Q3 2019 Earnings Call
Good morning, and welcome to the steeper third quarter 2019 earnings Conference call. Please note that today's call is being recorded and also being broadcast live over the internet on the Sabre corporate website. This broadcast as a property of sabre any redistribution retransmission or rebroadcast of this call in any form with.
[noise] expressed written consent of the company is strictly prohibited I'll now turn the call over to the director of Investor Relations Jennifer Thorington. Please go ahead.
Thank you still got and good morning, everyone. Thanks for joining us on our third quarter earnings call.
Good morning, we issued an earnings press release, which is available on our website and investors Dot Sabre dotcom.
Slide presentation, which accompanies today's prepared remarks is also available during this call on favor our web page a replay of todays call will be available on our website later this morning.
Throughout todays call will be presenting certain non-GAAP financial measures, which have been adjusted to exclude certain items.
We'd like to advise you that our comments contain forward looking statement.
These statements include among others disclosure of our guidance, including revenue EBITDA EBITDA less capitalized software development operating income not and crime <unk> cash flow in Capex. Our medium term outlook are expected segment result.
And the fact of changes in capitalization makes in depreciation and amortization effects of customer financial condition, and new or renewed agreements hotter than implementation, our expectations of industry trends, the financial and business results and effective acquisition and various other forward looking statements regarding our business.
These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on todays conference call.
Information concerning the risks and uncertainties that could affect our financial result is contained in our I SEC filings, including our second quarter 2019 Form 10-Q , 2018 Form 10-K .
Participating with me on today's call, our Sean Miki, our President and Chief Executive Officer, and Doug Burnett Executive Vice President and Chief Financial Officer, Dave Sharp, our executive Vice President and President travel solutions, and Clinton Anderson Executive Vice President and President Hospitality solutions.
Our also with us today and will be available for Q in a after their prepared remarks.
Sean will start us off and provide a review of our strategic in commercial performance and business outlook, Doug will offer additional perspective on our financial results and forward outlet you. We'll then open the call your questions.
With that I'll turn the call over to Sean.
Thanks, Jennifer good morning, everyone and thank you for joining us today.
Before we get into the details of the call I want to take a moment and thank my favorite team members I continue to see a team that has embraced the challenges and opportunities within the global travel ecosystem, which we reside I'm very proud of what we have accomplished over the past three years and what we will accomplish moving forward.
This wouldn't have happened without the hard work sacrifice and dedication up my team members around the world.
Sabre continues to be a global retailing distribution and fulfillment technology leader within the 1.7 trillion dollar global travel marketplace. We are at the forefront of the industry's digital transformation. Our new management team is driving changes that are resonating with customers and our technology solutions are gaining commercial momentum winning new customers.
And increasing share of wallet with existing customers.
Our global share increased 100 basis points year over year to 39.6% in the third quarter. We grew bookings, 6% in our home region of North America, the fastest growing region for the overall GDS industry and for the first time in three years, our booking contribution margin expanded.
An airline solutions, our focus over the past few years on product health and securing renewals that's allowed us to shift our attention to new innovation than sales, we announced a number of customer wins during the quarter for our retailing and operation solutions.
Hospitality solutions revenue growth remained solid up 7% year over year in the third quarter.
Our business continues to generate strong free cash flow with growth of 18% in the quarter.
Additionally, we have entered into the low cost carrier space with our recent acquisition of radically a leader in low cost carrier PSS solutions. This acquisition will allow savard offer products to an audience that continues to see the fastest growth and expansion in the industry.
As we reflect on the third quarter. We believe we are making strong progress against our strategy and delivering on our commitments to shareholders. We gained share in travel network, while expanding contribution margin, we restored product health instability in airline solutions, enabling us to shift focus to new sales pursuits.
Our technology spend is being managed well as we progress our cloud migration and we delivered 18% growth in free cash flow.
We expect our expansion into the low cost carrier PSS market, along with investments in our cloud migration and new innovations will provide continued growth in industry leadership as we fulfill our commitments to move up to providing best in class services to our customers in a dynamic and evolving marketplace.
Taking a closer look at travel network as mentioned, we have been winning share over the past seven quarters and reported 39.6% share in the quarter. We continue to expect durable revenue growth in line with.
Or above growth in global travel over the coming years, our customers have high fixed cost a perishable commodity and sometimes need to use price to stimulate demand. This is why travel volumes have proven resilient over economic cycles and have grown at roughly 1.5 times global GDP over many decades.
Despite solid industry growth in North America overall global GDS industry bookings decreased 3% in the quarter due to declines in all other regions from continued channel shift geo, but geopolitical events regional economic uncertainty and the insolvency of a large Indian carrier.
In North America, the price of indirect and direct distribution has largely come largely converged we have over 80% share of the large travel management companies in the region, which represents airlines most valuable travelers as a reminder, we are relatively less exposed to channel shifting occurring in Europe , because over 50% of our bookings that the Europe .
In legacy carriers are international and therefore less likely to be book directly.
In addition, we have a relatively small footprint in India.
Our hotel bookings were up high single digits in the quarter. Despite a deceleration in industry growth. This increase attach rate of hotel bookings, which are more which are more profitable bookings contributed to a solid growth an average booking fees in the quarter.
As we have historically outlined we're leading the technology for the second quarter in a row incentive fee growth moderated to low single digits, our ability to win recent major deals like flight Center and Carlson Wagonlit travel is anchored by our technology investments.
Our technology investments create network effect that scale across 420 Airlines, we are differentiated with our sabre Red Threesixty agency desktop full deployment of our shopping complex in the cloud NDC leadership ambition for next generation retailing.
Our investments and focus on what our customers need provides us with confidence that we can continue to win share over the medium term.
Although North America represents our largest regional footprint, we are focused on expanding our international book of business, our third quarter wins and renewals demonstrate our focus on international markets, We announced the collaboration with Singapore Airlines for expansion of their MDC program now agents in Singapore can book unique NDC.
Content from Singapore Airlines, and we will continue this rollout across all regions.
We signed a long term renewal with desk, we are the leading online travel agency in Latin America.
We are increasing our footprint in Spain, with a new deal with Grupo CDD, the fastest growing travel agency consolidator in the country.
