Sabre declared a 35% decline in operating income to $363.4 million for the full year in 2019 due to increased technology expenses from a lower capitalization rate.
Operating income for the fourth quarter fell by 52% year-over-year to $57.6 million.
To reverse its disappointing
financial results, the company outlined a strategic priorities plan, which includes an incremental spend of $150 million on technology in 2020.
In a call to discuss earnings, Sabre CEO Sean Menke says: “We think this surge spend is a valuable
investment to help our transformation and result in the creation of a much more profitable company.
“Ultimately, our technology transformation is expected to lower our costs, accelerate innovation and provide competitive differentiation."
Technology expenses skyrocketed by $206.2 million in 2019, including by $64.5 million in the quarter.
Sabre’s consolidated
adjusted EBITDA slipped by 1.3% for the full year to $857.2 million, and revenue increased by 2.8% to $3.975 billion.
Revenue in the fourth quarter increased by 1.9% year-over-year to $941.4 million, missing analyst expectations of $947.68
million.
Strategic initiatives
Sabre’s $150 million plan includes creating personalized offers, putting a focus on the future of distribution and NDC, growing its low-cost carrier base and developing a full-service hotel property management system.
Approximately $100 million
will go towards technology transformation, while $50 million is devoted to investments related to the strategic initiatives.
Menke says that as the travel industry moves toward modern-day retailing that is more customer-centric, “there has
been pressure put on the GDS because people are trying to find ways of generating more revenue.”
He continues: “The investments that I just walked through are clearly aligned on actually making sure that when we look into the future we are right in the
middle of this transformation that we're helping our customers be able to have modern-day retailing that is customer-centric in nature."
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To overcome technology transformation challenges, Sabre recently formed a 10-year partnership
with Google.
Menke touts the benefits of the partnership, including more favorable pricing in the Google Cloud versus other providers, as well as technological and financial assistance from Google.
In the earnings call, CFO Doug
Barnett says Sabre’s cloud optimization work is officially “on hold” while the company migrates to Google Cloud.
Coronavirus
Like other global travel brands, Sabre anticipates a financial disruption in 2020 due to the COVID-19 coronavirus.
“Quarter-to-date, GDS industry bookings are down mid-teens, and we have little insight as to when to expect relief,” says Barnett.
Sabre
estimates a potential $100 million to $150 million decrease in Q1 revenue due to COVID-19 and a $50 million to $80 million lower EBITDA
The most impacted region has been Asia Pacific, but other regions are starting to experience some slowdown.
“Over
the past couple of days, we've seen increased cancellations in the European marketplace,” says Menke.
In an interview with PhocusWire, Menke says that depending on the longevity of the outbreak, the company will try to address its spend.
"In my mind, it's more a temporary suspension of spending if we go down that path, but it's not taking away from the long-term strategic initiatives that we have," says Menke.
"We've slowed down hiring or in essence we've just frozen any hiring that's taking place right now."
By segment
Revenue for Hospitality Solutions grew by 7.3% to $292 million in the full year and by 6.9% to $71 million for the fourth quarter.
The Southlake, Texas-based company attributed the revenue growth to an uptick in its SynXis Software
and Services business.
Sabre also believes that its recently announced partnership with Accor will boost future growth in its Hospitality Solutions segment.
Menke says that Sabre was able to close the deal with Accor by creating a strong relationship with the company.
"I'm a big believer that if you have the right strategic partner, you're able to get things done a lot better and actually have them be functional in market and be successful," Menke says.
In its Airline Solutions segment, revenue increased by 2.1% for 2019 to
$840 million and by 2.8% to $207 million in the quarter.
Sabre says that the revenue was supported by a growth in business for AirVision and AirCentre.
In January, Air India signed a new air distribution deal with Amadeus, but Menke remains hopeful that the company gets to a "resolution" with Air India in the future.
Revenue for the travel network rose by 2.7% to $2.8 billion for 2019, and by
1.2% to $673 million in the fourth quarter. This marked the eighth consecutive quarter of GDS share gain.
Later in 2020, there will be a ruling in Sabre's antitrust trial for its acquisition of Farelogix.
Although Menke could not comment on the legal proceedings, he does believe that progress in NDC will be made throughout the industry this year.