Business Breakdowns
· Matt Reustle
[00:00:00] S0: Certainly, I have experienced as a former sell side transportation analyst how any business that gets bucketed in there, management teams are not happy if they're not a traditional transportation business and they're covered by those analysts, it seems to be guilty by association. On the risk front, you've detailed competition pretty well in terms of the incumbents. Do they face risks from new technology disintermediating them or some new evolution that would change their positioning? Has that over time popped up in different ways?
· Ben Needham
[00:00:00] S1: This is a technology business, so the innovator's dilemma is front of mind I think when you're looking at these types of companies, but I do think the really great thing about them is they are willing to reinvest. So when you look at industry changes that have taken place, like the evolution to the new distribution capability, which is basically the airlines try to take control of their own offers as opposed to going through the global distribution systems where the likes of Amadeus did the offers themselves for those airlines. Amadeus has actually invested in its own proposition. They now have over 70 airlines hooked up to their NDC proposition and because of their scale position within the channel, they're able to offer agents both the traditional form of providing inventory via the EDIFACT GDS type model, but also sell NDC into that channel as well. They're not actually losing share within NDC, they're holding their own and within air IT, there is a potential evolution to new order management systems or offer and order management systems, but they have a Nevio proposition which they've invested in the last decade, so they're ready for that transition. And when airlines are making these transitions, it's so mission critical and there's gonna have to be smart bridging technology whilst these migrations take place from old passenger service systems to the new. So Amadeus can manage that at a low price for their airline customers. Technology risk is very large, but I do think they manage it well. That is a reason that they reinvest so heavily in research and development spend over time, and it's also why the gap's increasing between themselves and their peers. The market position is so much greater now than their nearest two competitors. That's just becoming very hard for them to keep up. If these technology evolutions do take place, it's a really big risk potentially for their peers, but potentially not so much for them.
· Matt Reustle, Ben Needham
[00:00:00] S0: Are there other risks that stand out to you? What would you highlight as a risk to the thesis or to the business that stands out the most? [00:00:00] S1: It would have to be something which was very left field, which was a technology evolution that was very hard to foresee. That was always something that's hard to guard against that, but I think that's one of the risks. A big traffic downturn is a risk. If there was a war and traffic volumes crashed, obviously being a transaction processing business, being a derivative of traffic volumes, that's going to result in revenue headwinds. But then I could also spin that into a positive because if that happens, arguably they'll take even more market share because they're so well capitalized and you'll get bankruptcy with their competitors. You would actually take market share even quicker potentially in that scenario. So the investment case for a long-term investor can hedge to a degree with that risk. [00:00:00] S0: This has been fascinating. We finish these conversations out with some of the lessons that you can take away. What's been your experience in having broader lessons that you can pull away from Amadeus and potentially apply elsewhere?
· Matt Reustle, Ben Needham
[00:00:00] S0: This has been fascinating. We finish these conversations out with some of the lessons that you can take away. What's been your experience in having broader lessons that you can pull away from Amadeus and potentially apply elsewhere? [00:00:00] S1: The mark of a good business is whether you would hate to compete with that company in question, and I would hate to compete with Amadeus, but customers like to do business with you and I think they're channel friends, not a channel foe. And when you find those two characteristics together, competitors hate you because you're good and customers love you for the same reason. That's a fantastic cocktail for value creation. [00:00:00] S0: I like it. That is a new one and I will certainly look for it elsewhere. Ben, this has been a pleasure. Thank you for joining us on Business Breakdowns. [00:00:00] S1: Thanks, Matt.