Q2 2020 Sabre Corp Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily. Thank you for your patience and please standby.
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Good morning, and welcome to the Sabre second quarter 2020, earning conference call. My name is close to one I'll be your operator.
As a reminder, please note today's call is being recorded.
I'll turn the call over to the Vice President of Investor Relations, Kevin Crissey go ahead Sir.
Thanks, Crystal and good morning, everyone. Thanks for joining us for our second quarter 2020 earnings call.
This morning, we issued an earnings press release, which is available on our web site at investors not sabre dotcom.
Slide presentation, which accompanies todays prepared remarks is also available during this call on Sabre Investor Web page.
A replay of todays call will be available on our website later this morning.
We would like to advise you that our comments contain forward looking statements that rubber represent our beliefs or expectations about future events, including the duration and affects of cobot 19 industry trends cost savings and liquidity among others.
We're looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on todays conference call.
More information on these risks and uncertainties is contained in our earnings release issued this morning, and <unk> SEC filings, including our form 10-Q filed on May 2020, and 29 team form 10-K.
Throughout today's call, we will be presenting certain non-GAAP financial measures.
All references during today's call to EBITDA operating loss and S have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures or available in the earnings release and other documents posted on our web site at investors Dot Sabre dotcom.
Participating with me are Sean Maggie, our President and Chief Executive Officer, and Doug Barnett Executive Vice President and Chief Financial Officer.
Steve Shark, our executive Vice President and President of travel solutions.
We'll be available for Q1 eight after their prepared remarks with that I'll turn the call over to Sean.
Thank you Kevin Good morning, everyone and thank you for joining us today.
These without a doubt or extraordinary times, the carbon 19 pandemic represents the greatest challenge ever faced by the global travel industry and our financial results continue to reflect this reality.
We have responded quickly and aggressively managing that which is in our control. Its carbon 19 started impacting bookings in Asia. We took immediate action to reduce expenses as the impact of the virus spread we made more significant cuts, including a large scale furlough well about a third of our workforce.
Capital raise a more than $1.1 billion.
We have also been actively positioning sabre to take advantage of the opportunities on the other side of Koby 19, whenever that time comes we made a difficult decisions to align the size of our workforce to unexpected smaller travel marketplace for the foreseeable future we accelerated the strategic realignment of our agency focused and.
Airline businesses to provide a more seamless holistic view of probably a good alignment and connectivity to our customers needs and unlock cost efficiencies.
Despite working remotely and balancing the significant personal impacts of the coping 19 pandemic, we continue to win new customers expand our footprint and sign key renewals and we continue to advance our technology transformation, including the acceleration of certain aspects to take advantage of this low volume environment.
We're also making meaningful progress in our transition to Google cloud.
I like to thank my sabre teammates around the world like many they have been challenge in both their personal and professional lives. During this period. They have responded in a positive and action oriented way to help sabre and our customers throughout the world I'm very grateful for their commitment.
Our second quarter results reflect the challenging environment presented.
But before I turn it to Doug, let me comment and provide updates on booking trends and status of cobot 19 impact.
Our business realignment commercial activity in distribution and airline Nike and why we continue to believe and new growth opportunities and hospitality I T.
Advancements in our tech transformation as strategic initiatives as we look into the future.
Industry Air net bookings trough on a monthly basis in April with all regions down more than 120% as cancellations outpaced new bookings may was slightly better but net bookings were still negative across all regions June showed some additional improvement with total air net bookings slightly.
Positive.
The quarter industry net bookings were down 110%.
As a result, this negative booking environment and because cancellations were higher than expected Sabre GDS revenue was negative in the quarter.
Looking at the industry data on a weekly basis, you can see the net bookings moved positive in all regions for all of July.
North America started showing the strongest indications of recovery towards the end of June.
This trend reverse due to the increasing the number of reported koby cases in some states and further travel restrictions, but has leveled and begun a slight growth trajectory again.
We have relatively less exposure to AMEA and the rest of the world where the recovery has been slower.
As you I suspect we spend a significant amount of time reviewing the marketing schedule submitted by airlines around the world and analyzing the changes by region, we specifically monitor the current month as well as the following.
Looking ahead airlines published schedules suggests a smaller year over year decline in capacity in Q3 compared to Q2.
Although the schedule capacity loaded for sale is trending positively and continues to improve albeit slowly.
Airline marketing schedules filed earlier this week for the month of August show, a global capacity down approximately 47% versus a 72% to 56% decline during the period of May through July.
It is important to note that airlines continue to aggressively manage near term operational capacity through flight cancellations and consolidation that reduces the actual capacity flown versus the marketing schedule.
Drilling into daily trends cancellation activity peak towards late March as Cobot 19 restrictions went into place Accordingly, there was a high level cancellation activity in April once the cancellation activity was flush through in may cancellation volumes leveled off and have improved steadily since.
Doug will provide more details on our cancellation exposure later.
On slide eight you can see the year over year improvements in air bookings and passengers boarded since late March.
Potently you can also see strong hotel performance with new Central reservation system transactions down about 60% year over year last week. We believe this is a reflection of travelers being willing to drive for vacations closer to home.
Sometimes overlooked favorite the leader in Crs third party hospitality I T with over 40000 properties on our central reservation system, and 108 million transactions processed last year, and we do business with over 40% of the world's leading hotel brands.
Because of our large footprint and hospitality, we expect to continue to benefit as hotel transactions lead the travel industry recovery.
We recently announced a strategic business realignment, combining our airline and agency focused businesses with important leadership changes more specifically, we moved from a business unit alignment to a functional alignment.
