Q4 2020 Sabre Corp Earnings Call
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Ladies and gentlemen, please standby your sabre full year and fourth quarter 2020 earnings conference call will begin momentarily. Thank you for your patience and please standby.
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Good morning, and welcome to the Sabre full year and fourth quarter 2020 earnings Conference call. My name is Josh and I'll be your operator as a reminder of please note today's call is being recorded I will now turn the call over to Vice President of Investor Relations. Kevin Crissey. Please go ahead Sir.
Thanks, Josh and good morning, everyone. Thank you for joining us for our full year in the fourth quarter 2020 earnings call.
This morning, we issued an earnings press release, which is available on our website at investors day at Sabre Dot com.
Slide presentation, which accompanies today's prepared remarks is also available during this call on the Sabre Investor Relations webpage, a replay of today's call will be available on our website later this morning.
We would like to advise you that our comments contain forward looking statements that represent our beliefs or expectations about future events, including the duration and effects of COVID-19 industry trends expected advancements cost savings and liquidity among others.
All forward looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call.
More information on these risks and uncertainties is contained in our earnings release issued this morning, and our SEC filings, including our form 10-Q filed on November six 'twenty 'twenty and of our 2019 form 10-K.
Throughout today's call. We will also be presenting certain non-GAAP financial measures all references during today's call to EBITDA operating loss and EPS have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on our website at <unk>.
Investors Dot Sabre dot com.
Participating with me are Sean <unk>, our Chief Executive Officer, and Doug Barnett, Our Chief Financial Officer.
Dave Shirk, our president of travel solutions, and Scott Wilson, our president of hospitality solutions will be available for Q&A after the prepared remarks.
With that I'll turn the call over to Sean.
Thanks, Kevin and good morning, everyone and thank you for joining us today.
Before we get into the details of the fourth quarter I'd like to reflect briefly on what has been an extraordinary year.
Of the COVID-19, pandemic 2020 presented the greatest challenges ever faced by the travel industry with global Air and hotel bookings down more than more than we have seen in any prior year against that backdrop I couldn't be prouder of how many of my favorite team members around the world how the how they responded they provided exceptional service.
For our customers and advance our technology transformation, while managing the personal challenges of the pandemic, including operating in a remote work environment I. Thank them sincerely for their dedication.
As the impact of of the COVID-19 virus spread we took quick and decisive actions to improve our financial position, we reduced our go forward annual cost by approximately 200 million. This represents a 5% point improvement in EBITDA margin versus 2019, all else equal.
Our cost saving actions included of labor expense reduction of about $175 million per year.
We also renegotiated our Dx the contract to lower our fixed cost and our consolidated our real estate footprints as we move to a more flexible work from anywhere program.
Finally, we added liquidity extended our debt maturities and ended the year with the cash balance of $1 5 billion.
Despite the challenges that 2020 presented the year also included major advancements of our technology transformation and modernization, we migrated over 250 applications to the cloud and reduced our legacy technology infrastructure, we announced our strategic Google partnership built out build our air shopping environment and Google Cloud.
And executed on the innovation framework, we have in place with the announcement of Sabre travel AI.
We are confidently moving ahead with our technology transfer the transformation journey and expect the move to Google Cloud plus our renegotiated dfc contract to reduce our operating cost by more than $100 million per year, starting in 2024.
Inclusive of our labor reduction this results and expectations for total cost savings of 275 million starting in 2024, representing a seven percentage point improvement in EBITDA margin versus 2019, all else equal.
We also signed key commercial wins and renewals in 2020 for our airline and hotel and.
And distribution capabilities, we extended distribution agreements with some of our largest airline customers and recently announced important new distribution agreements with southwest Airlines and Lufthansa group.
We also announced new competitive wins in the solutions for reservations and expanded into the low cost carrier space and.
And today I'm pleased to announce we signed two new enterprise level of hospitality wins with loop Hotel group and all inclusive by Marriott International.
We believe that after the effects of the COVID-19 pandemic recede, we will be ready with a more profitable cost structure strong customer engagement and innovations that advance the future of travel.
Turning to slide five industry are net bookings saw a sequential improvement in the fourth quarter compared to the third quarter.
In October GDS industry net air bookings were down 81% November was down 79% and December was down 77%.
Every region showed improvement quarter over quarter Latin America led the way within the 18 percentage points sequential improvement our largest region North America improved eight percentage points quarter over quarter.
In the month of January of the pace of improvement slowed due to the resurgence in COVID-19 cases, lockdowns and increased travel restrictions.
However, daily average booking trends through mid February are tracking higher than January results on our back in line with 2020 exit levels.
North America, specifically is tracking better than January and ahead of booking levels at the end of 2020.
Yeah.
On slide six you can see this effect more clearly using weekly data by region slight positive trends in North America are reflected whereas we have seen declines in EMEA and Latin America the law.
