Sabre: Takeaways From Its Annual Financial Report

The inner workings of the travel industry are changing as different sectors look for less expensive means of doing business, and much of that change could have a negative impact on the longevity of Sabre and companies like it.

That issue and others were highlighted in the most recent 10-K annual report filed by Sabre. The Texas-based company provides operational software and distribution services to travel agencies, airlines, and hotels.

Below are several notable takeaways:

An Investment Loss

In May 2022, Sabre invested $80 million for 8 million shares of American Express GBT. By the end of 2022, Sabre continued to hold the shares while recognizing an unrealized investment loss of $26 million, according to the report.

Mastercard Investment Price Revealed 

Mastercard said in November that it would make a minority investment in Conferma Pay, a fintech company that Sabre acquired earlier in August 2022 for $72.5 million. The size of the Mastercard investment was not disclosed at that time. Sabre finalized the sale of 19 percent of Conferma Pay for $16 million to a third party in Feb. 2023, according to the report, which Sabre confirmed was the Mastercard transaction.

Travel Buyers Shifting Business

A large portion of Sabre’s business relies on relationships with several large travel buyers, including travel management companies and online travel agencies. Buyers receive incentives for making bookings through Sabre’s global distribution system, and Sabre receives a fee from suppliers when a booking is made through its system.

The business with large travel buyers is on shakier ground than in previous years because certain travel agencies have adopted a strategy of shifting between global distribution systems, the report said. Some agencies have shifted a “sizeable portion” of their business from the Sabre system to a competitor’s, while other agencies have done the opposite.

“Our distribution revenue in 2021 and 2022 has been impacted by a certain OTA shifting a significant portion of its North America volumes to a competitor. We began to see the impacts of this shift in the third quarter of 2021, which resulted in a decline in our volumes, partially offset by an increase in our rate,” the report said. (Sabre said in 2021 that Expedia Group would be shifting a significant portion of its business away from the Sabre system.)

Travel buyers may take that action for a number of reasons, including to avoid becoming overly dependent on a single system and increase their bargaining power with the system providers. And buyers have been looking for less expensive options as a result of financial constraints during the pandemic, Sabre said.

Increasing Travel Agency Incentives

Sabre paid an increase of $337 million in incentives to travel agents in 2022, due to an increase in bookings volume as well as continually rising rates of incentives paid to travel agencies. That was the primary driver behind a 54 percent increase, to $992.2 million, in the cost of revenue for that segment of the business.

In an effort to hold on to agents booking through Sabre, the company expects incentive rates to continue increasing. The company expects those rising costs to be offset by increased international bookings and use of its software platforms, but there still may be a limit to how high incentive rates can rise.

“We must compete with other GDSs and other competitors for their business by offering competitive upfront incentive consideration, which, due to the strong bargaining power of these large travel buyers, tend to increase in each round of contract renewals,” the report said. “However, any reduction in transaction fees from travel suppliers due to supplier consolidation or other market forces could limit our ability to increase incentive consideration to travel agencies in a cost-effective manner or otherwise affect our margins.”

Sabre Vulnerable to Changing Travel Supplier Environment 

Revenue for Sabre and similar companies primarily comes from airfare. As those travel suppliers continue to look for ways to decrease costs and increase control over distribution, Sabre’s revenue is negatively affected. Consolidation in the airline industry, for example, can lead to renegotiations for lower fees or a loss of customers.

“As a result of these sources of negotiating pressure, we may have to decrease our prices to retain their business. If we are unable to renew our contracts with these travel suppliers on similar economic terms or at all, or if our ability to provide this content is similarly impeded, this would also adversely affect the value of our Travel Solutions business as a marketplace due to our more limited content,” the report said.

Tech Investment

Sabre expects to spend between $50 million and $60 million in technology this year, part of an ongoing investment that the report highlighted as a priority. That cost may be impacted by a rise in wages for tech workers because of inflation.

“As travel suppliers adopt innovative solutions that function across channels, our operating results could suffer if we do not foresee the need for new products or services to meet competition either for GDS or for other distribution IT solutions,” the report said.

Ongoing Financial Concerns 

Executives during the latest earnings call voiced optimism regarding long-term recovery despite uneven demand in the short term. The report last week was more blunt about the ongoing pandemic-related concerns in the short term.

“We believe the ongoing effects of Covid-19 on our operations and global bookings will continue to have a material negative impact on our financial results and liquidity, and this negative impact may continue notwithstanding any ongoing recovery from the outbreak. We believe our cash position and the liquidity measures we have taken will provide additional flexibility as we manage through the industry’s recovery from the Covid-19 pandemic,” the report said.

Inflation Leading to Higher Interest Rates

“During 2022, we refinanced portions of our debt which resulted in interest rates higher than prior years, increasing current and future interest expense. We expect to further refinance portions of our debt in 2023 and 2024 which, at current interest rates, would negatively impact our interest expense.”

Footprint 

At the end of 2022, Sabre had 59 offices and employed nearly 7,500 people.

Trip.com Embraces Generative AI

Trip.com, an online travel agency in China, has launched a chatbot powered by generative AI. TripGen, as it’s called, is powered by OpenAI, the creator of ChatGPT.

The company said the chatbot can deliver tailored travel routes, itineraries, and booking advice in real time on the Trip.com platform.

Other travel booking platforms have made similar moves, and more are expected to come.

New Travel Tech Partnerships

Many travel companies, like hotel chains and airlines, contract tech companies to use their products and modernize operations. Here are several partnerships announced recently:

Kempinski Hotels, a luxury hotel company based in Switzerland, is upgrading online customer booking capabilities powered by Sabre’s hotel software.

Cyprus Airways is contracting FLYR Labs to use its revenue management and data platform, which uses AI to optimize pricing for fares and ancillaries.

Tiqets, an Amsterdam-based startup marketplace for tours and attractions, is contacting RUNNR.ai to add an AI-powered chatbot that can help answer questions and make bookings through communication platforms like WhatsApp.

Caribe Royale Orlando Resort partnered with Runtriz to launch its first mobile app for customers.

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