This new functional structure is more consistent with other best in class technology companies are new functional areas, our product management and marketing global product development agency and airline focus sales and account management and finally professional services consulting and support.
This new organizational structure became effective in early July and we announced the updated leadership for each of these areas. The leaders report today Sherk on a responsible for delivering the next generation of retailing distribution and fulfillment solutions.
We expected benefits of our functional structure or a more seamless customer experience and the ability to unlock cost efficiencies. We believe the realign leadership focus areas from product development and marketing into sales and professional services will allow us to go to market and operate more effectively.
As part of this realignment, we have right size, our global organization and the reduction in workforce inclusive of the a voluntary severance in early retirement programs. Our organization is about 15% smaller than in 2019 year end.
Let me switch gears and provide a commercial update.
Even with the current 19th current Cobot 19 induced challenges, we continue to win new business and tying key renewals.
More specifically on distribution, we're happy to announce that Finnair is again being distributed on a worldwide basis through the sabre GDS and we can share that the district that distribution of Letendre content has continued uninterrupted while positive progress continues with our negotiations for a new agreement.
We also renewed key agreements with United Airlines Emirates Copa and Air New Zealand, and we announced a new distribution agreement with Royal Air Philippines.
In addition, we signed new agency business in the quarter that we expect will result in incremental share gain.
For Saver Sonic our full service airline reservation system, we had two important new wins first we announced a new PSS deal with Pacific Airlines, which was formerly known as Jetstar Pacific We've been talking about the opportunities, we see particularly with low cost carriers, who need to upgrade to a full service reservation system as we bill.
Leave one of our competitors has entered a heavy renewal cycle. This win as an example of a competitive takeaway at Pacific Airlines as one of the fastest growing airlines in Asia Pacific with over 6 million passengers boarded in 2019 I.
I'm also pleased to announce a win with the Sky small African commuter airline that is the fastest growing in the region. We're in active conversations with other carriers around the world and feel good about our opportunities.
Turning to the low cost carrier segment, our Radditz integration is well underway.
We believe the LCC segment as a recovering faster relative to other segments and as a result are seeing deal activity ramp up we signed a renewal in the quarter with Skymark that includes an expansion in their domestic business.
We continue to see traction with airline software sales and implementation.
As we announced in May southwest extended its use of intelligence exchange, our leading analytics product and adopt and proration engine to perform real time proration of tickets and deliver accurate flight level revenue data.
In addition to it intelligence exchange and deployments. We also completed successful implementations to transform retailing and airline operations at at Cod, and Azbell, France, and we implemented digital connect let's hand in the quarter.
As I described hospitality Crs transactions trends are better than airline bookings, we've seen a steady recovery throughout the quarter, but transactions from down 90% to down 60% by quarter end, we're expanding our geographical footprint and seen commercial growth in EMEA and APAC, including new agreements with let's say.
Telx and resorts in South Korea, and resort Trust Inc. in Japan.
We also moved into the all inclusive resource space with our recent implementation with Marcelo Hotel group.
Although our full service Pms development with development was paused as accords managers through coven 19 related pressure both parties remain committed to the partnership.
As I mentioned, we're the leader in hospitality IP and are encouraged by the conversations we've had with hoteliers, they're increasingly recognizing the advantages of our variable cost model over fixed costs IP model.
As you're all aware our technology transformation is a key component of our strategy. The progress we have made to date with the cloud migration allowed us to dynamically scale down processing capacity and related expenses. This quarter in response to reduce travel volumes.
We are taking advantage of the low volumes to accelerate certain aspects of our tech transformation.
For example session management and security modules, which as you may recall were rolled back to the mainframe last year are now ahead of the revised schedule.
The distribution portion of the migration has already complete and the airline component is substantially finished with completion expected in Q3.
Offload migrations are also underway for airport checkinn reservations pricing payments and schedule changes.
We continue to make great progress on our Google partnership we completed the technical integration of Sabre infrastructure with Google cloud platform and preparation to begin migrating applications in the second half of 2020.
Additionally, we delivered the first phase of Google flight search availability.
While we undergo a transformational journey with Google We knew we knew it would also be vital for us to partner with the third party to maintain the secure foundation of our existing systems, while also modernizing our technology to meet customer demands.
After a rigorous bidding process in partnership with Google I'm pleased to announce an expanded multiyear agreement with the exceed that reduced our cost structure and extend their support for our global reservations platform.
The tech transformation that I described as one of our five strategic initiatives our vision for the future has not changed we still intend to transform our business and create new opportunities for personalized travel.
Our focus on NBC enablement continues to progress we achieved the significant milestone just this week. We are officially in the NDC NDC registry as a level for certified aggregator.
In addition, sabre is the only level for GDS aggregator in the registry tuning the partners with whom we achieved the certification.
Right Center, and United Airlines, another airline customer Bellavia recently achieved level three NDC certification using sabre airline it capabilities.
We are supportive of the MDC initiative and continue to believe and its long term value creation. However airlines are facing significant challenges right now and we believe adopting and DC has change in the priority list for some carriers, we will continue to execute against our roadmap and look forward to providing continued progress updates.
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I want to once again read at reiterate the significant challenge cover 19 presents to our industry.
We have made hard decisions to better align our organization and cost structure with current demand we continue to support our customers and remain active with commercial wins and renewals.
We're continuing to invest in technology and our using this lower lower volume environment as an opportunity to accelerate our tech transformation and migration to Google cloud.
