2003 Annual Report
Shareholder Letter
Draft 5B
To our shareholders:
A year ago, things looked quite different for this company
and for our industry. We’ve come to expect change – even
encourage it – at Sabre Holdings, because change often
spells opportunity. One prominent change occurred on the
last day of 2003, when we learned that one of our business
segments would be deregulated in the United States, our
largest market.
Even without that headline, 2003 would have qualified as a
benchmark period for Sabre Holdings. We took a number of
steps last year to strengthen the foundations of our
businesses – steps that significantly enhance our ability to
keep a simple pledge: “The best trips start here.” That’s
the promise we make to our customers. It’s also an apt way
to describe the prospects for Sabre Holdings.
We are well positioned today in large part because of what
we accomplished in 2003, although we are not satisfied with
last year’s financial results. The steps we took caused some
short-term financial pain, as we increased investment in our
travel retailing capabilities, and launched a progressive
pricing program to prepare ourselves for deregulation of the
global distribution system (GDS) industry. But we are
confident that Sabre Holdings now has a foundation in place
to produce more predictable revenue and earnings growth in
2004 and beyond. As the company’s new chief executive
officer, I’m excited and energized by the opportunities
ahead.
We will take a closer look at the key elements of that
foundation in just a moment. But first, let’s review the
company’s financial performance for 2003.
Financial Summary
Sabre Holdings finished the year with earnings per share of
$0.58 (on a GAAP basis), compared to $1.50 per share in
2002. Total revenues, were $2.05 billion, a decrease of 0.5
percent.
Contributing to the decline was our new discounted pricing
option – Direct Connect Availability-Three Year Option
(DCA-3) – offered to airlines by our Sabre Travel Network
business unit. While the program diminished our unit
revenues, we believe it was a necessary step in anticipation
of deregulation, resulting in long-term commitments by major
carriers to the highest level of participation in our GDS
network, and guaranteed access to virtually all of their air
fares. Our financial results were also impacted by a number
of macroeconomic factors that stifled travel demand; yet we
recognize that we must manage to earnings even in a
difficult environment.
Although our revenue and earnings performance was
unsatisfactory in 2003, Sabre Holdings stock provided a
total return to shareholders of 20.2 percent for the year.
This gain included a 52-week stock price appreciation of
19.2 percent, and dividends totaling 21 cents per share –
equal to approximately 1 percent of the share price at the
close of trading on December 31, 2003. In January of 2004,
the Board of Directors increased the quarterly dividend to
7.5 cents per share, signaling its continued confidence in
our ability to generate free cash flow, as well as our
prospects for growth.
Starting Points for the Best Trips
We think the Board’s confidence is well placed, thanks to a
couple of key starting points that are now in place for your
company.
First, we are much better positioned today than we were a
year ago to make our mark as a travel retailer. That’s
important, because it promises to reduce our reliance on
traditional airline booking fees as a source of revenue,
while also creating opportunities to increase profit margins
on more of the transactions we complete.
Second, we are well prepared for deregulation. The timing
may have been largely coincidental, but the new year began
on exactly the right note for our Sabre Travel Network
business, when the U.S. Department of Transportation
announced on December 31 st that it would allow computer
reservation system rules to expire in 2004.
We now have DCA Three-Year agreements in place with six of
the largest U.S. airlines, as well as two major European
carriers. It’s important to understand that DCA-3 isn’t just
a defensive move. It’s a central part of our strategy – a
starting point – for reinvigorating the traditional travel
agency channel as a method of distribution for airlines and
other travel suppliers. In recent years, online channels of
distribution – both supplier-direct Web sites, and online
agencies such as our own Travelocity – have captured a
growing share of travel bookings. But traditional
brick-and-mortar agencies are still very important players
in the industry, booking 55 percent or more of all travel
purchased in North America.
DCA-3, then, represents an important first step in
strengthening the business outlook for a valuable set of
customers. From there, we expect to use our emerging skills
as a travel retailer to create attractive new marketing
opportunities going forward – developing innovations that
leverage the enormous reach of the Sabre GDS to help both
travel suppliers and travel agencies achieve profitable
growth.
