Investors punished Sabre for missing its quarterly earnings target as estimated by analysts. Its stock price fell 8.7% in value for the day at the US market close, to $24 a share.
Sabre blames the earnings miss heavily on the bankruptcy of one of its European online travel agency customers, Unister, which stumbled after the sudden and bizarre death of its CEO.
Sabre has had to take a non-cash write-off of upfront incentives and also faced lost bookings.
Sabre has seen softness in corporate bookings. But it says that Lufthansa's decision to add a fee to tickets booked via the GDS channel isn't a factor. CEO Tom Klein told investors:
"Our results reflect some revenue uptick from that decision by Lufthansa, as do some of our competitors. We see no meaningful impact to the business overall, except for that revenue uptick.
"And I think Lufthansa's results, as you comp them to their airlines across Europe, speak for themselves. And it doesn't seem like that would be a wise strategy and we're not hearing from any of our airline customers across Europe that they'd like to follow what looks like a bad strategy."
For industry players interested in the long-term, the broader outlook for Sabre remains positive, according to the company.
If you see Sabre as locked in a land grab with Amadeus, Travelport, and Travelsky for share of air and hotel distribution, you want to focus on growth and share shifts, not gross margin (as long as gross margin is not negative, of course).
Year-to-date, Sabre says its market share for air business is 70 basis points higher, at 37% worldwide. Air bookings increased both sequentially and year-on-year via the global distribution system (GDS). In Asia-Pacific, it saw third-quarter bookings growth of 6.8%. North America bookings increased 1.6% in the quarter.
On the hotel side, Sabre says its third quarter saw nearly 45% growth in its hospitality solutions division. That pace keeps it competitive, it says.
During a call with investors, Klein was asked about the New Distribution Capability (NDC), a proposal for revised standards for how airlines provide airfare content to end users, championed by the International Air Transport Association (IATA). "Will you have the opportunity to monetize the services you provide in support of NDC?" Klein answered:
"I think it depends on what the mix of products and services airlines sell. In some cases, they will just drive more efficiency. Some of the NDC capabilities will be around servicing customers, not selling incremental things to customers.
But I think that if airlines increase their mix of products and service that they sell, whether that's through NDC or any other capability that we deliver, we will look to monetize it.
But that is not a revenue that we have sitting out in the current three-year or multiyear guidance that we've discussed. That does not assume a big pickup in ancillary-type revenues kind of at Sabre. We do see it as a long-term revenue opportunity...
But again, as I said before, airlines need to get more revenue from the intermediated channels.
The bulk of the $60 billion or so that they're talking about as ancillary revenues today come from things that are either bought at the airport, mostly bags; or things that are going through the direct channel, mostly seat; or the sale of miles, which, in our view, isn't really new ancillary sale.
It's something the airlines have always done. And that's really part of their loyalty business, not part of the core airline business.
So, I think those are the three buckets, and they've more or less saturated the direct channel ancillaries in those categories. And we think they have to sell more.
And I think our conversations with airlines validate that they want to sell more through the intermediated channel. That's both, a technology issue as well as a product mix issue and a sales compensation issue, people who are selling the product for them....
The latest data I have suggests that IATA has certified one product at one airline as being NDC compliant. That is not reflective of an industry that's adopting a standard. And it's also – it is reflective of those typical standard setting organizations, which they can't go at this by certifying products one by one across the industry, it's just kind of a meaningless metric.
So, again, this comes back to innovation and how airlines choose to sell their product and enabling them to do that. We think we're better at that than anybody in the world, both in the direct channels and as well as indirect channels."
In personnel news, Sabre continues to expect it will announce a replacement for Klein as CEO before the end of the year. Speaking of the timetable, Klein says "things are going as we had anticipated."