Latin American decline is on the heels of strong recovery through November.
On slide seven we show Sabre volumetric for air gross bookings passengers boarded and hotel growth Crs transactions you can see the hotel Crs transactions have trended in a positive direction since the beginning of the year.
Turning to slide eight hotel transactions are showing pronounced regional differences. This effect started late in the third quarter and has increased.
Similar to trends, we have seen in the airline bookings the EMEA region has been hardest hit but Latin America continues to show steady improvement.
Turning to slide nine let me give you some insight into how we view the travel recovery.
Although we believe it is prudent to plan our business conservatively given the current booking environment. We firmly believe there is pent up demand for travel.
Travelers gain confidence we expect they will return to the skies. We saw this play out during the summer of last year in the U S. When booking trends improved as domestic leisure demand picked up as new COVID-19 cases spiked in the winter we saw a corresponding decline in travel volumes, albeit not to the same magnitude with the rate of new COVID-19, beginning.
The drop again in late January we have seen bookings recently start to tick back up.
Also of seen during the summer of last year in the U S Hotel bookings for the first to recover we believe this demonstrates that all of those some travelers may not be ready yet to board of flight they are willing to drive to their destinations.
We expect further increases in trial of our confidence to come from COVID-19, vaccinations in testing as of last week, roughly 10% of the U. S. Population has received at least one dose of COVID-19 vaccine. The U S. U S is administrated about $1 5 billion shots per day and at this current pace. It is projected that roughly half of the U S population.
<unk> would have received of leased one dose by mid June.
Of this appears consistent with what we are hearing from some U S airline executives, who expect domestic demand may begin to pick up by the second half of 2021.
We expect Europe to recover more slowly due to greater fragmentation and tighter travel restrictions. Fortunately North America is our biggest footprint in 2019, 55% of our GDS bookings were North America based and we have renewed deals with our largest customers in the region and recently signed the new distribution agreement with southwest.
We believe that business travel recovery will be slower than leisure and when it does we believe domestic business will proceed long haul international.
Our strong relationships with T M sees in our 80% share of their north American business should help us be an early beneficiary when business travel resumes.
On the solutions side, we have of long term reservations deals with many of the largest north American airlines, although business travel may be relatively slow to recover we believe these carriers will do well on the leisure side in the second half of 2021.
And the hospitality solutions, 45% of our 2019 bookings where network North American base. Therefore, we also expect our hospitality business to benefit from North America to lead the recovery.
Turning to slide 10 from a commercial standpoint, we also feel well poised for of travel recovery, we have reached new or extended distribution agreements with airlines around the world to support the recovery, including southwest and Lufthansa group as a result, with the exception of Air India. We have successfully completed distribution deal.
As with all of the outstanding significant carriers on.
On the solutions side, we have taken steps to secure a book of business and recently signed large reservation renewals with carriers like Westjet and Lion Air and we feel confident in our current pursuit of new business.
This was all capped with new enterprise central reservations deals with loop Hotel group and all inclusive by Marriott International and hospitality solutions. These are data points that support the increased level of activity associated with third party providers in the hospitality space.
In total we signed over 'twenty 100 deals in the fourth quarter with the airlines hoteliers on agencies. This included key new wins and renewals with some of the largest customers and depicted by the logos on this slide.
As we look at 2021 in spite of the impact of COVID-19, we believe we have a healthy pipeline and the ability to capture new opportunities.
Turning to slide 11, I'd like to revisit the slide we first presented last year at this time before the impact of COVID-19 had fully globalize, we outlined five strategic initiatives that are enabling sabre to seize opportunities created by emerging travel trends and increased shareholder value let.
Let me take a few minutes to update you on the commercial activity that demonstrates our progress against these initiatives.
First I'd like to talk about personalized offers we've already started conversations with key customers regarding our sabre smart retail engine and dynamic availability products. The recently announced sabre Sonic renewal with Westjet also includes an expansion in our dynamic availability digital connect and intelligence exchange solutions.
Additionally, we are currently deploying and ancillary dynamic pricing engine using machine learning for Etihad and implemented intelligence exchange ancillary as of check in and auto check in with them.
Finally, we are growing our share in the revenue optimization space with recent go lives that several carriers, including Jetblue and golf Air.
Second the future of distribution and in D C.
Our GDS is attracting new content and functionality with carriers seeking to penetrate the TMC market in December we extended and expanded our GDS distribution partnership with southwest Airlines to of new full participation agreement.
We also reached the groundbreaking agreement with Lufthansa group that not only included their current.
The content through traditional GDS connectivity, but also enables content via M. D C.
Of this flexible this flexible agreement bits of post pandemic world and shows the progress we have made with MDC, we achieved IATA level four certification as an NBC aggregator and half for MDC partners now in production.