We announced the renewal and expanded partnership with Magnum travel services, one of the leading travel companies in Bahrain.
We expanded our partnership with the Red International tours and travels to meet the high expectation of the Tech savvy, Saudi traveler, and we announced a virtual payments partnership with a piece, though to from a virtual payment adoption in the middle East.
At airline solutions, our confidence continues to grow as we feel good about the progress we have made and restoring product health and stability and securing renewals. This has allowed us to switch gears and focus on rolling out new innovations, winning new business and expanding our addressable market into the low cost carrier space.
We recently announced our acquisition of products, leading airline retailing software provider, who signature product is a best in class low cost carrier passenger service system.
This is an important strategic acquisition for sabre low cost carriers have grown twice as fast as full service carriers over the past five years and now totaled nearly 30% of global passengers boarded annually.
Supersonic our full service PSS is better suited better suited for network carriers that require a full range of capabilities, including meeting the needs of global alliances significant international operations or global distribution.
While some low cost carriers will require some of these elements most simply need a solid solution to meet their foundational retailing needs. The passengers boarded that radditz could address with its platform represent an incremental opportunity for sabre.
The Radditz PSS platform isn't entirely cloud based platform on a SaaS oriented model, we expect to make incremental investments in the fast growing LCC space and to assist the radically team with technology improves stability and sales and support efforts backed by our leading technology team, we expect robotics to achieve scale and accelerate.
Good growth in the medium term.
In the quarter, we're continuing to see traction in evolution. The intelligence retailing Lesabre commercial platform and have recent customer go lives prepare optimizer and revenue optimizer.
Intelligence exchange continues to gain traction with new sales at Westjet expansions at southwest and Aeroflot and that cut over at air Europa.
We announced a long term renewal with aeromexico, one of our key customers, who will be expanding its footprint by utilizing our commercial platform solutions.
Sure that help airlines recover from disruptive situations quickly and efficiently.
It will tools will also enable seamless communication between operations of managers pre schedulers and crew members.
Hospitality solutions continues to generate solid revenue growth. We are the global leader in Central Reservation expect to continue expansion into this relatively underpenetrated market to drive growth.
In the quarter, we announced the deal with space hotels for us the Nexus booking engine to power their direct web site, and we close multiple renewals with key customers, including Mandarin Oriental lay hotels frasier's, providing our hotel partners continued view the connect to continue to view us as an essential technology partner.
We expect to invest over $1 billion. This year in technology, our cloud migration continues to progress well and we now have nearly 60% of our total compute footprint in the cloud as announced last year. This includes our entire travel network shopping complex. We're the first GDS to achieve full cloud deployment of shopping.
We also completed the rollout of two new Microsoft Azure cloud landing zones, one in central Europe , and one in North America, establishing the capability to begin moving applications to Azure.
We implemented distributed availability in the cloud close to our customers for three hosted carriers.
This lower latency and improved accuracy and shopping conversions, while reducing messaging fees for our hosted carriers.
Finally, we developed our first auto scaling capabilities for airline solutions.
The DJ has filed a lawsuit seeking to block our acquisition of fair logics, we strongly disagree with the Deo Jays position.
That claim Misstates fair logics role in the industry.
With the combined saver unfair logics technology, we expect airlines will have more flexibility to create personalized offers or bundled flights with bags fly Fi lounge passes and other ancillaries to ultimately give consumers more choice the ability to attribute shop and more competitive options and any distribution channel. Furthermore.
Sure we have committed to continue investing and fair logics direct connect capabilities.
We are confident that we will succeed in court and that the transaction will ultimately be completed.
We are supported by our transactions based business model and the strength of our geographic and customer mix that has enabled us to remain resilient and a more challenging macro environment. This gives us confidence to narrow our full year 2019 guidance.
With that I'll turn the call over to Doug to get into more of the details of our third quarter results and forward outlook, Doug. Thank you Sean in the third quarter, we generated durable stable revenue growth and strong free cash flow growth, despite a more uncertain geopolitical and macroeconomic environment.
We have long term contracts customer renewal rates well over 90%.
Our transaction based business model has 94% recurring revenue.
Our revenue streams are tied to travel volumes, which a prudent resilient across economic cycles, even during the great recession.
We expect to invest over 1 billion in technology annually, and we expect to continue to benefit from increased share of wallet from airlines and hoteliers as we drive and digital transformation the travel industry.
Looking more closely at our Q3 results.
Revenue was up 1% year over year totaling 984 million.
In the third quarter recurring revenue totaled 94% that our mix of recurring revenue increased one point year over year.
Across each of our businesses travel network revenue was up 2%.
And hospitality solutions revenue was up 7% in the quarter.
EBITDA less capitalized software development, which reflects our total R&D spend grew 4% in the quarter faster than revenue.
As expected for the second quarter in a row incentive fee growth moderated and was up low single digits.
Additionally, the quarter benefited from reduction in benefits and other labor related costs.
We continue to make good progress on our cloud migration and our total technology spend increased 5% in the quarter.
As previously discussed the costs associated with our cloud migration and related technology transformation efforts are expensed as incurred instead of capitalized this shift in our capitalization mix cost technology operating expenses to increase materially in the quarter with an equal and offsetting decrease in capex.
Accordingly, operating income totaled 133 million in the quarter, representing an operating margin of 14%.
The year over year decline and operated income reflects the near term impact to our income statement of the change in technology expense recognition.
Excluding the increase in technology operating expenses.
Operating income increased 10%, an operating margin increased 150 basis points in the quarter.
As a reminder were taken a double hit to our income statement. This year related to this capitalization mix shift.
The increase technology operating expenses due to a lower capital capitalization rate.
As well as increased DNA from previous capitalization.
DNA rolls off due to the expected lower capitalization.
We expect approximately 140 million in DNA savings from 2019 through 2022.
EPS totaled 27 cents in the third quarter up 10% year over year, excluding the increased in technology operating expenses.
As a reminder of the capitalization shift has no impact on free cash flow.
Our free cash flow grew 18% on a quarter totaling $142 million.
Consistent with the second quarter growth has decelerated due to a softer GDS environment and as we anniversary favorable European carrier pricing and the completion of a flight centre migrations.
