SABR - Sabre Is Being Disrupted By New Distribution Capability

2024-07-22 01:32:43 ET

Summary

• Sabre's Global Distribution System business, which accounts for 70% of its revenue, is threatened by the implementation of New Distribution Capability.
• The airline industry has long disliked GDSs, and some airlines are trying to push Sabre out of the value chain.
• Although Sabre is adapting by offering NDC-enabled GDS bookings, they are likely less lucrative than typical GDS bookings.
• Sabre faces new competition from NDC aggregators.
• Sabre's intrinsic value is $1.63/share in my base case, but the range of possible outcomes is wide because Sabre is overleveraged.

Company Overview

American Airlines built Sabre ( SABR ) in the 1960s to give travel agents access to airline price and availability data. Roughly 70% of Sabre’s revenue comes from its global distribution system ((GDS))—software that sits between travel agencies and airlines, allowing travel agents to see flight inventory, prices, and availability. The GDS business has historically been good because contracts are 3-5 years, and customers typically renew.

Also, the GDS market is an oligopoly because Sabre, Amadeus, and Travelport control nearly the entire market. Sabre has the strongest presence in the US, whereas Amadeus has the strongest presence in Europe. Travel buyers will often pick the GDS with the most flights in their region, so each GDS has a competitive advantage in its regions....

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