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Takeaway: Latest data puts us below on 4Q18 and well below for 1Q19

SABR | 2019 Numbers Should Be Coming Down - 1 24 2019 7 50 38 AM

4Q18

Our volume tracker puts us a smidge below Street for 4Q18 revenue ($921m versus $930m).  We are modeling pricing flat y/y as our tracker does not account for price changes. Organic prices were declining y/y % before the Indirect -> Direct shift taken by some of the airlines which had the effect of a one time (4 quarter comparison) boost in pricing. By 3Q18 we were beyond the comparisons, and organic pricing was flat y/y. Let’s see how the pricing model works from here; our sense is that natural volume based price declines should reinstate.   

2019

Our forward tracker has proven to be directionally accurate, if not entirely spot on for monthly or quarterly volume. The tracker takes 10 year monthly average volume changes (ie. seasonality) as a starting point for projections and then tailors it to Sabre airline geographic exposures. Our tracker correctly predicted the fall in rolling 12-month y/y volume growth rates to this point and puts us -4% below Street for 2019 total revenue, and -7% for 1Q19.

Bearish on Hotel Solutions Growth

We are also negative on the trajectory for hotel solutions growth at Sabre. The division was built on M&A originally, then landed the large Wyndham deal which carried bookings, and then revenue growth, for nearly 2 years. We are on the other side of that and 2019 growth in HS is going to be weak.   

Downside risk is $18. We like the new CEO. We like his ambition and how he has replaced the entire senior staff. The company keeps falling back on headcount reduction (or geographic replacement) to keep OPEX in-line or below estimates. That is a game that cannot last forever. Innovation, growth in market share, and some urgency in the HS business need to carry 2020-2025, as well as the drop off of legacy costs.

We’ll be back on this one.