Sabre Corporation, a name synonymous with travel technology, has weathered the storms of a tumultuous few years. COVID-19 brought the industry to its knees, and Sabre, deeply intertwined with airlines and corporate travel, felt the impact acutely. However, amidst the turbulence, a silent revolution has been brewing within Sabre's walls, a transformation that has largely flown under the radar of analysts and investors. The Q1 2024 earnings transcript whispers the tale of this transformation, hinting at an explosive growth trajectory that could see Sabre surge beyond expectations in 2025.

The narrative starts with Sabre's GDS market share, a metric that has become a focal point for industry observers. For years, Sabre has grappled with a shrinking market share, a trend that has fueled concerns about its long-term viability. Yet, the Q1 transcript reveals a subtle but significant shift – Sabre is not only stabilizing its market share, it's actively expanding it. For five consecutive quarters, Sabre has grown its share of distribution industry bookings year-over-year, a feat achieved through strategic partnerships with global carriers like Air India and a renewed focus on corporate travel.

The sequential share increase in Q1 2024, particularly in the face of a slowing leisure travel segment, is a testament to Sabre's growing dominance in corporate travel. Remember, Sabre acknowledged a temporary dip in corporate bookings in late 2023, sparking anxieties about a permanent shift away from managed corporate travel. However, the Q1 data obliterates this fear, revealing a resurgence in corporate bookings, particularly within the TMC sector, where Sabre holds a significant advantage over its competitors.

This resurgence, coupled with projected growth in corporate travel spending and a return of international long-haul capacity, points to a highly favorable GDS market landscape for Sabre in the coming years. The company's conservative baseline assumption of flat to nominal GDS industry growth for 2025 appears overly cautious when considering these powerful tailwinds.

But Sabre's story goes beyond market share. The company has embarked on a comprehensive technology transformation, migrating its operations to the Google Cloud. This migration has not only slashed Sabre's unit cost of compute by 55% since 2019, but has also positioned the company as a modern, agile technology provider, capable of rapid innovation and seamless integration with its customers. The successful pilot program for its offer/order platform, a cornerstone of its future product portfolio, underscores Sabre's ability to leverage the power of the cloud to meet the evolving needs of airlines and agencies.

The impact of this technology transformation on Sabre's cost structure is profound. Adjusted SG&A and technology expenses plummeted 16% year-over-year in Q1 2024, contributing to a doubling of adjusted EBITDA margin compared to the same period in 2023. This dramatic margin expansion, coupled with the continued realization of cost savings from the technology transformation, positions Sabre to generate significant free cash flow in 2024 and beyond.

The company projects adjusted EBITDA to exceed $500 million in 2024, nearly a 50% increase from 2023, with further expansion to over $700 million in 2025. Even these targets appear conservative when considering the potential for robust GDS market growth and the full realization of cost efficiencies.

Sabre estimates that each point of additional GDS market growth translates to approximately $13 million in annual adjusted EBITDA. If the industry grows by 4 points annually over 2024 and 2025, a scenario that appears increasingly plausible given positive industry forecasts, Sabre's 2025 adjusted EBITDA could soar to $800 million.

The Hypothesis: A Hidden Growth Driver

Here's where Sabre's silent revolution takes a compelling turn. The company's focus on hotel distribution, an often overlooked segment of its business, could be the hidden growth driver that propels Sabre beyond even the most optimistic forecasts.

Sabre's Hospitality Solutions segment delivered a stellar performance in 2023, exceeding initial forecasts for growth and profitability. The segment's SaaS operating model, with 81% recurring revenue, underpins a steady margin expansion trend. But the real game changer lies in Sabre's enterprise CRS deals with industry heavyweights like Hyatt and Wyndham, deals that are set to contribute meaningfully to Hospitality Solutions' revenue and EBITDA in 2024 and beyond.

The Numbers Tell a Story

Consider this: Hospitality Solutions' adjusted EBITDA swung from a $2.8 million loss in Q1 2023 to an $8 million gain in Q1 2024. The segment is projected to contribute approximately $30 million more in adjusted EBITDA in 2024 than in 2023, pushing its total adjusted EBITDA to around $40 million for the year.

Looking further ahead, Sabre expects Hospitality Solutions to drive nearly half of the $115 million adjusted EBITDA growth from its strategic growth initiatives between 2023 and 2025. This translates to a projected adjusted EBITDA of $70 million for the segment in 2025.

The Underestimated Powerhouse

These figures reveal an underestimated powerhouse within Sabre's portfolio, a segment that could significantly boost the company's overall growth trajectory. When combined with the potential for robust GDS market growth and Sabre's impressive cost efficiencies, the Hospitality Solutions segment could propel Sabre's 2025 adjusted EBITDA to well beyond $800 million.

Sabre's transformation is no longer a silent affair. The company's Q1 2024 transcript, though seemingly understated, whispers the story of a travel tech giant on the cusp of an explosive growth phase. As the travel industry roars back to life, Sabre, armed with a revitalized technology platform, a dominant position in corporate travel, and a burgeoning hotel distribution business, is poised to reap the rewards of its silent revolution. Investors and analysts who fail to recognize this seismic shift do so at their own peril.

Q1 2024 Earnings Transcript

Sabre Corporation (NASDAQ:SABR) Q1 2024 Earnings Conference Call May 2, 2024 9:00 AM ET

"Fun Fact: Sabre and the Birth of Airline Reservations"

Sabre's history is intertwined with the very origins of airline reservations. In the 1950s, American Airlines partnered with IBM to create the first automated reservation system, a groundbreaking innovation that transformed the way people booked flights. This system, initially known as the Semi-Automatic Business Research Environment (hence the acronym SABRE), laid the foundation for modern airline reservation systems and the entire travel technology industry.

Financial Data

Reference: Seeking Alpha