ICICI sell-side covered AKL. Here is the direct quote from the report.
Significant opportunity but largely in-sourced -Data suggests there are ~200 airlines, which perform commercial activity and use some form of revenueaccounting software. The airline industry flew ~3 billion passengers in 2013 with top 10 together flying~1 billion and top 20 carrying ~80% of the passengers. Back of the envelope calculations suggest thatrevenue accounting could be a ~$1 billion market opportunity but likely spread over multiple years.Further, a significant (~55-60%) portion of these spends are in-sourced while those outsourced areshared by a small number of providers such as Mercator, Lufthansa, NIIT Tech and Indra.
About pricing power, Revera plus offers better feature than old Revera and most people have been upgraded to the new software. However, AKL has not been able to charge higher prices for Revera plus. Not sure what you mean by sell software cheap, 90% plus revenue is transaction-based which relies on volume of bookings, cancellations, interline, and a few other segments.
I agree that is an asset light model with significant operating leverage which helps EBITDA. They run tight operations. For example, they just have 22 people in sales and marketing and also get a lot of help from the parent company.
2). < 750 worthwhile airlines in the world and knowing the number of airlines AKL is already in is such a critical piece.
I've been stuck on figuring out if AKL has head room to grow and any data points would be most useful. Thanks !
Although I like the dividend part and operating leverage, I do not see a strong case for PE rerating for AKL. ICICI sell-side says that there are 200 airlines who use revenue management services. If the overall churn is really low for the industry then it is hard for AKL to sign-up new customers regularly. It usually takes about 8 months to 1.5 years to move to another system which also adds to the inertia of changing systems.
I am also uncomfortable about the fact that the company does not disclose customer numbers, churn rate, and pipeline, which does not provide much visibility in company operations. Moreover, sell-side thinks that 90% of the customers are on SaaS model, so there is not much runway left for on-premise to SaaS conversion. AKL also lacks pricing power as they could not charge higher price for Revera plus upgrade.
However, as they have exposure to high growth routes in Asia, they might benefit from increase in traffic as highlighted by the recent Qz.com's article.
http://qz.com/282006/these-five-charts-underscore-why-indigo-just-bought-250-jet-planes/ Link: http://qz.com/282006/these-five-charts-underscore-why-indigo-just-bought-250-jet-planes/
Disclosure: I am not invested in AKL.