Covid-19 tanked this technology company because of its exposure to the travel and tourism industries. But with people starting to travel more, this company is ready to take off again.
About Sabre Corporation (NASDAQ: SABR)
Sabre provides technology solutions to the travel and tourism industry worldwide. It operates in three segments:
The Travel Network segment operates as a business-to-business travel marketplace that offers travel content, such as inventory, prices, and availability from a range of travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines, and tour operators with a network of travel buyers comprising online and offline travel agencies, travel management companies, and corporate travel departments.
The Airline Solutions products include SabreSonic Customer Sales & Service, a reservation system that provides capabilities around managing sales and customer service across an airline’s touch points; Sabre AirVision Marketing & Planning, a set of airline commercial planning solutions; and Sabre AirCentre Enterprise Operations, a set of solutions for planning and management of airline, airport, and customer operations.
The Hospitality Solutions segment provides solutions to hoteliers including SynXis, a central reservation system; SynXis Property Manager Solution for property management; and marketing, professional, and revenue management services.
So now you can understand why their business took a heavy hit with the outbreak of Covid-19 and the reluctance of people to travel. Management explained in their earnings call:
15% of our revenue is not tied to travel volumes
As we exited the quarter in March, effectively 0 new bookings and the impact of cancellations resulted in a negative bookings environment on a net basis. Total GDS industry air bookings declined by 10% and 25% and 113% in January, February and March on a net basis, with the industry down 49% for the first quarter of 2020.
Air carriers announced second quarter capacity plans indicate continued declines across all regions. Based on data from OAG, global capacity in April declined approximately 70% year-over-year. Looking to May. North America total scheduled capacity is currently down over 75% with American, United and Delta down 75% to over 80%. EMEA is down 75% with Lufthansa, IAG and Air France KLM all down over 90%. Latin America is down over 80% with Avianca, GOL and LATAM all down over 90%. And in Asia Pacific, Air Asia, Cathay Pacific and Qantas are all down over 90%.The numbers I just reported are scheduled capacity levels. Operated capacity is even lower than marketing schedules filed.
Luckily high percentage of costs are variable and not fixed
Approximately two-thirds of our cost structure is variable or adjustable, which provides protection in a downside scenario. These costs include Travel Network incentives, which are variable and tied to bookings volume, semi-variable technology hosting costs, and labor and headcount-related costs.
Enough cash to last 18 months with zero bookings
I think we are already starting to see people start travelling again - so unless there is a more deadly Covid-19 second wave - this looks like plenty of cash to survive.
Google Cloud saves $100 million
Get a load of these cost savings from moving to Google Cloud:
we are still proceeding with our technology transformation and transition to Google Cloud. Our technology transformation is expected to lower cost, accelerate innovation and provide competitive differentiation. We continued to expect approximately $100 million in annual cost savings by 2024, when we expect the technology transformation to be largely completed.
Google Flight Search Integration
we have entered into a new commercial agreement for Sabre to provide availability data APIs for consumption by Google's flight search products.
Will life return to normal after Covid-19
This was the question we asked ourselves when evaluating this investment. Could we see people travelling at normal levels again with a few years and did Sabre have the cash to survive till then? We decided people would travel again and because of the variable nature of much of Sabre's expenses - that Sabre would survive till then. We decided if they had a good business before Coronavirus, then they would have a good business after. So lets look at the key stats:
Higher debt levels then we would prefer, which leverages a high Return on Equity (ROE). We decided the debt level would become manageable as the company recovered from the Covid crisis, so we added Sabre Corporation (NASDAQ: SABR) to our portfolio.
We also have exposure in our portfolio to the travel and tourism industries through our investment in Saker Aviation Services, Inc. (SKAS) and indirectly though our investment in Pershing Square Holdings, Ltd. (LN:PSH) which has significant holdings in Hilton $HLT and Howard Hughes $HHC
Not investment advice
As always, this is not investment advice. Do your own research. Consult your professional advisors