As a mission critical solutions provider to the global travel industry. We believe we've positioned the company well for growth post Kobin 19.
Before I turn it over to Doug I'd like to welcome our New Board members, Gail Mendell, who joined US in April and Greg Touretzky and John Scott, who joined in July The Board continues to focus on refreshing its composition and we believe there significant technology hospitality and airline backgrounds will contribute significant value to the board.
And with that I'd like to turn the call over to Doug Thanks, Sean and good morning, everyone.
We're on a type of unprecedent disruption to the travel industry.
Revenue was down 92% in the quarter totaling 83 million versus 1 billion last year.
Last quarter, we described fell 15% of our revenue for approximately $150 million per quarter is not tied to travel volumes. This remains the case, but.
We did not operate in a zero bookings environment in the quarter, rather net bookings were negative and our financial results reflect this.
Travel network bookings were down 105%.
And bookings trends were in line with the updates we provided throughout the quarter.
Gross bookings were down, 95%, 91% and 86% and April may and June respectively.
We report bookings on a net basis, meaning net of cancellations.
Bookings were positive in June for the first time since early March and continued in positive territory in July.
However, net bookings were negative in April and May and for the second quarter as a whole as cancellations exceeded our expectations.
Consequently, our team on revenue in the quarter was negative 33 million.
Let me update you on our current cancellations exposure.
As of the end of Q2, we have recognized $27 million of revenue from bookings that have not yet the party.
And we increased our cancellation reserve to 60 million as of the end of Q2.
Remember that about half of the impact of cancellations is offset by reductions and incentives.
If it's.
Operating income and net income raw negative in Q2, reflecting the impact of co at 19.
Year over year decline in revenue was partially offset by a decline incentive expenses headcount expenses due to a cost savings initiatives and technology expenses due to the lower transaction volume environment.
In addition, free cash flow was negative in the quarter.
Our normal course financial results slides are in the appendix of our earnings presentation.
Last quarter, we talk to you about how our variable costs accounted for two thirds or total cost base or they represented about $2 billion in 2019.
Three categories of variable costs, our travel network incentives volume related technology hosting costs and head count related costs.
In the second quarter, we saw the benefit of our highly variable cost base across all three categories.
Incentives were 366 million lower than the prior year.
Volume related technology hosting cost talk about $250 million in 2019.
In the second quarter, given the dramatically lower volume environment, our technology hosting cost scale down nicely.
Because we were we were able to dynamically scaled down processing capacity, we have reduced cloud costs by approximately $2 million per month.
The mainframe.
Our cost this quarter were down 35% year over year.
Our total tech costs, which also includes fixed hosting and R&D costs were down 53 million or 26% in the quarter.
On head count.
We recognize significant savings in the quarter due to our cost savings actions.
We made it difficult decision to reduce our workforce by approximately 15%.
In the quarter, we recognized a restructuring charge of $48 million related to this.
We believe our total head count related costs will be down 20% to 25%.
Versus where they were at the beginning of Sean's leadership, three and a half years ago.
For the quarter, our non development labor costs were down 44 million or 37%.
The other third of our cost base are approximately $1 billion in 2019, we define as fixed in the near term, we're working hard to reduce this fixed cost base a couple of various I'd like to highlight include examining our real estate footprint around the world as we look to adopt a more flexible work from anywhere policy.
Additionally, as Sean discussed earlier, we've extended our contract with the Xcede, which will help reduce the fixed portion of our technology hosting costs. We expect our new agreement to provide approximately $80 million in cumulative savings over the next three years compared to our pre cobot 19 experts.
Patients.
This represents significant cost savings that largely offset the mainframe cost overruns, we discussed on our February call.
To be clear, we no longer expect to expand incremental 150 millions of technology spend we expected coming into the year. We now expect our total tech spend to be significantly lower than the original guidance provided in February of 1.2 billion.
This change is a combination of reduced volumes through the volume related component of our hosting costs DXP cost savings and reduced R&D headcount.
As we look to the future our technology footprint and head count has been aligned to what we expect will be smaller travel industry post cobot 19.
We continue to expect total cost savings of $275 million in 2020.
On an annual run rate basis, we expect approximately 200 million in savings versus 2019.
This includes head count related savings from our smaller employee base and savings from our new Dfc contract.
Additionally, there could be incremental technology hosting cost savings if it lower booking volume environment persists, we can take further actions to reduce our cost structure, but we hope it won't be necessary.
Larry Let me remind you of the quick and effect of actions, we took to strengthen our liquidity position during this crisis.
Well identified and implemented 275 million in 2020 cost savings.
Renegotiate our Dixie contract.
Suspended dividends and share repurchases drew down on our revolver and raised 1.1 billion for new issuance of senior secured and exchangeable notes.
Additionally, the Bureau transportation Statistics published the official data for April passenger Enplanements, which confirms that a material travel event disruption occurred.
Therefore, our leverage ratio covenant under our amended and restated credit agreement has been suspended for at least the second and third quarter of 2020.
Current carrier capacity forecast lead to our expectations that the suspension and will remain sort of balance of the year.
Finally, we have no significant expected near term uses of cash.
In a zero bookings environment, we continue to expect approximately $150 million of revenue.
And 240 million of cash burn per quarter.
In the second quarter free cash flow was negative 446 million was impacted by.
Approximately 240 million of cash burn into zero bookings environment.
$67 million lower revenue, then the zero bookings expectations, because bookings were actually negative for the quarter.
Three previously disclosed cash future usage items $30 million and refunds owed to airlines for Q1 cancellations.