Third quarter represented our seventh quarter in a row of strong Judea share gain.
Our global booking share increased by 100 basis points in the quarter, representing 39.6% share.
We continue to gain share out large global travel management companies, including our expanded strategic agreement with Sidoti.
GDS industry bookings declined in the quarter due to a relatively more challenging macroeconomic and geopolitical factors.
As wells in solvency of jet Airways, and the channel shift driven by the three legacy European carrier families.
Yes industry bookings declined 3% in the third quarter.
And growth was flat excluding Jack in the three legacy European carriers.
The maturity and balance of our global customer footprint and new business wins continue to allow to grow faster than the overall GDS industry.
Largest book of business is in North America, we have already live through an era of channel shift a convergence of the cost of direct versus indirect distribution.
As a result, we believe a relatively steady equilibrium between channels has been established in the region.
Excluding jet Airways than the three legacy European carriers are air bookings increased 1% in the quarter.
In the quarter large lodging ground and see bookings grew 4% hotel bookings grew high single digits in the quarter and car bookings also grew high single digits consistent with the previous three quarters lower margin rail bookings decline.
Only anniversary the rail impact in Q4 of 19.
Looking at the regional level the health of our home region is strong North America is the only region that posted GDS industry growth in the third quarter with year over year growth of 2%.
We have over 80% share with large travel management companies in this region represent an airlines most valued customers or north American bookings grew 6% in the quarter three times as fast as the GDS industry.
Tds industry bookings declined across all other regions in Latin America, our bookings declined due to macroeconomic weakness and volatility on a volume basis basis. Latin America is the smallest of our four regions. We report that makes up less than 10% of our total worldwide bookings.
As mentioned GDS industry bookings in Asia Pacific in the third quarter were impacted by the insolvency of jet Airways and our bookings declined accordingly.
GBS bookings in India declined over 20% in the third quarter versus approximately 20% growth in the prior year quarter.
As a reminder were relatively less exposed to the Indian market.
Any eight channel shift by the three legacy European tour groups as well as faster growth in the LCC segment is driving GDS industry softness.
We believe our exposure to the impact of a three legacy European carrier groups is less than the other GDS is due to the fact that over 50% of our bookings from those carriers are made outside of Europe and are typically for longer haul higher yielding traffic.
Gerardo Jet Airways and the three legacy European carriers had a combined three point negative impact to global GDS industry growth in the quarter.
Versus a one point negative impact on saver bookings growth.
Our average booking fee increased from 110 basis points in the quarter. This was largely driven by a positive mix impact lodging rather than see bookings specifically from strong growth in hotel bookings, which have a higher booking fee than air bookings remember that we have anniversary the favorable Europe .
Okay, and carrier pricing and the beneficial mix impact from the completion of a flight center migrations.
For the first time in three years, our contribution margin per booking expanded meaning booking fee growth outpaced incentive fee growth as expected incentive fee normalized to low single digit growth in the quarter.
This is the second quarter in a row of moderated incentive fee growth versus the high level of inflation over the previous two years, which was driven by large strategic deals, including renewals at five out of six of our top agencies through 2023 and beyond and recent wins at flight Center in CW.
We are confident and our expectations for normal inflationary incentive fee growth remains in a low to mid single digits over the medium term.
Travel network operating income total her $59 million in the third quarter represent an operating margin of 22.4% margin.
Margin declined versus the prior year quarter was primarily driven by the impact of shift in the capitalization mix.
Excluding the increase in technology operating expenses driven by the capitalization ship operating income increased 2% an operating margin was flat.
And airline solutions after successfully navigating a heavy renewal cycle over the past two years, we now have locked in approximately 75% of our revenue through 2023.
The high renewal rate of 94% based on total contract value. This is a second quarter in a row, we have announced a number.
She those new commercial wins and implementations that demonstrate the traction our products are gaining in the industry.
We feel good about our competitive position, especially as we believe a large competitor is entering the heavier renewal cycle. This significant number of passengers boarded up for renewal over the next three years.
Furthermore, as I will discuss in more detail later, we've expanded our addressable market with the acquisition of robotics.
Airline solutions revenue totaled 208 million in the third quarter down 1% year over year and inline with our expectations. As previously discussed there are factors outside of our control that impacted our performance. These include the and solvency of jet Airways and significant volume reductions that has certain Asian carrier due to a fortunes unfortunate 737, Matt.
Incident.
Additionally, the quarter was impacted by the migrations Philippine Airlines.
International Airlines and Bangkok Airlines, excluding these certain carriers airline solutions revenue grew 5% in the quarter.
Sabre Sonic revenue increased 2% in the quarter, primarily due to a favorable rate mix passengers boarded declined 5% in the quarter due to certain carry impacts I just mentioned.
Excluding the certain carriers passengers boarded increased 4% in the quarter.
Airvision and Air Center revenue decreased 4% in the quarter. This was largely driven by a decline in upfront revenue recognition for local installs.
Excluding local installs.
Our vision and Air Center revenue increased 8%.
Airline solutions operating income was down versus the prior year, primarily driven by the shift in capitalization mix.
Excluding the increase in technology operating expenses operating income growth was 43% and operating margin increased six points. This was driven by a reduction benefits and other labor related costs.
Hospitality solutions as a global leader and hotel Central reservations, we have over 42000 properties live on our solutions. This includes industry's first and largest enterprise hotel implementation with Wyndham hotels and resorts.
Including their 2018 acquisition of look into ins and suites, which we fully implemented at the start of the second quarter of this year.
Fatality solutions revenue grew 7% in the quarter supported by 6% growth and so thats been so thats a software and services revenue.
Hospitality solutions Central reservation system transactions increased 14% in the quarter, which includes a benefit of migrating look into in the second quarter of 2019.
The shifting capitalization mix resulted in modest operating loss for hospitality solutions in the quarter.
Excluding the increase in technology operating expenses, we had positive operated income generation.
In the third quarter total technology spend was $259 million.
As a reminder, this includes the cost we incur where they are capitalized are expensed for hosting third party software and R&D.
Total technology spend increased 5% in the quarter, reflecting investments, we're making in our cloud migration and other technology initiatives.
Sean mentioned, we now have nearly 60% of our total compute footprint in the cloud.
