The company’s platform reach should grow as Sabre continues to revitalize its technology

Business Strategy and Outlook

Despite material near-term travel demand headwinds driven by the coronavirus, it is anticipated Sabre to maintain its position in global distribution systems over the next several years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre’s roughly 40% GDS transaction share is the second-largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control nearly 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Sabre’s GDS enjoys a network advantage, which is the source of its narrow-moat rating. As more supplier content (predominantly airline content) is added, more travel agents use the platform, and as more travel agents use the platform, suppliers offer more content. This network advantage is solidified by technology that integrates GDS content with back-office operations of agents and IT solutions of suppliers, leading to more accurate information that is also easier to book. Also, the company’s platform reach should grow as Sabre continues to revitalize its technology and looks to expand with low-cost carriers and in countries where it previously had only minimal penetration, which are also markets with higher yields than the consolidated North American region.

Replicating the company’s GDS platform would entail aggregating and connecting content from several hundred airlines to a platform that is also connected to travel agents, which requires significant costs and time. Although it is seen for GDS aggregation, processing, and back-office advantages as substantial, technology architectures like that of eTraveli (set to be acquired by narrow-moat Booking Holdings in early 2022), enable end users to access not only GDS content but supply from competing platforms, which could take some volume from companies like Sabre. Also, GDS faces some risk of larger carriers making direct connections with larger agencies, although it is likely for these relationships to be the exception rather than the rule and for Sabre to still be the aggregating platform in either case.

Financial Strength

Although Sabre’s balance sheet is leveraged, it has shored up its liquidity profile and has enough runway to operate at zero revenue into 2023. Sabre has achieved this profile by eliminating $275 million in costs, tapping its $400 million revolver, raising debt and equity, and selling its AirCentre business for $393 million (closed in the first quarter of 2022) Sabre’s financial health was tested in 2020, as lower demand from COVID-19 and higher incremental investment into new markets and the cloud, caused its near-term net debt/adjusted EBITDA to breach covenants (which are currently suspended given the material impact of COVID-19). While Sabre’s net debt/adjusted EBITDA ended 2019 at 3.1 times, it turned negative in 2020 and 2021, it is anticipated the ratio will improve to 6.7 times in 2023. Sabre is seen reaching this leverage ratio despite temporarily halting dividends and repurchases in 2020 and through 2023, cutting costs, and extending near-term debt maturities out three years, resulting in no material debt due until 2024, when $1.8 billion is scheduled to mature. Also, it is held Sabre’s strong competitive positioning and free cash flow generation during more normal environments will afford it flexibility to work with banking partners in the near term. It is alleged Sabre to payout 45%-50% of its earnings in dividends in 2024-31, after temporarily suspending dividends in early 2020. EBIT/interest coverage was 2.3 times in 2019 and is expected to surpass that level by 2024. It is forecasted free cash flow generation of $1.5 billion during 2022-26.

Bulls Say’s

The company’s GDS network hosts content from all airlines and is used by many travel agents, resulting in a large industry share. Replicating the GDS network involves meaningful time and costs.
The network advantage is supported by Sabre’s platform revitalization to next-generation cloud technology, which drives innovation, reliability, and cost efficiencies.
The business model is predominantly driven by transaction volume and not pricing, leading to less cyclical volatility.

Company Profile

Sabre holds the number-two share of global distribution system air bookings (40.9% as of the end of 2020 versus 38.8% in 2019; 2021 booking share was not provided). The travel solutions segment represented 89% of total 2021 revenue, split between distribution (two thirds of segment sales) and airline IT solutions (one third) revenue. The company also has a growing hotel IT solutions division (11% of revenue). Transaction fees, which are mostly tied to volume and not price, account for the bulk of sales and profits

(Source: MorningStar)

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