52 million incentive payments delayed from Q1 and $21 million a fair logic termination fees.
And finally.
14 million severance payments, which we previously thought would be Q3 item and 23 million and other working capital items.
We ended the quarter with 1.3 billion in cash with our current cost structure and bookings mix, we expect to achieve breakeven free cash flow at approximately 70% of 2019 volumes.
Before I turn it back to Sean. Please note that our business realignment that Sean reviewed earlier is expected to result in a reclassification of our financial statements in the third quarter.
We intend to continue providing you with distribution.
It solutions and hospitality.
Level revenue detail and we'll continue reporting our key volume metrics.
Sean back to you.
Thanks, Doug as discussed cover 19 presented at unprecedented challenge in the second quarter that was reflected in our results. However, we remain focused on the opportunities during that during and after the industry recovery. We continued to make advancements in our technology transformation and identify incremental savings as well as commercial wins and distribution and area.
If we are the leader in hospitality in remain particularly excited about commercial growth as hotel bookings lead the travel industry recovery.
Finally, I want to once again, thank my favorite teammates around the world for their dedication to serving our customers shareholders and each other during this difficult time together, we will get through this and we will make travel happen again, operator, we're happy to take questions at this time.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on their touchstone telephone.
If your question has been answered or you wish to remove yourself from the Q. Please press the pound.
Again to ask a question. Please press star and then one now.
And our first question comes from John Kim from Bank of America. Your line is open.
Yes, Thank you and good morning to everybody. Thanks for taking the questions.
Two questions, please and the well I guess the first one it's almost impossible to answer I realized I guess, you're in good position is anybody to comment on what you would expect some on the global recovery what would respond most.
Let's.
So units.
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I guess most people are expecting domestic come back first that should obviously favorite North America on the other hands at corporate is obviously very depressed. So what's your best guess in terms of the regions that will meet their recovery if I could just suicide check on you said on this 70% assumption around getting.
Free cash flow breakeven that you're assuming.
Essentially degradation I guess from the bookings mix than maybe you could also talked to what youre, what you're expecting when you get back to the kind of 70%.
Yes, so John I'll take that first question then Doug will take the second part of that question. You know, it's it's very difficult right and you said it in your question that Thats looking at this I mean, when when we see things that are taking place. One it was very clear that we're seeing specifically in North America, the recovery bookings taking place and.
That was one for a number of different reasons relative to the ability to fly within the United States. The thing that we continue to deal with and as you saw.
Just came out last night that restrictions as it related to some travel to from the United States has been lifted so we're going to continue to see that but as we monitor this we monitor as I mentioned, the schedules and what's taking place with doesnt different carriers.
We're also looking at where there are travel bans we still have countries throughout the world that have restrictions and just flying in general so.
That's a that's I guess is what it boils down to that everybody is trying to figure out.
As you look at the other component of this that you talked about.
Definitely more on the short haul domestic side the equation. The other is its leisure focused.
As we fall bookings recovery and specifically in the second quarter.
The way that we really track it is probably more in the leisure agencies OTI a focus versus what we're seeing on the TMC side.
We saw that OTI days, we're definitely are the leisure agencies were driving more of that when we did see.
The increase cases in Covance 19, taking place in June we also saw that as it related as leisure traffic that it began to drop again and what was taking place.
What we do see right now and I mentioned this is sort of a leveling out took place and we're seeing sort of an increase in what's happening. So we watch that in the as you would imagine this was really in my notes.
It really gets into what do we control and how we've been managing this over the past several months and Thats.
As Doug and I talked about is managing our current the current environment is relates the cost savings liquidity.
The strategic initiatives that were very are important to us and I will tell you. They are more important to me now because I think there'll be more important on the flip side of this.
Focus on technology, the customer engagement and the other thing that I will tell you is the motivation to my workforce. The team members around the World has just been unbelievable through some very tough time. So thats how were looking at a John and I think everybody's doing a day by day.
And Doug.
Let me give some numbers.
So first first corporate versus leisure.
Normally what we typically would have seen as corporate is 50% to 55% of bookings and leisure is 45% to 50% of bookings currently right now we're seeing leisure bookings up by about 25 basis points 25 percentage points excuse me to about 75% of bookings.
So the impact of that as it corporate booking fee is typically about 30% higher than leisure, but there is a corresponding similar increase incentive rates on on on that.
With regards to domestic and international.
The crisis International is about 55% domestic was about 45% of new bookings right now what we're seeing is domestic is increase somewhere about 25 percentage points to almost 70% of new bookings here, there's more of an impact because international booking fees about twice.
We'll have a domestic booking fee and quite honestly the PBS on those are not that dissimilar. So there's more of a financial impact from the domestic and international impacting gross domestic to leisure or corporate leisure excuse me. So John I think that gives you. Some good insight on both of those questions you had and John just for clarity this I want to make sure that.
Somewhat the 70% that I gave you is in line with these new trends not with historical yes. So any what Doug is alluding to is if you go back to the historical mix all the actions that we've taken you're actually break your breakeven cash flow would actually be lower than that 70%. So he's got that we factored in.
And everything that we're seeing right now.
Thats really helpful. Thank you for the detail and if I could just ask one follow up around the cash position at the time at 1.3 billion, maybe Doug can you kind of Cola anything puts and takes all not in terms of less capital swings, we might expect going forward obviously.
This quarter just on essentially tied to a positive this bookings pickens trickle back uncertainly around the cancellations, presumably you're now seeing lower than normal cancellations again is there some continent positive we should be thinking about in terms of yeah. I think the only thing going thing I would monitors the following that.