Additionally, we got a $4 million headwind in the quarter related to a third party hosted posting vendor vendor credit we received last year that went away this year.
As discussed on our past several earnings calls and today the cost supporting our cloud migration and other technology transformation efforts are not capitalized. This resulted in a 19 point decline and capitalization mix from 26% in the third quarter last year to 8% in the third quarter. This year.
Although neutral to free cash flow this significantly impacts operating income and EBITDA as a reminder, free cash flow great teen percent in the quarter.
As a result of the capitalization shift and 1 million dollar increase and amortization of previous capitalization. The amount of total technology expense running through our income statement in the quarter increased by $58 million were 23% remember this refers to our total technology spend less capitalized.
Software development plus amortization of previous capitalization.
As I mentioned, our businesses generated strong free cash flow.
Third quarter free cash flow told 142 million representing growth of 18% year over year.
We ended the quarter with approximately 3 billion in net debt leverage ratio of 2.9 times, we expect our leverage ratio to continue to natural increase in the short term due to the change in capitalization mix.
As a reminder, our target target leverage ratio of 2.5 to 3.5 times with a preference towards the lower end of this range.
Or uses of excess free cash flow, our dividends strategic M&A and share repurchases to offset natural dilution at a minimum.
In the third quarter, we returned $38 million to shareholders via our quarterly dividend.
Year to date, we've returned $193 million to shareholders via the repurchase of 3.7 million shares for $78 million and through our regular quarterly dividends.
Earlier this October we repurchased radditz for approximately $110 million.
Payments to debtholders using cash on hand.
Our acquisition of radically expands our footprint into the Ulccs space, which has grown twice as fast as full service carriers or past five years now accounts for nearly 30% of global passengers boarded.
Radisys is expected to generate approximately $20 million of revenue for the full year 2019.
Since we closed the acquisition mid October please keep in mind that we expect only two and a half months or approximately $4 million of Radditz revenue will be consolidated into savers 2019 financial results.
Acquisition is expected to be accretive over the medium term, but slightly dilutive to save as adjusted EPS in 2020 due to expected incremental investments in the fast growing LCC space.
We will provide our 2020 financial outlook inclusive of the impact of robotics as usual in February on our earnings call.
We believe the business is performing well and in line with our expectations.
Therefore, we have a confidence to narrow our full year 2019 earnings guidance.
We now expect total stable revenue growth of 3% to 4%.
To 3.965 to 4.005 billion.
At travel network, we now expect full year revenue growth of 3% to 3.5%.
We expect continued share gains to drive bookings growth outpaces the industry as new agency conversions and share of wallet increases that have already been one are implemented. However, the overall GDS market has declined the past three quarters. We now expect full year bookings growth of approximately one of the half the.
The GDS market continues to be sluggish and we expect this trend to persist into 2020.
At airline solutions, we are raising our guidance and now expect roughly 1% full year revenue growth. This is higher than our previous expectations, primarily due to two and a half months or approximately $4 million an incremental revenue contribution from were addicts.
At hospitality solutions, our sales teams continues to make record sales. However, we're also beginning to see a softening of hotel industry bookings driven by a weaker macro environment. We expect revenue come in at the lower end or a bit below our previous expected, 7% to 9% revenue growth range.
We continue to expect the midpoint of our earnings guidance metrics and have a confidence to narrow our guidance ranges. This means we expect stronger margins second successive control cost and a softer revenue environment. Accordingly, we expect EBITDA of 955 million to 795 million.
EBITDA less capitalized software development of 860 million say hundred 80 million.
Operating income of 505 million to 525 million.
Net income of 260 million to 280 million.
EPS of 95 cents to one dollar too.
As mentioned our business generates strong free cash flow, we continue to expect free cash flow generation of approximately 455 million or year over year growth of 3%.
Remember that this represents growth of 11% excluding the impact of a 29 million dollar insurance settlement payment received last year.
For Capex, we expect a 135 million to 145 million.
Remember our business as typical working capital seasonality that benefits the fourth quarter compared to the first three quarters of the year.
In closing, we believe our businesses solid as we look at the rest of 2019 and beyond.
Confidence in our outlook and remain confident mineral and performance of the business with that I'll turn it back to Sean Thanks, Doug I'm pleased with how the year has progressed and like to once again. Thank my colleagues around the world, but all the hard work and dedication. We believe the third quarter was clear indication we are progressing against our strategies seven the quarter in a row a share gain.
Moderation in incentive fee growth, 18% growth and free cash flow and our new innovations are gaining commercial traction we continued to benefit from the resiliency of our business model and strength of our geographic and customer footprint I'm confident we will have the solid finish to the year.
I went to once again, thank all of you for joining our call today and for your continued interest in sabre and with that I'll ask the operator to open up the call for your questions.
So I am again.
Thank you as a reminder to ask the question you will need to press star one on your telephone switch all your question Chris Kotowski. Please standby, while we compile the Kenny roster.
My first question comes from John King of Bank of America. Your line is now open.
Great. Thanks for taking the questions.
This one was really just a big picture on the GDS industry as you see it today, obviously I appreciate there's a couple of one off factors, maybe some cyclical impacts to the Karen.
This growth as you called it out obviously, India is probably a bit of a one off and I still say, Matt Craig you look out perhaps some of the stuff that's going on in Europe .
Mark can consider continue for awhile, so what would you.
Estimate be for volumes rise over the medium term and gas industry.
I guess link to that.
We've also seen say, but typically take share in San Jose C.
Rich booking fee increases over time and is there at all given the sense certainly at least on the booking fee side that would also continue to be a tailwind is partly because of mix.
Perhaps you could just speak to that.
Yes happy to touch on that John This in this is Sean So let me let me talk about and I think this was a print center for a number of people as sort of the.
GDS marketplace, and I would actually even say the macro marketplace and we do a number of things as we look at what's happening and let me walk you through what we do so first we really spent a lot of time on what's happening and capacity specifically on the airline side. So we look at it from total capacity and then we break it down in the full service carriers on low cost carriers.
And I'll get into it to that in a little bit. We also spent time looking at.
And we'll probably more specifically what's happening with the global Tmcs, because we do believe that's a leading indicator relative to leisure traffic. So if I look at global Tmcs and what's taking place as it relates to bookings were seeing that relatively flat.
