5 years ago

A look behind the curtain: Sabre 2011 results blunted by Travelocity troubles

Sabre made some money in 2011, but its Travelocity business, beset by a decline in transaction revenue and unfavorable new airline agreements, dragged those numbers down.

The Southlake, Texas-headquartered global distribution, IT and online travel business went private in 2007 when it was acquired by TPG and Silver Lake and hasn’t publicly released its financial results since March 2009, but Sabre disclosed them to investors in late April 2012 in connection with a $400 million offering of senior secured notes.

The confidential document, which also revealed plans for an acquisition in Q2 2012, noted that Sabre posted operating income of $152.3 million in 2011, compared with a $38.8 million operating loss in 2010, on $3.01 billion in 2011 revenue.

That 2011 revenue increased 3.8%, or by $111 million, over 2010, and this mostly came from an $88 million hike in transaction revenue in the Sabre global distribution system business because of elevated volumes and rates, as well as added revenue from the company’s joint ventures, Sabre stated.

The airline solutions and hospitality businesses also kicked in a $48 million in increased revenue, mostly from a jump in SaaS revenue, and also from acquisitions, the company stated.

However, Travelocity’s revenue fell 5.3% in 2011 to $825.3 million and Sabre stated this was:

… primarily driven by a $31 million decline in transaction revenue due to increased competitive pressure and a decline in rates from new agreements signed with airlines in 2011, as well as a $15 million decrease in total non-transaction revenues as a result of a reduction in media revenue.

Sabre indicated that Travelocity has incurred several years of operating losses, has shown an inability to scale the business and will be saddled with higher expenses if Travelocity is to turn things around. Sabre stated:

“Travelocity’s results have been adversely impacted by several factors in recent years, including margin pressure from suppliers, reduced bookings on our websites and increased costs of customer acquisition, especially through pay-per-click, or CPC, channels.

“For the three years ended December 31, 2011, Travelocity has experienced a 6.6% compound annual revenue decline due to intense competition within the travel industry, including from supplier direct websites, online agencies and other suppliers of travel products and services.”

Meanwhile, Sabre’s EBITDA (earnings before interest, taxes, debt and amortization) in 2011 was nearly $448 million, up from almost $241.6 million a year earlier.

Sabre told investors its cost of revenue in 2011 increased 5.6% to nearly $1.6 billion and this was partly due to the payment of increased incentives to travel agencies, labor costs and system enhancements in the distribution business.

With $3.01 billion in 2011 revenue, Sabre’s financial disclosure means it is the world’s second largest GDS behind the largest, Amadeus, which had 2011 revenue of Euro 2.7 billion (roughly $3.34 billion at today’s exchange rates), and ahead of No. 3, Travelport, with $2.035 billion in revenue last year.

That ranking holds if you are looking at the three companies’  positiions in terms of revenue.

On the GDS side of the ledger, Sabre claimed to have processed the highest share, about 38%, of GDS air transactions in 2011.

And, Sabre indicated that none of its largest distribution customers — which include American Express, Carlson Wagonlit, Hogg Robinson Group, BCD Travel, Expedia and Travelocity — contributed more than 10% to its $1.76 billion in distribution revenue in 2011.

Breaking down Sabre’s business units in 2011, distribution accounted for 59% of revenue, Travelocity kicked in 27%, and airline and hospitality solutions contributed 17%. A fourth category, “eliminations,” accounted for -4% of revenue.

Among other disclosures in the document, Sabre indicated it plans to acquire an as-yet unidentified company for between $90 and $125 million before the end of June.

And, Sabre disclosed that in February 2012, it sold its 51% stake in Sabre Pacific to Abacus for $46 million. Sabre then struck a licensing deal with Sabre Pacific in which it will provide support in Australia, New Zealand and neighboring territories for the Sabre GDS.

Sabre now owns a 35% stake in Abacus, which is a joint venture with regional airlines to provide GDS services in Asia.

Sabre also outlined its growth strategy, which includes a focus on expanding its GDS business in Europe, Latin America, the Middle East and Africa.

Its airline solutions business will target hybrid airlines and high-growth regional carriers; regions with rapid growth, including Asia-Pacific, Latin America, the Middle East and Africa; and airline ecommerce, including shopping and direct bookings on their websites.

And in addition to trying to expanding Travelocity’s global footprint, Sabre says of Travelocity:

“We have also modified our customer acquisition strategy to focus on acquiring visitors who have a greater propensity to book a transaction. We are also focused on improving conversion, yield, cost structure and marketing efficiency, and continuing to build strong relationships with existing and new travel suppliers.”

Debt continues to be a big problem for privately held Sabre moving forward. It has nearly $3.6 billion of debt, with $997 million of that due before December 31, 2014.

Sabre states under risk factors in the document it “may not generate enough cash flow to pay off these obligations.”

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Dennis Schaal

About the Writer :: Dennis Schaal

Dennis Schaal was North American editor for Tnooz.



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