So we had on a gross basis, we had over $100 million worth of cancellations in the quarter. So it obviously had a material impact in Q2, obviously become into Q3 with less exposure than we had obviously because.
I just walked you through how that's dropped materially so there could be a little bit of an impact still of cancellations. The other thing you could see just on a quarterly according to swing obviously as bookings return you'll have a little bit of a working capital drain as revenues rise and obviously they'll just be a timing issue will come to the next quarter, but I'd say the only thing I would really be I'm only.
I am concerned at all concerned about from a cash flow standard going forward is the continual level of what we're seeing the cancellations, but to gauge what that exposures on a net basis that exposure. After incentive is about $40 million to $45 million going forward. So it's much smaller than it was coming and into Q2.
Great very helpful. Thank you guys.
Thank you Sir our next question comes from Mark Mark learns from Bernstein Research. Your line is open.
Thank you very much Sean and Doug really want to thank you for the level of detail in transparency.
Thats extremely helpful. Frankly takes a lot of work to go through but it's extremely helpful.
Airline and hospitality revenue was down considerably Q over Q.
Can you give some more color was this just simply an impact of cancellations pulling down the revenue of the factors in there.
If you take a look I'll just on potentially could airline solutions on a passengers boarded basis theyre done almost 90%.
And if they were hospitality, they're down almost 62%.
So the biggest impact is going to be those two items on that's driving this impact on revenue.
Right, Yeah, Youre not seeing.
They use a client cancels.
It doesn't have an impact on could you couldn't get to negative over 100% you couldnt be down that much in the way. We're on the travels and yes, let me give you sense because I think I think what you're trying to get is the differential between peacetime skew and other types of revenue stream. So let me walk you through that on airline solutions.
The transactions based revenues about 50 50, and then if you take a look odd.
Hospitality, it's about 80 20.
So that those those items give rise to the 15% revenue that I talked about and thats not transactions related.
There is only about 5% of TNC revenues that are transaction related.
Okay.
Okay that helps thank you.
Can you also give some more details on how the and you gave some on how the accelerated Google migration is gone could impact the cost structure over the next quarter. It too we have a sense of longer term, but anything more near term would be appreciated yes, let me, let me sort of kicks something off and I'll pass it this way.
Today than Doug just to help on the response, because I think it's important as we look at things Mark I always try to take people back to what we said and I think the important thing and you'll remember this going back to Investor day in 2018.
We talk about just cost savings in the desire to essentially have over $100 million of savings by the end to 2023 and I'll tell you. The team has met that objective just based on what we've done with going and what we just did with Dfc. The modernization was another piece of it as well as what are we doing on the product side in the capability. So.
You know.
Maybe you can kick off on just the transformation as it relates and what's happening with Google and then.
You can talk on the cost side equation, if you don't mine.
No just to add what Sean saying.
Through this and being focused on the strategic imperatives and going back to that 2018 plan.
We had set in motion with Google and our transformation.
We continue to meet milestones continuing that long matter of fact in this quarter. We are now at 65% of all of our transactional volume is in the cloud both hybrid and public sorry, private and public. So we're pleased with the continued focus around that we have now taken all of our travel network shopping too.
To the public cloud, we've taken all of our airline solutions shopping to the public cloud.
So we continue to move pretty steadily through that and if used this time period to allow the teams to focus in a down volume period to kind of move that through and Google has been great through that entire process and then equally with this new DMC contract that just further solidifies. We had said back in 2018 that we also were going to look at.
Partners to help US go through that transformation, we now have that completely solidified. So we are absolutely on track for our 2023.
Jordi of our offload effort to to be purposes, and through that particular process and then it's really dependent upon customers in terms of the timeframe, which is again one of the reasons that the DMC contract.
We saw it was so important to get secured because we have many customers that have contracts beyond.
That 2023 period and as you know enterprise it takes a bit of cycle time for them to move through that so we're in pretty good position overall I think for where those pieces around again, Mark Let me just in another way of sort of summarizing what Dave was walking through you'll remember that we had the private cloud that we set up data centers.
All of years ago, and because of the lower volumes when Dave was talking about essentially the migration to the cloud we've been able to into some of the cost savings that we've been able to read because of lower volumes is essentially shutting down the private cloud getting the servers out there on leases that essentially we were able to get those cost savings. So we've been able to migrate.
Everything too.
W. ask because its interim step that ends up happening at the same time the teams because of what's happening on the volume side, we've been able to get the Google cloud landing zones set up so that was my comments relative to the back half of 2020, we'll be able to start migrating so.
Not that we want to be in the position of dealing with Covance 19, but it has allowed from that sort of Daisy chain that I walk you through for us to be able to accelerate some of the things we're doing so Doug.
And that obviously is.
Two things won't run with regards the DMC contracts I mentioned between now and over the next three years, it's 80 million I can tell you. The once you've begun that you get out beyond that period, the actual say that actually savings that accelerate that we did not front end load the savings with the Dixie contract actually push them more in the back half of the contract terms. The other thing I might add as we do migrate.
Well for Vws under Google, We do have more favorable hosting rates with go as one of the benefits that contract. So you will get some benefit literally just migrating off of Vws platform gas. So that gets back to my comments relative to going back to 2018, the cost savings that we talked about getting that's all in.
Place relative to just executing right now because the contract with Google the contract with CXC essentially allows that to happen in the environment modernization is happening and then the teams are doing a great job on just the products and capabilities. So.