Throughout the year in what I've seen early into the fourth quarter is that sort of remaining the same.
On the capacity front, we have seen on the comparison basis and I'll just give you some stats on.
Year over year basis, and this is looking at the third quarter is that.
Capacity growth was up 3.4% and if you looked at the previous year on the comp there was about 5.3%. So there is a deceleration of growth in capacity.
If you actually drilled down into full service carriers. It only grew at about 2% where the previous year was up slightly over 4%. So we watch that and what's happening.
You then get into more of what I would consider to be some of the things that are playing out in this is why we talk about sort of the stability in the north American marketplace and as we've articulated in the past.
Let me, 50% of our bookings come from North America, and the one reason I believe that there's stability in North America marketplace is that if you go back can you actually look at what consolidation has done over the years, it's probably the most stable marketplace. What is out there and we've done some recent research that when you go back can you do a comparison I think.
It was 2017 or 2018 to right around 2008 2009.
We saw that the passenger boarded growth is probably it was roughly in the high teens low twentys and if you actually translate that into revenue performance for the airlines and this is using the information that is.
Publish you see that revenue on a unit revenue basis actually increased now when we break down the rest of the world. We see different story and this plays out really in the European marketplace. We see this in APAC ex China is that when you look at the passenger boarded growth over that same period of time, you're looking at roughly 50% or so.
I'm, giving just rough numbers, but what it tells you is that you have a high look high level growth low cost carriers and I believe this is what we're seeing continued to play out in the European marketplace is what you had in rationalized rationalization and capacities or consolidation in North America, you're not seeing that same thing in the in the European marketplace and what we've been able.
To to witness is essentially the percentage or the growth in PBS in Europe or low cost carriers has essentially grown by about 10 points in that period that I talked about so that as we look at it we think theres going to be continued pressure within the European marketplace relative to what's taking place. So is we look at it we feel good about what we.
I have in North America.
Relative to where the marketplaces, we do believe that there is more downward pressure in the European marketplace and as you mentioned in APAC.
Situation in India did have a significant impact I think on global capacity, if I remember correctly.
And this is doing a comp to the third quarter I think it was about six tenths of a global capacity growth was taken out with jet Airways, So it's pretty significant for the region.
If we look into the future and this is the other thing and just looking at the fourth quarter is really what are we seeing with capacity trends and then I'll tell you is essentially the same as what we've seen so far throughout the year.
Relative to the growth in what's taking place. The other thing that we're focused on is what are we seeing into the first quarter of next year.
And it's a little mixed right now.
That it's if you look at specifically in North America.
Actually have a jump up and capacity growth and we.
We believe that this is the sudden 37 Max is still in the schedule that that might be peeled out what we do see in the European marketplace is actually the loaded schedules that are out there today are actually in a capacity basis lower than where they were last year. So I think you see that level of rationalization, taking place and then you get to your second question.
John Im sorry, I thought I'd just be helpful to try to cover the whole macro environment.
When we look at it relative to.
You know, what's taking place as it relates to rates. There's a couple of components or is the air raid and there's a hotel rates, it's there and when we talked about.
This was evident in the quarterly results is the positive.
The positive effect that we're getting specifically on the hotel side. The equation, we talked about that and what we're doing watching content services and other things are taking place there.
If we look at the balance of the world on the air side.
I think it's going to it I think it's more normalized right now relative to what's taking place.
As Doug talked about we anniversary dates of anniversary some of the higher pricing that we.
We are getting because of some of the European carriers on what's taking place and the way that we look at this is.
What we have seen so far throughout 2019, we believe there is a continuation of that in 2020.
And as we think about it and we've talked about it we think that we will continue to be a share.
Be able to increase our share because essentially our global footprint and what's taking place. So there's some detail for you, but it allows us to think back in history, and what's taking place how it's playing out today and how we're looking into the future.
That's very helpful and if I could just ask one more on the airline solutions side.
Yes, the Im sure you, there's a year, whether some speculation out that about renewals in your base, specifically with your largest largest PSS client.
I just wonder just giving you sound very confident in the script.
Now playing.
On offense now and you are looking to take share.
From some of the stuff I guess the loss and loss two three years, maybe just some comments on that.
On that topic would be would be useful yes, John I'll kick off that are going to have Dave stepping on this and this is what is I talked to people about no sort of what has transpired over the last three years and this is why I'm feeling pretty confident about our ability to compete in the marketplace is I saw where we were in.
Early 2017 relative to product stability in health and the conversations that I was having with customers and I know David stay the same thing as it relates to the conversations that he was having.
You get stability of the product and things that are taking place. There that allows you to really move into more strategic conversations and what Dave and team have done on the digital workspace side of the equation the way that we're looking at just retailing in the changes in retailing.
We have a lot of customers that are very intrigued in that.
You then look at it on the work that's been taking place as it relates to a few are the things that are associated with beat on the air VISIONAIRE Center side. The equation. It really allows you to have a portfolio of products that you can move forward.
I would actually the Radditz transaction is one that when we look at the whole portfolio products that we can bring forward.
We feel that we can enter into that low cost carrier space would be able to move that in the right direction. So Dave I'll, let you jumping because youre involved in a number of conversations around the world. Yes, I would just Sean you covered it well I, just maybe add a little bit that.
I've shared this in the past with all of you that we set out a mission not only to improve the health of the portfolio and the stability and technology improvement footprint, which is definitely happened youre seeing that the results that helps with cross selling up so that makes carriers more interested have conversations with our sabresonic.
Folio in particular, we have a largest most innovative launch in its history back in October of last year that has really opened up the doors to conversations that hadn't happened to allow us to start to play offense, we have quite a bit interest from folks wanting to understand what we're doing where we're going and.
The strategic direction that Sean talked about in retailing and distribution and fulfillment and so thats given us an ability to kind of come in and talk about things that we really weren't in a position previously in the previous two three years to really get their attention to work their way through that so thats part of why the competence and kind of where we're at the results are certainly showing that continue.
You'd competence.
Our installed base expansion and renewal cycles that we've been going through I think also we watch in bulk carrier low cost carrier space for a little bit of time.
