Specialist
Former EVP at Sabre Corp (Sabre GLBL Inc)
Agenda
- Outlook for airline IT spend growth and application mix given recent high-profile IT failures
- Price per passenger evolution and additional modules’ attach rate
- Pipeline for transformative PSS (passenger service system) projects vs smaller incremental upsells, plus discussing PB (price-to-book value) rates
- Competitive dynamics and durability of Amadeus’ (MAD: AMS) lead in the sector
- Synergies between Sabre's (NASDAQ: SABR) distribution and IT segments and potential to separate business units
Questions
1.
How quickly do you see airlines’ IT requirements evolving, particularly in the context with some relatively high-profile IT failures, whether IAG in Europe or Southwest in the US? Is that driving more rapid IT spend growth?
2.
How quickly do you think IT budgets for airlines are growing with the twin needs for greater reliability and security stability – part of which is facilitated by a cloud migration – and the desire to invest in improved offers? Are you seeing that leaning to incremental spend on the IT side?
3.
What is a reasonable estimate for typical IT spend? I know it’s going to vary between airlines, and probably regionally as well, but an estimate that I’ve seen is around 2.5% of revenue for full-service carriers, that’s a reasonably appropriate benchmark. Does that sound sensible to you, or would you expect full-service carriers to be spending more or less?
4.
In terms of who’s driving the most spend and being the better target marker for Sabre, would the full-service carriers be the lion’s share of IT spending, whether for Sabre, Amadeus, etc?
5.
If we said an average 2.5% spend on IT as a percentage of revenue is reasonable for a full-service carrier, would LCCs [low-cost carriers] be spending less on IT than full-service carriers?
6.
Is the majority of the 2.5% IT spend outsourced, or is that budget being directed internally in a lot of cases? What’s actually addressable for a software vendor such as Sabre or Amadeus?
7.
How quickly is the PSS [passenger service system] market growing? There aren’t that many big PSS migrations happening now. Most airlines have already gone through that process. Do you see significant growth on the PSS side or may that tail off over time, as most of these carriers at least have adopted some kind of outsourced PSS?
8.
Does Amadeus over-index on LCC growth because of the quality of Navitaire?
9.
Are most PSS applications still hosted on-prem for carriers?
10.
Can Amadeus or Sabre win PSS applications from a player such as Delta or Turkish?
11.
Is a significant portion of PSS revenue still coming from carriers with on-prem solutions?
12.
When carriers migrate to cloud, is it easier to upsell or integrate additional modules?
13.
How much of the 2.5% IT spend would one expect to be on the PSS vs other operating solutions? How is that hypothetical 2.5% typically spent?
14.
How would you assess Sabre and Amadeus’s ability to close out the remaining 30% roughly in PSS? Who has the rest of that? How fragmented is that?
15.
How much pressure is PB [passenger boarded] under with the price per passenger?
16.
Is there margin compression on the PSS side as a result of PB pressure? Or have at least the larger players been able to offset PB pressure with higher volumes of passengers boarded, be that just structural growth in air travel or winning new PSS clients?
17.
How long have Sabre and Amadeus been at roughly 70% of PSS? Has that been for some time?
18.
How much integration would you expect there to be between NDC [New Distribution Capacity] or revenue management going forwards and the PSS? Is a dominant position within PSS likely to drive outsized market share in NDC and those types of associated solutions, or is that more dependent on the positioning of the vendor from a distribution legacy GDS [global distribution system] perspective?
19.
Do you think NDC makes any or all of the solutions we’ve discussed less sticky over time?
20.
How strong are the synergies between the IT or airline solution and distribution businesses? Clearly, a portion of the tickets that you are distributing as the GDS will be held by passengers that you ultimately board at some point.
21.
Around selling into additional modules or solutions outside the PSS, is there sufficient market to go after to drive the level of growth we’ve seen from the IT businesses above Sabre and Amadeus historically? Or given the lack of turnkey PSS as there are only so many carriers now, would you anticipate that segment becoming more difficult to grow at pace?
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