Again outside of what we're dealing with uncovered 19, I couldn't be happier with the transformation, where we sit right now.
Really appreciate one more quick follow up if you don't mind.
How do you think about the impact on time and takes from a clear queries from OTI gate till you respond next how much that will shrink.
Once this Google transition occurs and leasing thats can compared to your competitors in terms of your ability to respond and meets timing requirements.
Let me, let me give you little bit of response to that Mark.
This is Dave.
One of the nice things about the reasons for going with Google is if we get to take advantage of instead of having today a lot of that capability with sensor just in one location with.
A backup structure for it when it was when it was internally controlled this move of taking everything to the cloud and the fact that where it 65% point and the shopping points that Sean just clarify for you.
That means that as part of this part of the Google transformation will allow us to distribute that geographically. So we will be much much closer much much smaller latency. So we already have improved by moving to the cloud we've already improved the level of shopping response times to OTI A's and now we'll have the geographies.
Distribution, which will be an even more significant part of the way that plays out so.
Back from the LTAC pre covidien, even during cobot is positive in terms of how that architecture and the ultimate customer servicing level will increase as a result of it so we feel pretty good about.
That from a competitive advantage perspective with the footprint that we have in the way we've been moving through this technology transformation Mark Let me put another let me add another.
Sort of data point into gets because you're asked about OTA days, but I will tell you you heard me talking about hospitality CR capability Crs capabilities. The same thing that Dave just walked you through actually is happening within.
What we're doing in hospitality business.
Ability to essentially.
Use Google is the backbone in its becoming what we believe is a differentiator in our conversations with hospitality organizations around the world is because of that when you look at Crs you also get a higher transaction rate speed.
Again, there so theres theres multiple different things that it's helping and you can imagine.
Deployments and take place in this gets into the airline Nike side, the agreement level to you're going to get it. There. So you just can't look at added from what we consider to be the.
GDS transactions it really does transcend in what was happening in hospitality as well as what's happening in airliner, yes, and maybe one last point to Sean.
Every aspect of this also then gives US redundancy. So you end up with out a single point a failure anywhere in the system. So any time, we go through any maintenance cycles any change cycles et cetera. We now have a fully distributed system, which is been a big part of what our internal team has been architecting with Google and the way.
Which this will play itself out.
Unifill very helpful. Thank you.
Thank you Sir our next question comes from Neil Scare from Redburn Partners. Your line is open.
Hello can you hear me okay.
Neil.
Hi, guys.
The company's made any around about the level of detail in the presentation. That's easy appreciate you say, thanks, very much and be for that.
Most of my questions have been off just a couple of follow ons.
You mentioned in the presentation that you'll still working with this time.
So thats the same thing is it's a number of the Atlas.
Carriers that in the policy has gone away from full content deals will fill the constant deals on to what I believe the referred to as the general distribution arrangements and the question is those airlines and Lufthansa looking to go back and continue a general distribution agreement until they looking in some way to go back on a on a constant tail.
And we claim if you like some of the discount that they previously would have had on us. So there comes a deal.
Yes, no Neil this is Dave since I've been driving most of the discussions with live tons and and the team on several of these others.
I would tell you that the entire and focus and environment has really been around thinking about the future of retailing and what needs to happen around it and so ultimately.
That means that content is important in that process and the way. It differentiates itself. So I would I would tell you that the premise would be there is always fund negotiation process, but.
These have been very very balanced very very focused cycles to think about how and what happens after the recovery. Obviously right now everyone is concerned and focused on just putting seats.
Our cheeks in seats on planes are in hotel rooms.
But for these GDS situations I can tell you that the majority of those discussions have been focused around how we think about the value and what that looks like overall from the consumer and the offer level of richness as we go forward with it and Thats been the focus thats been the focus pre covidien and the focus during.
So we haven't seen.
Any significant weirdness as you would describe it in terms of the comment that you were out of the question that you were asking.
Okay and then my understanding is.
On the Tds platforms ordinary would you sort of pre code base.
Thanks.
Average gap between a booking sitting on the platform than the Pessina then flying typically would have been about two to three months, which would tend to suggest that if we are expecting passenger volume will improve.
Some points in the Houston I appreciate that the timing precisely is on shore.
We expect the buildup in the recovery of the active volumes will the light volumes as it were only Tds platform to leave the market a little bit as that so that.
As the GDS platform Replenishes and how significant could that be in terms of the GTS net bookings dynamic.
Yes, Neil this is Dave again I think.
There is certainly truth in the statement that you just made and we're watching that is one of the reasons why we watch all the regions very intently all the carriers very intently and also trying to balance what we see from a PV perspective versus a GDS perspective, because you have that tend to see some variation geographically.
Because of the domestic concentration in some of the.
PB.
Dot com types of activities. So I think I think you will see what you're describing but again I think it's going to be a multi data point and I think the other factor that's a little different this time that we're seeing in watching is the way the government's react.
Globally has been very very erratic.
In terms of this and so I think that also will play a factor that normally you'd see the data and what I would call a normal kind of economic cycle. In this case because of the governmental involvement I think we'll see that be a bit of a difference player in the way in which we're seeing some of these trends taken and play themselves out if we if we look at bookings right now.
It's definitely the normal sort of booking window, if you look at.
Its purchase perspective has definitely upside down right youre seeing bookings that are much much closer end.
And the other thing that is taking place right now.
With specific areas around the world as they have relax their cancellation policy. So theres a combination I think thats part of what airlines are dealing with right now as and there's been some good articles out there and we actually.
This is kudos to the team here at save a relative to what they're doing with dynamic pricing dynamic availability.
