- Month of September volumes were light in both domestic and international regions. Our full quarter revenue estimate for TN comes to ~$611m versus $621m for the Street.
- Hurricane season may have contributed a small part of the deterioration, although Delta pre-announced weakness for the month of August before the impact of the hurricanes was really felt on the travel industry, and Sabre noted at a recent conference that of the total de-bookings due to hurricanes, Sabre’s quarter was not meaningfully impacted: “It's a little bit of flowthrough to us. But again, we worked through those things” (9/13)].
Why is Street not modeling seasonal 4Q?
- We are modeling TN revenue down in-line with typical transaction seasonality, but the Street is oddly mis-modeling 4Q revenue.
- Similarly, PB’s typically decline m-s-d% sequentially in 4Q which should impact AHS revenue, notwithstanding the FlightCentre win ramping to full quarterly run rate by 1Q18. The Street is looking for flat q/q revenue in Dec-Q while we are modeling a down sequential quarter.
Additional Points:
- “Competitively the market's in a period here where this year, overall incentive rates are up a bit higher than booking fees for all of us. Probably will continue. We've talked about that. That's probably likely next year as well” (Sabre, 9/13/17) – not good for cash flows
- AA contract up for renewal – we discussed this in our last BB as a risk for 2018. Recent comments from AA include: “On the technology side, one of the things that we're really excited about that that's going to roll out later this summer is what we call dynamic reaccommodation, and that's a -- in many ways, it's a step forward for American. It's something that we actually had at U.S. Airways before. But when we merged reservation systems, the SABRE system at the time wasn't capable of doing it. So we ended up pulling that software, that program back and then redeploying it. But what -- so as it stands today on American Airlines, if you're a customer and know that you have a flight cancellation, you have to call an operator or a reservation center rather, or talk to somebody at the airport to change your flight. With this new program, you'll be notified. You'll be able to go on to your iPhone or your i-device, and reaccommodate yourself. And one of the things that's really great about this is things that we wouldn't know -- if you're okay taking another flight to Fort Lauderdale rather than Miami, you can have that choice. So from a self-service aspect, it's going to be great for our customers.” (6/8/17)
What would make us go long?
- Conviction that NDC will not erode long term revenue opportunity for the GDS companies
- A longer term plan for running data centers that will help the company absorb the cost ramp and potentially get ahead of it
- Reflating the airline software division with new product and better competitive position
- Canceling the buyback and dividend, renegotiating the TRA, with the aim of trying to heal the balance sheet
Why is it still a Short?
- Core business facing tough comparisons in short term, facing tough long term competitive scenarios if it moves from consolidated oligopoly to competitive market
- Airline solutions division is completely deflated and will not be much of a revenue growth driver
- Hotel solutions will face a tough comp after the Wyndham deal fully scales by end of 2018
- Cost growth still a problem
- OCF narrow, Capex = mostly R&D that has to increase per year to support technology growth, and FCF is pre-committed each year while the large net debt position grows
- Sabre still trades above 20x EV/FCF
