Just three companies control 97% of this growing market

Hello, reader.

Dave Gilbert here, editor of smart money.

Let’s start today’s issue with a story.

Two men sitting next to each other on the plane struck up a conversation, as they often do. Despite the fact that this was in 1953, these weren’t just any two men, and their conversation eventually transformed an entire industry.

One man, CR Smith, happened to be the CEO of American Airlines Group Inc. (EEL), which of course was the airline they were flying with. The other man’s name was also Smith, Blair Smith, although they weren’t related. He was sales manager at International Business Machines (IBM).

The conversation led to the frustrations of the day. Blair was struggling to make a sale and CR was frustrated by the slow pace of the flight reservation process, which relied on manual systems and old-fashioned phone calls. A single reservation can take an hour.

The two didn’t stop talking as the plane landed. In fact, CR took Blair to the reservations center at the airport. And as they say, the rest is history. American Airlines and IBM soon joined forces in what would be the beginning of reservation automation.

Eric Fry: It’s one of the biggest megatrends I’ve seen in my career

Now we can do all this in a few moments. Remembering this might help relieve some of the stress when your cursor spins for a few seconds and it seems like forever.

With Americans eager to travel and numbers increasing, an investment opportunity could reside in what is now the backbone of the modern online reservation system. A backbone controlled by few companies…

Americans are on the move

After stalling in 2020 amid the COVID-19 lockdowns, the travel industry has made a strong recovery.

Higher prices don’t seem to slow things down either. Gasoline hits all-time highs, yet AAA forecast 39.2 million people would travel 50 miles or more over Memorial Day weekend. That would be 8.3% more than last year and at the level of 2017. (The final figures are not yet available.)

According to Paula Twidale, Senior Vice President of AAA Travel, bodes well for the rest of the summer:

Memorial Day is always a good indicator of what’s in store for summer travel. According to our forecasts, summer travel will not only heat up, it will burn. People are overdue for a vacation and looking to catch up on some much-needed rest and relaxation in the coming months.

The same applies to air travel. Corresponding funnel, a travel data software company, average Memorial Day round-trip fares rose $28 to $394. And yet the number of passengers passing through TSA checkpoints Friday through Monday rose 28.5% year over year to 8.8 million.

In perspective, that’s also 675% more people passing through checkpoints than on Memorial Day weekend 2020.

Eric Fry has been keeping a close eye on this travel rebound trend for more than a year. With more travelers comes more related bookings, like hotels, rentals, and car rentals. And with that comes the potential to make money.

All these bookings, whether they are made by customer Carl on his computer or travel agent Anna in her office, are done online. Here’s a Who’s Who of travel industry websites…

  • Booking Holdings Inc. (BKNG):Kayak, Agoda, Priceline, CheapFlights, Momondo, OpenTable, Rental Cars
  • Expedia Group Inc. (EXPERIENCE): Orbitz, Travelocity, Hotels.com, TripAdvisor.com, SeatGuru.com, Cheaptickets.com
  • Alphabet Inc. (Google)
  • Hilton Worldwide Holdings Inc. (LDS)
  • Marriott International Inc. (TO DAMAGE)
  • Hyatt Hotels Corp. (H)

And on and on.

These websites are the opposite sides that we see, but in order for the reservations to be made and for the systems to communicate with each other, they all have to go through a Global Distribution System, or GDS for short.

The gateway to reservations… and winnings too

Traveling is messy enough, but without GDS it would be unbearable. The GDS allows customers to find availability, make reservations and pay for them. This is an area Eric has focused his research on.

Here is a good definition of siteminder.com:

A GDS is a global connection between travel bookers and suppliers such as hotels and other accommodation providers. It transmits live product, price and availability data to travel agencies and online booking engines and enables automated transactions.

Just three companies dominate the travel industry’s global distribution systems. Based in Spain Amadeus IT Group SA (AMADY) is the largest of the three. It processes around 40% of travel bookings worldwide. Dallas area based Saber Corp. (SABR) is No. 2 with a market share of 35%. And privately held Travelport is #3 with a 22% market share.

I’ll spare you the counting. Together, these three account for 97% of all travel bookings worldwide.

“America’s Top Trader” says he should take that step now

The companies generate income from thevolumeof transactions, not the dollar value of those transactions. So when travel increases, so does revenue.

As Eric pointed out, Saber, the US-based GDS, recently reported its first profitable quarter in more than two years, while also reporting the highest sales and profit margins since the pandemic began.

He also likes the company’s commitment to the future…

The company hasn’t just sat on its hands for the past year, waiting for the inevitable recovery.

Instead, it has taken decisive steps to strengthen its competitive advantage by expanding its customer list and strengthening its industry-leading IT capabilities.

For example, Saber has worked with Google to migrate its IT infrastructure to Google Cloud. Saber continued this initiative by partnering with Google last fall to develop an industry-first artificial intelligence (AI)-based technology platform.

And yet, despite the optimistic results and statements, the stock has fallen since the earnings were announced.

Eric admits that the pandemic and its impact “have dragged on for much longer than I originally anticipated. And then, just as the clouds finally seemed to part, Russia invaded Ukraine and China imposed new COVID lockdowns.”

But Eric is keeping an eye on the macro trend, which his track record says is clearly a profitable proposition, and expects Saber to “bounce back…once voyage recovery becomes undeniably a reality.”


David Gilbert
Editor, smart money

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