As what you used to use at your revenue revenue management sort of historic history is all out the window right. Now so you really have to be looking at it from a more dynamic perspective on whats happening. So those are some of the things that we're dealing with I think.
On the optimist.
Because I do believe I lived through 911, I live through the great recession.
More on the airline side of the equation, but you have to believe recovery happens and I do believe it happens in the question is how do we help our customers manage through this and part of that is what we're talking about are looking at in the booking cycle.
Okay. Thanks, Glenn showing you that you've actually just comes in so the last comments my question I had which is that if you're optimistic by nature do you subscribe to the view that hands full forever.
Marketplace is now structurally changed in the whether it's the ita used now having huge and significant market share guidance at the expense of the TN seasonal business travel volumes now to get back to the same proportional mix that we had previously you subscribe to that fuel would you think that it may take three or four years, but eventually we'll get back to us.
More balanced market that we had a 29 team yeah I looked at I think there are changes, but I do come back to Theres more balance I remember the discussion after 911 and business traffic is not going to happen and we solid come back.
After during the great recession, icefall, many things happen and.
I am just a fundamental believer because listen we have spent an enormous amount of times on teams.
And zoom and we have gotten things done, but I can tell you that many discussions and I'm in with people around the world as we cannot wait to get back on airplanes and have the personal contact that and I hear a lot of that so I think a lot of this just gets back to people feeling comfortable and traveling and with that there'd be it the leisure side of the equation or be it on the business by the equation is it going.
To take time, yes.
Is there going to be some probably fundamental change relative to people and how they think about it because of the financial constraints Pacific corporations, probably.
But again on the Optimists and it goes back to why we continue to drive forward relative to what we need to do because I'm looking at this that everything that we had been doing over the last couple of years is more important into in three years from now tech transformation things that we're doing to continue to extend the runway and that's where I am so positive about this organization yes.
Okay maybe.
Sorry, just to add to sean's comment and back to your original point to maybe even provide more focus and color.
One of the conversations that we're having is how exactly how critical the GDS is actually going to be to that recovery, especially for corporate travel because.
Duty of care has now taken on an entirely different level of importance and so where it may not have been just table Stakes and not really thought of it's now a very active conversation and the way in which ultimately the cmcs incorporations play into that path.
I think youre going to see that become a larger and important part of the overall situation.
Okay. That's great. Thanks, as most of the detail guys. This would be appreciated.
Take care Neil Thanks.
Thank you Sir our next question comes from Ashish Sabadra from Deutsche Bank. Your line is open.
Thanks for taking my question I just wanted to clarify.
Right.
Question on spend on did you use a demand.
Particularly on the outlets decision I was wondering if it's possible to provide any comment on that front.
Sure She's let me just kind of walk through that so I'd say first and foremost.
Southwest is a very important customer to sabre as you heard in some of the comments that Sean and Doug talk through.
This past quarter. They further expanded the use of one of our most important it solutions intelligence exchange and some activity that we have underway with them.
Today and from the current contract that's in place. This was one of the lowest feature distribution offerings that sabre has.
And as a result, it actually was pretty inconsequential to us in terms of our North American bookings.
Our understanding and dialogue that the teams have been having for the past several months is that southwest wants to increase their share of corporate customers and as you are well aware, we have strong market share with the largest corporations and cmcs in North America.
And.
Our goal is always to find a balance in the marketplace between the airlines and the travel agents and how relevant content for all of that serves all parties and so.
We continue those as you've heard us talk about with United Airlines in Emirates, and Finnair, and many others and we are.
Ill now open and continue to be open to Reengaging negotiations when southwest is ready and we believe that ultimately there will be a path to reach a new just DGD EPS agreement with them some point in the future.
That's very helpful color. Thanks.
And you had about a new wins in the headline PSS solution.
Maybe just you can talk about how the conversations going with other airlines and then maybe I just quick clarification. I mean, you talked about 40 million. Threepd. Then just wanted to confirm that wasn't the let's keep us on the customer. Thanks.
Maybe on the first point on their 40 million PB win two to our research and the best of our understanding that's not a not any sabre competitive takeaway so.
Don't believe that has as irrelevancy there.
As far as the other wins, we've been talking for some time I just kind of walk through a couple of these if you're not deeply familiar with Jetstar Pacific.
Now Pacific Airlines that was a joint venture between Vietnam Airlines and Quantus.
Jetstar Pacific was.
One of the fastest growing airlines over the last several years. It was at a 25% CAGR in terms of its growth rate.
They finished 2019 at 6 million PBS Vietnam Airlines, even with Covidien plans to double the fleet size over the next couple of years.
So.
For me and for the team I'm very very proud of the work that team put into that was a competitive takeaway part of that renewal cycle. We've talked about of available PBS that are out there. So very substantial in terms of it if it weren't for Cove. It I think we'd probably see a lot more focus and attention to it.
So that's that's one piece the other one that we talked about was a sky a sky is a isn't affiliate in.
Africa, very very the fastest growing in West Africa commuter airline that sits there again that was a competitive win and takeaway.
We we believe that will also serve well in a post cobot recovery cycle and then the last one.
With our.
Radically acquisition, we see the LCC space recovering faster.
We see activity up.
Positively in the LCC space and looking at various solutions, we had an arrangement with Skymark Airlines, which was is one of the.
Better up incoming growth players in Japan, we were doing international the renewal expansion took over domestic that is 8 million. PBS addition, domestically.
Growing at.
A decent.
