What happened
Shares of Sabre (SABR 5.56%) traded down more than 17% on Thursday, after a global airline group dramatically raised its projections on how severely the COVID-19 coronavirus outbreak would impact the travel industry. Sabre's fortunes are closely tied to the airlines, and the company is likely to take a significant hit if ticket demand plunges.
So what
Sabre, a onetime subsidiary of American Airlines Group, runs the back-end reservation systems for many airlines. The company warned back in late February that it expects the coronavirus to have a "material impact" on 2020 results, but as the virus has spread in the weeks since, that impact has likely grown more severe.
Image source: Getty Images.
The company last month said it expected the novel coronavirus to reduce first quarter revenue by $100 million to $150 million, and EBITDA (earnings before interest, taxes, depreciation, and amortization) by $50 million to $80 million. However, at the time, the International Air Transport Association was forecasting that the outbreak would cost global airlines about $29 billion in lost revenue in 2020. On Thursday the IATA updated its estimate to $113 billion in lost revenue.
That doesn't mean the impact on Sabre is going to be five times worse than the company thought just a few weeks ago, but it is likely the company's exposure has grown. In recent days United Airlines Holdings has cut international and domestic capacity, an indication that the airlines are feeling the pinch. The crisis also now appears sure to last well past the current quarter, and could drag on results for much of the year.
Now what
Shares of Sabre have now lost more than half their value year to date. That's likely an overreaction. But until there's a clear sign of how deep this crisis will go, and what its actual cost will be for the airlines and the companies that serve them, it's difficult to imagine buyers rushing in and propping up the stock.
Before the novel coronavirus ever made headlines, Sabre was a stock that had gone nowhere for years. The company had announced a plan to spur growth, including expanding its business with low-cost airlines and building up its property management capabilities to cater to more hotel customers.
The moves are intriguing. But until the coronavirus is under control and investors have a firm grip on the extent of the damage to the travel industry, this is a stock that will continue to struggle to gain altitude.
