“Revenge travel” has been in full swing for a while now, with international tourist arrivals predicted to reach 80-95% of pre-pandemic levels this year, according to Statista. But with the advancements being made in AI, this industry is poised to explode – and investors who capitalize on the AI movement will profit.
As countries eschew COVID restrictions and travelers’ wanderlust reignites, instead of seeing less than a dozen folks in airplane seats like we did in 2020 and into 2021, we’re seeing dozens waiting in airports on standby. That’s great news for the travel industry, especially the travel booking sector and the global distribution systems (GDS) that provide their listings.
Travel booking companies currently rely on artificial intelligence (AI) to personalize recommendations, forecast flight statuses, predict seat availability, and find the best rates for travelers. They glean this information from the GDS.
It’s nice to be able to be served information about an all-inclusive Fiji trip if you’ve been Googling beach vacations lately, but travel companies are getting more savvy about using AI to increase profits – and investors stand to benefit.
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En Route to AI Land
I’ve covered Sabre Corp. (SABR) in the past, most recently at the end of last year, recommending that my The Speculator subscribers stay the course and keep the Dallas-based GDS company in the portfolio, despite it facing far tougher headwinds than most stocks in the Speculator portfolio.
As I said in December 2022…
Only three companies dominate the travel industry’s global distributions systems…
Spain-based Amadeus IT Group SA (AMADY) is the largest of the three. It processes about 40% of travel bookings worldwide…
Dallas area-based Sabre Corp. (SABR) is No. 2, with a 35% market share…
And privately held Travelport is No. 3, with a 22% market share.
Together, these three make up 97% of all travel bookings worldwide.
Because more than 400 airlines and one million hotels use the Sabre system to process travel bookings, Sabre’s system processes 2.5 million bookings every minute.
The company generates its revenues from the volume of transactions it processes, not the dollar value of those transactions.
So, when travel activity increases, Sabre’s revenues also increase. The connection between the two is very close… and predictable.
It would be easy for a company like Sabre to sit around waiting for the travel industry’s inevitable turnaround, but that’s not why I’ve stuck with them. It has taken decisive steps to fortify its competitive moat by expanding its client roster and beefing up its industry-leading IT capabilities.
Back in December, I noted the company’s Google collaboration – Sabre migrated its IT infrastructure to Google Cloud and partnered with Google to develop a pioneering AI-driven technology platform.
And now Sabre is ready to take AI’s role in its business to the next level.
Sabre Rolls Out Retail Intelligence Products & Partnerships
Last month, Sabre’s Vice President of Product Management, Offer Optimization, Bhaskara Guntreddy, sat down with Jiří Marek, Executive Officer of Air Serbia, to discuss how the company is monetizing personalized travel for airlines with its suite of Retail Intelligence products, which includes Air Price IQ and Ancillary IQ.
Air Serbia, like many airlines, was forced to change many of the ways it did business after the pandemic. Marek said, “We completely changed our distribution strategy… from static to dynamic, and also moved away from rules-based pricing. As a smaller regional carrier we don’t really have the capabilities, resources and investment to develop this on our own. So when we searched the market for a strategic partnership instead, the natural choice was to do it with the Sabre.”
Guntreddy said of the partnership and products: “Air Price IQ is a tool that unlocks incremental revenue for airlines… For Air Serbia we’ve delivered an end-to-end solution from shopping, booking, exchanges, refunds, the data feed, and all the way down to revenue accounting data. We are also working on further personalization solutions together, to continually enhance their customers’ experience.”
Long story short, by gathering real-time data from airline partners, Sabre can use its AI suite of products to provide real-time insights and machine learning models to increase revenue opportunities by moving from static pricing rules to targeted offers.
And it’s already paying off. Sabre has seen an overall 3% increase in overall airline revenue for the airlines using their AI systems. Specifically, Guntreddy said that airlines are experiencing “up to 10% uplift in ancillary revenue of seats and have observed similar results when selling upgrades too. Another POC we conducted at another major airline saw an increase of 10%-20% upgrade revenue, depending on the business cabin operating capacity.”
Remember… Sabre is the #2 company in the global distributions system sector and travel recovery is something I’ve been pounding the table about since the stirrings thereof emerged in mid-2021. But now, coupled with the power of the AI megatrend, it seems to have the potential to truly take off.
