Sabre's rebound will depend on a snapback in long-haul business travel, which has lagged the domestic leisure recovery. Yet the travel technology firm is wise to keep spending on much-needed system improvements despite the financial headwinds.
The dream of a return to 2019 levels of profitability looks like a long-haul journey for Sabre, the travel technology company that helps airlines and hotels manage their distribution. The Southlake, Texas-based company said on Tuesday in an earnings report that it would take years to regain its pre-pandemic financial performance, partly due to a slow snapback of business travel and partly due to technology investments to stay agile.
“By 2025, we expect to exceed pre-Covid-19 levels for adjusted EBITDA [earnings before interest, taxation, depreciation, and amortization, or a measure of profit], Adjusted EBITDA margin, operating income, and free cash flow,” said Sabre CEO Sean Menke.
In its most optimistic scenario for 2022, Sabre will process travel bookings — which skew toward corporate travel and international trips — at 70 percent of 2019 levels. Under that scenario, the company forecasted on Tuesday it would deliver revenue of at least $2.8 billion and adjusted earnings before interest, taxation, depreciation, and amortization of about $250 million.
Looking ahead to 2025, if travel bookings rebound to 100 percent of 2019 levels, the company will regain its 2019 level of profitability, with adjusted earnings before interest, taxation, depreciation, and amortization of about $1.1 billion at a margin of 26 percent and with $700 million in free cash flow. Even if they’re only back 80 percent of 2019 levels because remote working or travel restrictions linger, the company predicted it would still reach 2019 financial targets by 2025.
“Our ambitions and associated investments in technology are not to just get back to 2019 levels,” Menke said. “The capabilities unlocked with a modern, agile, technology footprint and associated products we believe position us well to not only reach previous financial returns but grow well beyond.”
In the fourth quarter, Sabre booked $501 million in revenue and an operating loss of $192 million.
For the full year of 2021, Sabre booked $1.7 billion in revenue and $950 million in net losses. Adjusted earnings before interest, taxation, depreciation, and amortization — a measure of profit — were negative $26 million. Free cash flow for the year was negative $469 million.
Financially, Sabre has been getting in stronger shape with a cash balance of $1 billion. That reflects an improvement in operating cash flow in the latest quarter. The company expects to close before March 31 the sale of its airline operations portfolio to CAE [formerly Canadian Aviation Electronics] for $392.5 million. The deal will cost Sabre some revenue and earnings, letting it focus on its core business.
Assuming bookings continue to return, debt levels should throttle back. The company had $3.82 billion in debt as of December 31.
Sabre has been undergoing a technology overhaul after years of stagnant improvements under its previous private equity owners. In 2022, it will invest about $100 million in technology, shifting more systems, including its customer relations database, off mainframe data centers and into Google’s cloud service.
Two other line items have also been swelling besides technology expenditure.
The company spent $22 million in litigation costs, partly for entering a fight last year with one of its largest customers, American Airlines, over how it displays that carrier’s fares in its reservation systems for travel agents.
Like many technology companies, Sabre sees rising costs for investing in cybersecurity and paying premiums for insurance against data compromises by hackers. It expects to spend about $15 million on cybersecurity and related insurance this year — a record.
Today’s earnings call was the first for Kurt Ekert, the company’s new president.
“Having worked as an executive at one of Sabre’s competitors and, more recently, at a top customer with CWT, I knew Sabre well from the outside,” Ekert said. “Dynamic changes are coming in the travel sector, and I believe Sabre’s people, compelling product offerings, and strong customer relationships uniquely position us to capitalize on these changes.”
Menke said Ekert would oversee all aspects of the company’s business and technology operations, including the company’s technology transformation.
“I look forward to working with him in the years to come,” Menke said. “His arrival will allow me to continue to focus on our long-term strategy and goals for 2025, as well as to spend more time externally with our customers, investors, and other important constituents – something I’m eager to do.”
“In 2025, we believe our full-year run-rate efficiencies and accrued technology benefits will drive superior financial results under multiple scenarios when compared to 2019,” Menke said.
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Photo credit: A JAL plane departing from Dallas Fort Worth (DFW) International Airport. Travel tech firm Sabre has its headquarters near Dallas and helps airlines handle the computing needs of their operations and content distribution. Source: DFW.