Sabre and Amadeus: We Expect Corporate Travel to Recover at Slightly Slower Pace; Valuations Reduced

Led by leisure, overall travel demand has remained resilient, supporting our long-held view that there is an ingrained human desire to travel. But we are less sanguine on near-term corporate travel after United Airlines CEO Scott Kirby said earlier this month that the United States is currently in a business recession, with COO Andrew Nocella adding that business travel demand has leveled off for the company. This was followed by Delta Air Lines’ June 27 investor day presentation forecasting stable business demand into 2024. Further, the risk of softer economic growth during the next year remains, and numerous nontravel consumer-related companies point to strained demand, which we believe is emanating from persistent inflation, tightening credit availability, and a consumer saving rate of disposal income plummeting to 4.8% in the first quarter of 2023 versus the roughly 9% averaged in 2019.

We still expect sales growth across our travel universe in 2023 and 2024 and don’t see an economic recession as likely. That said, we’ve reduced our sales growth forecast by a total of 4 percentage points through 2024 for narrow-moat global distribution companies Sabre and Amadeus AMS to reflect slower near-term corporate travel. This leads us to decrease our fair value estimates to $8.50 per share from $10.50 for Sabre and EUR 60 per share from EUR 63 for Amadeus. The large drop in Sabre’s valuation relative to the rather small change in sales expectations is due to the firm’s financial leverage (high fixed operating costs and debt leverage).

We are maintaining our fair value estimates for the hotel and online travel operators that we cover, as these companies are more exposed to leisure trips where demand has shown no signs of slowing. If we were to reduce sales growth expectations by a similar magnitude as global distributors for these asset-light operators, our valuations would drop by low- to mid-single-digit percentages, all else equal.