Is the Sabre IPO ominous for the GDS industry?

This week, Bloomberg announced that Sabre raised $627 million in its IPO.

Actually I don’t think you should be allowed to call it an Initial Public Offering when you have already been public once.  It should be an SPO.  The former unit of AMR Corp. was
traded on the New York Stock Exchange from 1996 until it was
taken private a decade later by TPG and Silver Lake.

Whatever you call it, this public offering was definitely lower than its expectations of $895 million.   Uh, ya think?? 

Sabre’s market cap at the end of this first week of trading was $4.04b.  Absent the news about their expectations for the IPO, this may sound great.  That is until you remember that in 2006, TPG and Silverlake bought the company for approximately $4.3 billion in cash, plus the assumption of $550 million in debt. 

This now begs the questions,  “Is this result ominous for the GDS industry as a whole?”.

Sabre Corporation (NASDAQ: SABR) is one of three companies serving the travel industry with global distribution technology and services.

Globally they are #2 with 36% share of airline bookings worldwide, not far behind Amadeus, who has 39% share.  Travelport has 25% global share of airline bookings.

Now, anyone that knows me will expect what I am going to say next.  Any sector within the industry that measures itself on air bookings is doomed to enjoy limited success.  Why?  Because at least here in the US, just 15% of all travel is by air.   Now to be fair, these three companies enjoy combined revenues of $9.4 billion, earned primarily from travel by the air traveler (including selling them hotels at their destination and rental cars).  Imagine if they ever tapped into the remaining 85% of travelers.

So back to the discussion of whether Sabre’s valuation is ominous for the industry.  If we were looking at the industry based on Sabre’s IPO alone, it would indeed appear ominous and you would expect Amadeus’ results to be only marginally better than Sabre’s based on market share.

But when characterized against rival Amadeus’ results, the story takes a much different tack.