Our planning and operations portfolios have you seen wins are occurring both in the full service and any LCC space.
It was natural for us to look for a way to expand further into the retailing part of that by adding radically that's really kind of rounded out the full breadth and depth of portfolio, it's opened up even more.
Renewals runway for us in terms of what PBS are available in the marketplace. So we're definitely playing offense and feel pretty good about the conversations that we're starting to have.
Alright, thank you.
Thank you and our next question comes from Mark Mode LER at Bernstein Research Your line open.
Thank you very much in them.
As me very detailed do appreciate it.
Really.
Two questions first.
On the Radek steel.
On the radically acquisition.
Can you give us a little more color on how you think about how that's going to impact the airline solutions from a business of financial point of view housing.
Where's the upside in terms of increasing growth is it by your investment in there.
How do we think about in terms of margins any color on that would be really appreciate and then follow up.
Yes, I think as we've said I mean, when you look at the this is Dave low cost carrier space.
Is continuing to grow at twice the full service space. In addition to that we've seen them kind of take over about 30% share of the overall PB space and so for us.
That's that's all new Greenfield from a reservation and retailing perspective, as I said, just a minute ago Weve always and continue to have a operations and planning footprint there and so.
We're already engaged in low cost carriers will having conversations working with them and a number of solutions that are successfully deployed it's a natural expansion of that conversation. So again, we feel pretty positive about that I think as we look at the space over the course, the next three or four years Theres about.
Roughly about 500 million PBS that.
Our up for grabs over that time period and that doesn't even include new entrants, which we're seeing pretty significantly in the Asia Pacific in Latin America and European markets.
And so that gives us a chance to kind of round out our sales efforts. There. It also but also add it fits our go to market motion quite well the way our footprint globally, one of the things that are.
Radditz was probably like any small company is limited to is the global touch points that they have in the way to get in and deal with some of the stuff.
Is really a significant part of that and as we think about where radek says that in the ultimate equation, we had been watching the space one of the things we are watching as they were in the midst of a significant replatforming they've now taken carriers live on their new SaaS based platform.
Very very positive results and Thats, what kind of.
Hit the right timing kind of catch the proof point wave on the front end of that and it fit very well in line with the overall technology modernization and efforts that we have underway across the portfolio. So again pretty excited and pretty optimistic about what that could mean to us and where it will take us as we go forward with it again you have to think about.
When you have your question on margin you have to think about the cross sell and upsell. It's not just that we're going in with a pure PSS solution to the LCC space, but we have the full planning operations and data analytics assets that already here and so that combination really rounds out a broader.
Conversation in the LCC space that we're excited about.
And Mark will provide more guidance on the financial impact of robotics in February one on our Q4 results.
I appreciate.
Switching gears, a little bit if you don't mind.
Really helpful detail the status on the airline solutions renewals.
Two quick clarification on renewals when you discussed the 94% total contract.
Renewals, you said you, helping in things like bankruptcies and other things like that and then when you talk about the 75% renewable lock in.
Is that you're including some of your biggest airlines, we locked in on those guys.
Yes, the answer first would be obviously when we when we did the renewal rates. Obviously jet was wasn't included because obviously the Betsy unique situation beyond that the other items were included.
Okay.
And on the lock ins is one of the big guys already locked in at this point, yes shifts.
Excellent I really do appreciate very helpful. Thanks.
Thank you and our next question comes from Ashish Sabadra of Deutsche Bank. Your line now.
Thanks for taking my question.
Question on the hospitality solutions, just wondering what led to the bad.
Turning to the low end of each and then maybe just a follow up on that Clinton.
Your decision to leave.
How are you thinking about.
The you shipped floors the hospitality thanks.
Okay perfect just the Clinton why don't I answer the first two questions lease half the second question and I'll, let Sean chime in as well.
Look that the recent regarding to the lower end of the 7% to 9% range simply from macro factors, we're seeing slowing bookings in the macro environment, how that runs parallel to what we're seeing in the GDS marketplace. So thats fully described fully accounted for by just a slowdown in overall bookings in the hospitality space.
In terms of my departure look I'm excited to take on a chief executive role in my next opportunity at the same time, it's very bitter sweet maybe very sad to leave my Sabre family I am I the ultimate confidence in the strategy. We've laid out the intersection of traveling technology, an exciting space Savage is going to continue to be a leader in that space and our focus on.
Really around retailing distribution fulfillment and a focused strategy. We have here I think is going to make saver successful for many years to come so I'm going to be excited to see my team My family here continue to.
Continue to be successful and performed strong in the market, but the same time.
Cited for next chapter in my life, Yes, let me just add to that.
Since I've been with the organization for four years, no Clintonite and this one I was running travel network.
And I have been thinking about where the marketplaces evolve and he was running.
Corporate strategy at the time help me think through the travel network strategy and where we are going.
Even when he was on hospitality idling, Don Klumb quite a bit and so I am sort of mixed emotions about this I'm very excited for him because.
Individuals' do have a desire to run companies and do different things and Clinton and I.
The discussions and talked about it I feel very good with what he has done within hospitality lot of what we talked about as it related to airline solutions, we shouldn't forget that there were some things that we have worked around the hospitality side as well and Clinton was able to do that for us. So.
It's one that I hate to seem go.
As I loving by my side here, but at the end of the day, it's it's a world where people move on to do different things.
The nice thing about it is we continue to build a strong bench here within the same for family and I do believe that we have candidates internally, but at the same time I will be looking externally.
A model has continued to I wouldn't say change, but we know a lot about the marketplace.
And as we look at the growth because I think is one that you have to be you'd have to continue to be patient.
Making sure that we have the right leader to tickets in the next level.
So thanks, Sean and Thats Clinton and maybe just a quick follow up you talked about a strong hotel bookings attached to them the GDS side.
Just the can you call out what's driving that as the CW deal then and how should we think about that just in the beauty of to see some of the.
Gotcha. Thanks.
Thanks.
Yes. So if you look at it it really has a couple of things that transpired really over the last year or so part of it is what we've actually seen from flight centre CW team has been a portion of that has been a part of that as well.
As I look into the future and again.