In another notable move in 2003, we integrated our GetThere
corporate travel business unit into our other operating
units. This decision allowed us to realize a number of
internal operating synergies. It also strengthens our
go-to-market tactics, by reducing overlap in our marketing
and sales activities. Where we used to have multiple
points-of-contact within Sabre Holdings, particularly for
our corporate customers, we can now serve their needs
through a focused sales effort. And it also helped establish
Travelocity Business as our online corporate travel agency
of record, accelerating its ability to deliver comprehensive
end-to-end travel solutions to companies of any size.
Let’s take a closer look at each of our businesses.
Travelocity
As one of the industry’s leading online travel retailers,
Travelocity represents the cornerstone of our effort to
offer both leisure and business travelers an easy-to-use
online solution for booking the best trips. Of course, the
two sets of customers have distinctly different definitions
of what constitutes a great trip. The recent changes we have
made at Travelocity are specifically designed to address
their expectations. For leisure travelers, we invested
heavily in new technologies – such as our TotalTrip dynamic
packaging engine – that lets them shop for great deals in
powerful new ways. We also established our own merchant
hotel offering, ending the year with more than 9,000 hotel
properties in the program. For the business market, we
launched Travelocity Business, drawing on the strength of
our GetThere technology, to offer business travelers a
proven way to reduce travel expenses and manage their travel
budgets.
Although Travelocity’s overall financial results did not
meet our expectations in 2003, there were signs in the
fourth quarter that the changes we’ve made at the business
are beginning to pay off: Transaction revenue grew 50
percent year over year for the quarter; total hotel room
nights booked across the Travelocity network increased 36
percent compared to 4Q 2002; and package sales ended the
year over 300 percent above the previous year.
Sabre Travel Network
Along with the DCA Three-Year program, our Sabre Travel
Network business took additional steps in 2003 to enhance
the value proposition we provide to travel suppliers and to
our travel agency customers. A case in point is the launch
of Jurni Network, our consortium for leisure travel
agencies, which provides both a compelling array of
high-margin packaged travel products and a sophisticated set
of data-driven marketing tools. More innovations will
follow, as Sabre Travel Network develops creative ways to
market and promote the full range of travel products and
services – and in the process, deliver even more value to
travel suppliers than we have in the past.
Sabre Airline Solutions
Our Sabre Airline Solutions business turned in a solid
performance despite the fact that many companies in its
primary customer base – commercial airlines – continue to be
under substantial cost pressure. Sabre Airline Solutions
scored wins across all three segments of its business –
reservations hosting, software tools for airline operations,
and consulting services – signing more than 300 new
contracts in all, including 60 in the Asia-Pacific region,
the world’s fastest growing airline market. Going forward,
Sabre Airline Solutions will continue to offer advanced
technology and expert insights that help the world’s
airlines take full advantage of their opportunities in the
marketplace.
2004 Outlook
We head into 2004 on a strong foundation, with our primary
focus to execute on our plans, and drive more predictable
revenue and earnings growth. We expect to deliver on that
promise by aggressively implementing these four core
strategies:
-
We will excel at travel retailing
, by leveraging the market-leading technologies for
travel packaging and hotels we’ve developed for
Travelocity, to further enhance our product creation and
customer service. It also includes a strong push on our
marketing and branding campaign to reach our targeted
consumers and increase traffic to our site.
-
We will unleash the full potential of
the Sabre GDS, as this industry rapidly evolves from
deregulation. We’ll see continued innovation, and o ur
greatest opportunities will be in the form of new
products and services that add significant value to our
proven distribution capabilities.
-
We will reduce our cost structure to
create a competitive advantage, by focusing on
productivity improvements and by leveraging our enormous
scale, particularly in the Sabre Travel Network
business.
-
We will maximize the performance of
each business unit. Individually, each of our
businesses has what it takes to excel in its targeted
portion of the travel market. They also benefit from
being part of a broader portfolio that has great
technology and intellectual capital -- and we can
leverage these strengths across businesses to create
differentiation and significant value for our customers.
As I noted earlier, we believe Sabre Holdings is at the
start of something new, and something exciting, as we look
ahead. Our people are energized by the opportunity to
compete in a deregulated marketplace. We are also eager to
prove our mettle as the industry’s premier retailer and
distributor of travel products and services.
In short, we’re ready to prove why “the best trips start
here,” at Sabre Holdings. And by keeping that promise to our
customers, we expect to create real value for our
shareholders along the way.
Sam Gilliland
President and Chief Executive Officer