CAGR growth rate around it so again very positive in terms of a competitive takeaway in that situation as well so.
As far as the landscape Ashish of others. You know we feel good about these wins and we tend to try to build on them and as we've continued to say as the portfolio has gotten healthier as we've transitioned our technology more and more around the retailing distribution fulfillment cycle and gotten very very focused on our strategic initiatives.
I think it's putting the portfolio in a place that obviously it is competitive in the market. So can't predict with covered what that will do to decisions, but we we are active and there are active pursuits that are underway as we speak.
Thats very helpful. Thank you. Thanks.
Thank you.
Next question comes from Jed Kelly from Oppenheimer. Your line is open.
Great. Thanks for taking my question.
I guess Sean.
Talk to all the industry participants you airline partners.
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You know what sort of the way, we should be thinking 2021, it as a baseline in terms of.
Bookings as a percentage of 29 team.
I guess whats the baseline assumption, if we kind of have.
Recent vaccine or therapeutic distribution by the middle of 2021.
Yeah, So Chad I hope, you're doing well I mean that in fairness.
It's sort of a while gas on.
The reason going to be very cautious and the response here is there was the back half of.
2020, I think if you go back to June there was a level of capacity that was being added into the marketplace.
We are seeing bookings improve and then we see an outbreak.
And more cases, and we see airlines begin to pull their horns, and then what's taking place.
The one thing that I would.
Share jet and the way that I look at and this is my conversations.
The number of executives.
That I think they've gotten very good at the ability of adding and pulling capacity. So when you do see a level of comfort taking place relative to people traveling they will have the wherewithal to get the capacity back in the marketplace quickly. So.
Anything that I would state Jed would probably be wrong, so I'm not going to state anything.
Okay.
And then last week on their call Expedia mentioned.
How they're taking the time from lower volumes to improve their air products.
Are you listening with them and just as the outlays are obviously going to become a more important part of your business over the next 18 24 months.
I mean, how can you partner with them to one stimulate leisure demand into and improve the product.
Yes, Jeff This is Dave Yes, we expedia is an important partner.
Obviously have very active discussions with them.
Working through they use a number of services and guys and just like with any of our customers right now.
Been surprised at the quantity candidly of conversations amongst furloughs in changes globally.
Wanting to understand how and what kind of additional retailing.
And services and value differentiation that they can find in enhancing of their shopping experience and so we have shown.
Them, some things that they could do we've worked with them on some things that they could take advantage of and I think.
Two sean's.
Crystal ball comment.
We'll have we'll continue to put them in a position that they can hopefully take advantage of some of these things over the course of the next several quarters.
That's helpful. And then just one more I guess.
As in the next couple of years.
Yes, I think I think.
Companies are going to be trying to save money on key any expenses and one option would be you would think is to take more of the key any internal with different software solution. So.
Is there an opportunity for you sort of partner with some of these more self service players that potentially could pop up as companies look to a want to get their employees, probably I agree with you Sean.
Wanting to see actual human human connection to build real relationships, but is there a way for you to partner. Moreover, these to be self service platforms.
Thank you.
Ill kick off in El Paso today, and I think the important thing in this really you guys get into the technology.
It really does get into the eyes and things that we're developing it allows us some work with a lot of different organizations out there and I think.
As we look at this and this is what we don't know yet Chad is how does the marketplace really transform and.
When you look at the position that we're in right now it's one that we're capable of helping essentially the GDS market, which is the two sided market on.
Our airline and hotel customers and selling into through agencies. The other thing. It's very important is what we're doing.
On the T. side, both on the airline IP as well as the hospitality IP and in doing that.
This would likely talking about and that's why we talk about retailing distribution and fulfillment. It all comes together as one of boils down to and Thats why the organizational change on any day, specifically on the airline agency side is really important because with that technology. It allows you to looking all the players that you're talking about and be able to support them and different forms Dave I don't know give anything that.
I guess jet the only thing I would say to add to which onset is.
We you've heard me talk about this before we've had a mission to kind of.
Transform the portfolio make more apiay based consumption available the team likes to refer to it as making sure that you can merchandise whatever your wears are on the store shelf and the way that you'd like to see them.
We have made huge progress in making that possible and worked with a lot of or.
Customers and channel partners to do that.
That mission is still there and it's still part of what I think differentiates us as we look as part of the reason why you know I'm pretty Sean said I'm pretty happy with the progress the team has made.
It's it's unfortunate we're in the coded cycle because of some of the share gains we've had up to date. The tech transformation continues to power ahead.
And people are taking advantage and using and working with us on that help the portfolio. We've had the cross sell and upsell to make those capabilities as you've seen in past quarters available again with high X and other.
Airvision based capability sets that are being taken advantage of right now by customers even in the covert cycle.
Some competitive takeaways that then really positive and then our expansion and the LCC space. Those are all good positives that we feel will service well to do that and then and the last point would be our Google in Dfc partnership and the innovation framework, we have with Google that.
Continues to move forward and we look forward to things in the quarters ahead that we can share with you guys on that front as well.
All right appreciate all the color and shot him I'm, an optimist, just like you and you know.
Alright, Thanks, Karen yourself you safe.
Thank you and that does conclude our question and answer session for today's conference and I would turn the conference back over to Sean. Thank you for any closing remarks.
Great. Thank you, Chris So I appreciate everybody, taking the time to listen to get the update on what's happening here at Sabre.
We're dealing with a number of headwinds like a number of different organizations around the world, but as you can tell we've been making a lot of progress on I couldn't be prouder of the sabre team throughout the world. So thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.
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