We will provide guidance in February I think you'll see that moderate a little bit going forward, but the other thing that I still very high on is what we're doing in lodging content services and what Tracy Mercer is doing with that team because the discussions that we're having specifically with the tmcs are really important because they had been looking for solar solution for.
This for a long period of time and just a reminder, this is really just content normalization. It's just it's not GDS just GDS content is coming from.
Expedia affiliate networks was coming from booking.
And it's coming from other contracted rates that are out there. So it's a normalization going down to a single property that there may be four or five different rates out there we can bring that to the forefront for that for those agencies in the team sees are pretty excited about this and we are numerous discussion with those on how do we integrate that better so again another opportunity relative to.
Where we've been investing for the future.
Hi, thanks. Thanks.
Thank you and our next question comes from Matthew Broome Securities. Your line is now open.
Great. Thanks for taking my call on so Sean you you mentioned that you expect to make incremental investments in the LCC space.
Could you talk about any specific functional areas you might be looking to address and also how you're thinking about sort of buy versus build as you make those investment decisions going forward.
Yes elect Dave kick off and then ill go to the buy versus build yes. So I think as you look at the LCC space obviously.
Continued understanding of the functionality around the retailing areas in what they're trying to do.
Merchandising digital.
Based commerce activities those will just continue to be investments as the space is growing so significantly that you need to stay ahead of competitively.
Theres also a need to start to look at ways in which we can take advantage of.
Some of these low cost carriers have needs for partnerships.
Interline Codeshare pieces, we don't when I go too far with that but those are places that we'll be looking at and trying to kind of understand what the balancing out of that needs to be the other thing that will need to look at additional investment as we said, we've got our full data and analytics as well as the operations and planning portfolios and so there's some natural integration.
The customers will look to see as Differentiators for four and from US and so those will be places that we were kind of pay attention to in terms of the way the technology piece and the roadmap evolves over the course of the next year or two.
And just to build off of what Dave was talking about is for the number of years that have an associated just with us travel ecosystem and this is why we keep highlighting what is happening.
Specifically in low cost carriers in the growth of low cost carriers. If you look at sort of the modern day retailing that we are in today and how it's evolving allow this started with low cost carriers and our ability to be more engaged with low cost carriers and we are there from operation suite perspective, and some of the products within our commercial Kate.
Abilities, it's just a natural extension for us to enter into this and what's taking place when you get to the buy versus build here's here's the thing that we need to continue to.
Talk about is when we look at and it's interesting because this gets into a number the discussions that we have is that.
There is a certain sort of understanding of the ecosystem that we live in that in the talent that actually resides in that ecosystem and it's not like you can just go higher people off the street and they understand the world that we live in and we talked a lot about this as it relates to fair logics, it's about people, it's about capability and skill set.
And when I look at acquisitions, a big part of that is not just per se. The product. It's the people behind the product because those are the ones that are being creative in nature and this is another one when I look at Rat X.
You look at the things that we're doing throughout our entire organization I spent an enormous amount of time is probably the thing I spend the most amount of time on today, just understanding where our talent is that we have the right level of talent.
Should we be investing because I'm willing to put more dollars forward or for pushing the business to get the right return on investment.
But do we have the capability of actually doing that so that really ways into my buy versus build and you've actually seen that in two cases now that fair logics and robotics is one that I have to be able to balance what we're capable of doing internally.
And then looking at the opportunities of finding one product into talent that can support essentially our strategy moving forward and these are two key opportunities that we decided to buy.
Okay. Thanks that was really helpful on.
I appreciate that and then just within airline solutions.
On on as mentioned in that sense.
The decline obviously so there's been performed last question then we sort of declined this quarter.
What was there a decline in the up upfront revenue recognition for local installs.
This is just the accounting impacts of six so six so unfortunately theres going to be certain projects that are the allied solutions space to be accounted for big levels of like perpetual license agreements despite that theyre not.
Just the way that countering the work so that that will unfortunately continue to be a little bit lumpy with those that scenarios.
Okay, alright, thanks very much.
Thank you.
Next question comes from Jed Kelly of Oppenheimer. Your line is now open.
Great. Thanks for taking my question.
Just on some of the guest we continued channel shifts you called out.
Gensia recently announced that there.
On a partner with lead times in British Airways.
On a direct connect the NDC.
Can you just discussed Mad deal and you think anything in Europe .
That's going on right now could actually come back in the in North America, just given some of the.
I'm changing technologies leasing.
Yeah, Hi, it's Sean let me, let me let me take that one so this gets into and this is why tried to walk through you know.
What has been trying to transpire in probably over the last 10 plus years in the makeup of the marketplace.
And I do believe that what we're seeing in Europe is rather unique.
Relative to the full service carriers and what they're trying to do and what we have shared in the past also is the cost of distribution in the European marketplace is higher.
And in doing that the European carriers are trying to find ways of essentially reducing those distribution costs, which gets into actions that have been taken that focus more on what I would consider to be home country or home region, because they typically have more influence there what weak and then what we have talked about is just because of our mix on those.
Long haul international.
We're a little bit more immune to that.
You are going to continue to see and I think this is the world that we are in today that is NDC evolves.
Youre going to see carriers that are going to experiment with this but we always often talk about the carrier side, we don't talk often about the agency side of the equation.
Do have.
Agencies out there that are tech savvy, but we have a lot and we talk with them, Dan and day out they don't want to be the content aggregator because essentially its aggregation on top of aggregation and what I mean by that is that when we talk about the 400 plus carriers that we essentially aggregate that content for.
Somebody is doing in NDC, apiay and pulling that end, there's still a level of aggregation now that has to happen on top of that because the other person or the other group that we have to think about is the end consumer and what we know is the and consumer wants to shop and compare and that's not only on the leisure side, but thats on the corporate side of the equation, even though the day of corporate contract.
Yes that are out there. So I look at this is a journey in our industry.
Because what ends up happening is.
Agencies are still going to be required via TMC be at OTA days people are going to want to shop, and compare and there's going to be another level of aggregation that's taking place there.
So do I think that that comes back I think is we've talked about and we talked a lot as it relates to our engagement with the executives and a number of airlines.
It's one that I think theres, a good balance in the North American marketplace.
