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Morningstar | Amadeus Faces Cyclical Headwinds in Europe, but Network and Efficient Scale Advantages Intact

We expect Amadeus to expand its leadership position in global distribution systems over the next several years, driven by its leading network of airline content and travel agency customers as well as its superior position in technology solutions for these carriers and agents. Of the top three operators that control nearly 100% of market volume, we expect Amadeus' share of GDS bookings to gradually lift to the mid-40s by 2023 from the low 40s in 2018, while its technology share of passenger boardings increases to the high 40s in 2023 from 44% in 2018.Amadeus’ GDS enjoys a network effect. As more supplier content (mostly airline content) is added, more travel agents use the platform; as more travel agents use the platform, suppliers offer more content. This network advantage is solidified by technology that integrates GDS content with back-office operations of agents and IT solutions of suppliers, leading to more accurate information that is also easier to book and service the end customer with. The 2016 acquisition of airline IT company Navitaire and 2018 acquisition of hotel IT company TravelClick stand to further expand Amadeus' GDS network advantage through new customer integration, as Navitaire focuses on low-cost carriers while the company’s existing Altea division focuses on full-service carriers, and TravelClick has a midscale lodging presence versus Amadeus' current hotel offering, which focuses on enterprises.Replicating a GDS platform entails aggregating and connecting content from hundreds of airlines to a platform that is also connected to travel agents, requiring significant costs and time. As a result, three operators--Sabre, Amadeus, and Travelport--form an oligopoly in the GDS market, and we think they enjoy efficient scale, which is evident in the limited traction that airlines or travel agents have had in bypassing this distribution platform. The main risk to the GDS industry is technology advancements that increase the ease of booking travel directly through supplier websites (disintermediation) or through direct connections between suppliers and online travel agency platforms that bypass agents that use the GDS platform.