is the largest business segment for Sabre, so new airline contract terms are a big deal for the travel technology company based in Southlake, Texas.
Sabre said Tuesday that a multi-year distribution contract with Delta Air Lines that it announced on Monday has terms Sabre believes will be a model for its contracts with other large carriers.
The Delta contract more explicitly links Sabre’s commission to the upselling of ancillaries, such as checked bags and more legroom.
“If we’re helping them sell higher yield tickets, we will actually get more revenue for that,” said Sean Menke, president and CEO.
The shift is an evolution. It moves toward aligning Sabre’s take to be more proportional to a traveler’s total transaction price. The formula has been re-weighted to reward Sabre whenever Delta sells higher-priced transactions that often include ancillaries, rather than by transaction or period.
“I would also say the same thing as it relates to the Lufthansa agreement: that there are incentives associated with technology advancement that allow them to get to higher yield traffic,” Menke said, referring to a contract it signed with Lufthansa Group in December. “So again, this is very much in line with what we want to do because it aligns the parties.”
Delta also said on Monday it had agreed to help support Sabre in the development of an airline storefront — which provides digital “shelves” that more prominently show an airline’s branded packages in a side-by-side display with what are essentially basic tickets sorted by lowest airfare. Delta, in recent months, began offering an a storefront model via ATPCO, the airfare clearinghouse once known as the Airline Tariff Publishing Company.
Sabre Sees a Regional Recovery Advantage
U.S. domestic travel is leading the air bookings recovery. That’s promising news for Sabre — which generated 55 percent of its travel bookings mix in North America in the pre-pandemic year of 2019.
As the U.S. and Canada recover faster from the pandemic than other regions thanks to a speedier vaccine rollout, Sabre’s travel bookings may recover faster than those of its rivals.
Sabre glossed some April 2021 booking data during an earnings call on Tuesday. In April, its air booking volume in North America was 54 percent of 2019 levels. That reflected a 7 percent quarter-over-quarter sequential improvement. Other regions showed little to no recovery.
The company needs travel demand to recover worldwide to between 56 percent and 67 percent of 2019 levels to break even again, executives said. It will require a greater percentage if most of the future travel growth is domestic routes instead of generally more profitable long-haul international routes.
Markets chopped about 13 percent off Sabre’s stock price, to about $13, in morning trading.
Sabre’s Travel Distribution Mix Shift
Sabre claimed it had a 40.9 percent share in bookings of air travel in the travel agency market in the quarter, up from 38.3 percent in the same quarter in 2019. Sabre said it made gains in air bookings share for the fifth quarter in a row.
In past quarters, larger rival Amadeus has not reported a share loss. Travelport, the third major competitor and the only one focused only on distribution, is a private company and doesn’t disclose market share estimates. Each company uses its own methods to calculate market share, making comparisons difficult.
Sabre claimed recent wins in distribution. During the first quarter, it added several agencies, including Cleartrip, which calls itself the largest online travel agency in the Middle East; Kiwi.com, which calls itself Europe’s fastest-growing online travel agency; and Omega World Travel, one of the largest business management companies in the U.S.
The moves coincided with growth in the incentives it paid to travel agencies in the quarter, plus increased costs related to signing agencies.
“It seems from the data that you’ve given us that the sort of the blended reservation fee was probably down around about 25 percent, something of that order,” noted Neil Steer, a partner at equity research firm Redburn Partners.
Executives responded to the comment by saying their effective commissions were down because of the loss of more profitable long-haul travel and not because of any underlying sort of price pressure that’s crept through as contracts with airlines and agencies the company has been renegotiating. Global distribution systems give incentives to travel agencies in two ways, periodically or upfront at contract start or renewal. The companies capitalize and amortize the expense, making it elusive to analyze.
Sabre Continues Work With Google
Menke also noted that its technical innovations are letting it reduce the technology costs to deliver services. For example, Sabre moved its air shopping software for travel agencies this quarter to Google Cloud.
“We believe running our future air shopping growth on Google Cloud is important in a post-Covid-19 recovery because of its scalability and lower costs,” Menke said. “It’s a lower unit cost of compute. The lower infrastructure requirements allow us to, again, save money.”
“The other thing [we’re looking at is] how do we combine Sabre plus Google Tech to open up new revenue streams,” Menke said. “We have probably five, six, or seven different things that are going on as it relates to those opportunities that we’ll want to talk about in the future.”
Sabre is also moving some of its tech services for hotels to Google Cloud, starting shortly in Europe.
Radixx and Low Cost Carriers
Low-cost carriers thrive on leisure segments which may rebound faster from the pandemic. They have been growing faster, on average, than traditional network carriers. Experts expect more than 90 low-cost carriers to debut in 2021.
Sabre has been expanding the capabilities of Radixx to appeal to more sophisticated low-cost carriers, and earlier this month it added key inventory management capabilities to Radixx.
But the effort suffered turbulence on April 20 when Radixx discovered that hackers had put malware on a Radixx reservation system, disrupting service to approximately 20 Radixx airline customers.
The systems outage took Fastjet, Avelo, Air Transat, Air Belgium, Sky Airlines, Peach, and other carriers offline for more than a week, preventing them from getting traditional or online travel agency reservations.
“Everyone is back live,” said David Shirk, president of Sabre Travel Solutions. Shirk oversees the company’s airline and agency-focused business segments.
The problem was in a data center separate from other systems, and the Radixx database containing customer information wasn’t compromised. The company didn’t describe the malware or say how it got there.
“We were very apologetic for what took place,” Menke said.