Google acquired ITA software to enter the airline distribution space but ultimately found it too difficult. They have since partnered with Amadeus, signaling the immense challenge for even the largest tech firms to replicate Amadeus's entrenched network and infrastructure.
Amadeus provides core IT systems for airlines (Air IT) that are deterministic and mission-critical. A failure means planes don't fly, making airlines extremely risk-averse to switching to new, probabilistic AI-based systems and insulating Amadeus from disruption.
The technical debt in airlines' aging IT systems is an opportunity for vendors like Amadeus. Experts believe airlines with obsolete internal software will be forced to upgrade and are more likely to choose a proven, scaled provider rather than build a new system from scratch.
Though initially surprising, Amadeus's $1B acquisition of a biometrics company was an opportunistic purchase of a high-quality, PE-owned asset. The team calculated the deal, done at 10x EBITDA, was actually accretive to their investment thesis's IRR after factoring in synergies and growth.
During the pandemic, when airlines were cash-strapped, Amadeus offered better payment terms in exchange for larger content deals. Its highly-levered competitor, Sabre, could not afford to match these offers, allowing Amadeus to solidify its dominant market position.
The current cost of using LLMs for inference is approximately 30 times higher than using a traditional, deterministic API for flight data. This significant cost disadvantage makes it economically unviable for AI-native challengers to replace the existing airline distribution business model.
A 99.3% uptime for an LLM translates to roughly 87 hours of downtime per year. This is critically insufficient for the airline industry, where systems like Amadeus must maintain 99.99% uptime (around 15 minutes of downtime annually) to avoid grounding planes and losing revenue.
Despite being highly levered and losing market share, Amadeus's competitor Sabre attracted a 10% investment from Constellation Software. As a firm famous for buying and holding quality assets, Constellation's investment validates the entire industry's durable, sticky business model.