Focus is how do you continue to drive more revenue and this is why when you look at our retailing strategy and some of the things that we're doing there. That's what we're focused on is how do we help essentially our airlines and even on the hotel side of equation with some of the things that Clinton has led how do we help them sell their products and services the way that they want be it via the direct channel.
Be at the indirect channel that's our job is to be that leading technology player to do that.
And then.
I appreciate all the color there and then one just one question on the macro.
How much of that outside the geopolitical event is sort of softer business travel versus leisure and then you called out celebrating bookings.
We have seen a ton of investment going in BLS and sort of the new age outs alternative accommodation operators or be a b I mean, how much you think is just.
With the softer hotel bookings is just.
Other business model that people can book their combinations more.
Well I think you're going to continue to see let me just start with the hotel and I'll, Let you know maybe Clinton jump in as well I think you're going to continue to see that right and.
As you have different supply that sits out there Jed you're going to see people that are going to.
Begin to explore I think thats why when you look at what a lot of the large enterprise hoteliers are doing they continue to look at their portfolio and how do they compete in this space and whats there.
Clint I don't know if you want to add to that before I go into the other piece you bet. So what was interesting here as I think you are seeing a little bit different performance in segment. So.
Interesting interesting question My my hypothesis in response would be that we're seeing more softness actually in the corporate channel than we are seeing and leisure right. So that would suggest that it's not actually air being be or channel shift to less traditional forms of.
Hospitality and so therefore I think what we are seeing here in terms of a softening in the growth in bookings in hospitality is in fact led by corporate space.
As it relates to what's interesting is as it relates to the non traditional hospitality content.
That capacity I think in order to really be relevant the long term will start to come into more traditional channel in fact, we are.
We have relationships there being be introducing producing things. They are now in terms of conversations about how we think about exposing.
Traditional hotel content into their space and vice versa right. So I think it's one of those one of those areas where in order for that space to really grow to its full potential it'll start to look more like other forms of distribution, where you see that content in a sense the inventory floating back and forth across channels of distribution, which were placed that sabre has our strong linked playing win.
Yes, and I'll build off of.
Yeah, because you've broken down into sort of the corporate leisure side equation and I made the statement that when we look at on the air side.
When I look at it really the large global Pmcs, it's relatively flat.
Where we see some of the growth in this gets into the leisure side of equation, if I get outside of what we're seeing specifically in Europe . There's a decent amount of growth is happening on the OTI a side. So you have leisure that's happening on that side and that's why I tried to break this down from a regional perspective, because it's sort of a different game that's happening.
Everywhere. The other thing and this is the impact of low cost carriers and full service carriers that growth does have an impact on what's happening right as you look at capacity growth.
You're not going to essentially see the same GDS growth because of the number of people to go directly to.
Low cost carriers and again, that's sort of gives you. Another proof point of why we believe it's important to go and do the Radisys transaction.
Thank you.
Thank you again, ladies and gentlemen, if you do you have a question at this time. Please press star one on your touched on television and the next question comes from Neil Senior.
Berlin open.
Hi, Thanks very much in these taking the question slightly tangential question if I may.
And now.
The new agreements with ATP.
To work with them can you just explain exactly what you're trying to do that you.
So this is Jeff last couple of decades the ATP.
Database been to some extent little bit of a bottleneck for the carriers to achieve.
Some of the thermal richer pricing points that they won't and obviously that's the reason essentially the then DC is being bullied by numbers carriers is what you're doing with ATP K trying circumvent that or is that running alongside you'll NDC strategies.
Yes, it's I'll kick off and now I'll, let Dave chime in its part of the NDC strategy and this is where this is an important thing and I think it will allow you to better understand what we're doing with carriers around the world I mentioned the work that we're doing with Singapore Airlines on NDC.
This is one that was really led by our efforts with Delta Airlines and ATP co and it got into essentially how do you put shelves out there to sell products and services and you have to balance that relative to the current role in ATP cobot. The evolution in the end DC and you I think it's just a great data point on.
How we have to continue to look at the paradigm right because everybody talks about go into this new world and we have to sit there and understand that the vast majority of bookings that are happening and is what I would consider to be the old world right and in doing that we have to be able to work through this hybrid type of out world we have to work through.
This hybrid change that's happening and this gets into again content aggregation be at the old way that essentially the offer was created or the new ways and then when you look at the Ancillaries and this is one thing I talked about a lot is the work that we're doing with Delta really gets into how do you sell more ancillary through the indirect channel and we see that is a large ops.
Trinity that I've commented on over the past several years and it's one that.
So when you have the discussions with airlines around the world They feel that partnering with 80 Pico on some of these things is very important so that gives you a little more color I don't yet.
Yeah, Neel I'd, just add to what Sean saying I mean this is again it comes back to the strategy that we've talked about with retailing distribution fulfillment. It's all technology centric working with 80 Pico, it's all about helping the industry modernize and get to that higher retailing level everything that Sean just described comes back down to we've got to make sure that the carriers.
And the distribution points, all have the appropriate level of technology to handle that mix and that basket of they really rich merchandising and retailing kind of transaction and structure and so that's that's really what's behind the ATP route happy linkage of things that we've established in the agreement and what we're trying to do with them.
Hi, Thanks, so much unrelated question has there been any updates from the European commissions.
Investigation into yourselves and wonder if you'll you'll competitors and sympathy structure contract habits in Europe .
No Neal there has not.
Okay. Thank you.
Thanks, Tim and ladies and gentlemen, this does conclude our question and answer session I would now let's turn the call back over to Mr. Mitchell for any closing remarks, well once again I want to thank everybody for joining and hopefully this session was good in number of questions that you have I think the important thing is it all gets back to the strategy that we're executing here.
It's safer because you can't look at these things from solar just individual components you have to actually look at it its entirety and that's why I'm. So excited about what we're doing right now is.
We were able to go back stabilize what we needed to do.
Our engage with customers around the world, we're talking and having intimate conversations as it relates to our strategy and executing that strategy and be at some of the things that we're building on our own or things that we're looking to acquire or have announced acquiring it's all based on what is right for our customers and in doing that helping them to essentially execute their plans, which is growing their revenue.
And serving their customers, which are the end consumers at the end of the day. So once again I want to thank my colleagues around the world at Sabre and look forward to talking to you in February . Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.