Amadeus Earnings: Volumes Continue to Recover, Aiding Profit Expansion; Shares Slightly Undervalued

The gradual recovery in the Global Distribution System, or GDS, industry was evident in Amadeus’ 3% air booking increase during its second quarter and first half of the year. We are encouraged that half of Amadeus’ air inventory is now bookable through the industry’s updated New Distribution Capability, which we believe will incentivize airlines to use its platform relative to pushing their own direct channels, as it allows for customization and upsell of content. That said, one known blemish in first-half results was Amadeus’ North American air bookings declining 7%, due to a direct connection between one OTA and some carriers. But we note that this connection is low-margin business and has a more muted impact on revenue. Also, we think such connections will be rare. In fact, no-moat American Airlines lost corporate revenue share in its first half of 2024 after the airline deemphasized the GDS channel, a decision it is now moving back from, which shows Amadeus’ network advantage (primary source of its narrow moat).