Tech costs disrupt Sabre’s operating income, quarterly revenue grows to $984M

Sabre reported a decline in year-over-year operating income in the third quarter of 2019 – down from $136.8 million to $113.5 million – due to increased technology expenses as the company undergoes a digital transformation.

Technology expenses increased by 23% in the quarter to $259 million, part of Sabre’s $1 billion plan to enhance technology in 2019.

The company’s previously discussed technology upgrade includes a cloud migration, mainframe offload and utilization of agile development methods.

In a call to discuss earnings, Sabre president and CEO Sean Menke says that the company now has nearly 60% of its total computer footprint in the cloud.

“We are the first GDS to achieve full cloud deployment of shopping,” says Menke.

Sabre secured a 1.4% year-over-year period increase in revenue to $984.2 million in the third quarter of 2019, falling short of the analyst estimates of $992.01 million.

Adjusted EBITDA rose 3.8% to $222.1 million.

Legal issues

Sabre also attributed the decline in quarterly operating income to the reversal of an antitrust lawsuit with US Airways in September.

However, the obvious legal matter facing the company is a lawsuit from the Department of Justice to block Sabre’s acquisition of FareLogix.

Sabre originally announced the deal during The Phocuswright Conference in November 2018.

The DOJ says that the acquisition would eliminate disruptive competition and lead to higher prices.

Menke, addressing the lawsuit during the earnings call, says: “We strongly disagree with the DOJ’s position.

“The DOJ’s decision reflects a fundamental misunderstanding of the industry. The DOJ claims that Sabre and Farelogix compete head-to-head for airline bookings in the United States, and that Farelogix is an alternative to the GDS. That claim misstates Farelogix’s role in the industry.”

He is also confident that the company will succeed in court and complete the acquisition; the trial begins in January.

Solutions

Hospitality Solutions continued a solid performance in 2019 by increasing revenue 7% in the quarter to $74 million.

Revenue generated by the Travel Network increased by 1.5% in the quarter to $711 million, marking the seventh consecutive quarter of strong gains.

North America was the lone region with growth in the quarter, with bookings increasing by 6%.

Global GDS industry bookings decreased 3% in the quarter due to declines in all other regions.

The company attributed the slump in GDS industry bookings to continued channel shift, geopolitical events and regional economic uncertainty.

Airline Solutions reported a 0.6% decrease in revenue to $208 million.

Says Sabre CFO Doug Barnett: “There are factors outside of our control that impacted our performance. These include the insolvency of Jet Airways and significant volume reductions at a certain Asian carrier due to an unfortunate 737 MAX incident.”

During the call, Menke touted the organization’s October 2019 acquisition of Radixx, an airline retailing provider that specializes in a low-cost carrier passenger service system.

“At Airline Solutions, our confidence continues to grow as we feel good about the progress we have made on restoring product health and stability and securing renewals,” says Menke.