This is all in addition to extending our GDS agreements with some of our largest customers, including American and United Airlines.
Third low cost carriers, our acquisition of <unk> has helped us specifically target the fast growing low cost carrier space. In addition to the new LCC reservation customer wins discussed on prior calls this quarter, we added another competitive win with <unk>.
We've been investing in <unk> to expand its capabilities, including the development of outbound interline and Codeshare Ing and we believe we can continue to expand our sales opportunities with even more competitive offering.
This is particularly important as we navigate through COVID-19, as we expect the leisure segment to lead the recovery.
Fourth of full service hotel property management system.
This initiative is the one that has been most directly impacted by COVID-19, since our plans to develop of full service Pms with the core had been put on hold in response to the pandemic. However.
However, in addition to addressing the full service property management needs of Hoteliers, we remain focused on growing our Crs business in.
In 2020, we stayed engaged with several enterprise hotelier pursuits as mentioned, we assigned not one but two new enterprise wins with loop hotels, Europes second largest enterprise Hotel group and all inclusive of bye Bye Marriott International together they represent over 600 hotel properties of cross 54 countries with the majority of <unk>.
From Lou.
More hoteliers of turning to sabre to broaden their distribution reach with our Sonexus Crs and to drive incremental revenue opportunities by delivering personalized offers with our sonexus intelligent retailing capabilities.
Finally, our technology transformation.
In 2020 as mentioned we migrated over 250 production applications to the public cloud eliminated over 2500 legacy servers and decommissioned all sabre managed data centers outside of the United States.
We completed the mainframe offload and successfully migrated clients across security inventory reservations ticketing and payment solutions capabilities.
This includes our new agency session management and security product that we talked about last year.
We implemented our first Google cloud platform development and certification of environments and multiple regions across the United States and Europe, including one with incredibly low latency to our current infrastructure in Tulsa, Oklahoma.
We also built out development certification and production environments in the Google Cloud platform for our air shopping.
We have three key tech transformation milestones for 2021 first we plan to move at least 15% of our mid range workloads to the Google cloud platform.
Our first production application travel solutions are shopping is planned to go live in production of the Google Cloud platform and the first part of 2021.
We believe running our future air shopping growth on <unk> is important in a post COVID-19 recovery because of its scalability and cost efficiency.
And third we expect hospitality solutions Crs to also go live in production and Google Cloud this year with the global Multilocation footprint.
In summary, we believe the progress with our strategic initiatives and our commercial success has positioned us well for the other side of the current crisis.
The strength of our financial position, which enabled us to continue to make critical technology investments, including our strategic partnership with Google. We believe we are entering an era of competitive strength with our product and commercial teams working together to create innovative new products more efficiently.
In 2021, we will continue this important work as the travel environment rebounds, we will be ready.
And with that I'd like to turn the call over to Doug Doug.
Thanks, Sean and good morning, everyone.
As expected the impact of COVID-19, pandemic significantly of negatively impacted our results in Q4.
Revenue was down 67% in the quarter totaling $314 million versus $941 million last year.
We've described how the 15% of our revenue of approximately $150 million per quarter is not tied to travel volumes. This remains the case it goes on.
Thanks.
We continue to improve versus the second from third quarter. Our revenue surpassed this figure and has continued to sequentially improve.
Our distribution bookings were down 17, 9% in the quarter with air bookings down 80%.
Lodging ground and sea bookings down 79%.
Roche here of bookings were down 80% 70.
On October November and December respectively.
We report bookings on the net basis, meaning net of cancellations.
Net air bookings were down 81%, 80%.
78% and those same months.
Consequences, our distribution revenue on the quarter was down 79% of $131 million.
When we report Q1 2021 results next quarter, we plan to provide detail regarding the booking trends versus the full 2020 and 2019.
Our it solutions revenue fared better again, this quarter down 40% year over year due to a higher percentage of of not tied to travel volumes passengers boarded were down 50% in the quarter.
Hospitality solutions revenue was down 42%.
With a 40% decline from Crs transact.
Because of our property mix, particularly in the enterprise segment is less dependent on 60 centers conference venues, we have seen relative outperformance.
The central reservation system transactions versus distribution bookings and passengers boarded.
EBITDA and operating income were negative in Q4, reflecting the impact of the COVID-19 pandemic.
The year over year decline in revenue was partially offset by declines in travel solutions incentives expense and hospitality solutions transaction fees due to lower volumes.
Head count expenses due to cost savings initiatives, we've already executed.
And technology expenses due to the lower transaction volume environments.
Net income and EPS were also negative on the quarters driven by the decline in operating results and increased interest.
Expense was higher than expected this quarter.
In addition, free cash flow was negative $200 million in the quarter as expected our free cash flow was reduced by approximately $15 million related to severance payments.
Putting this on a monthly free cash flow was negative $62 million.
Looking ahead to 2021, we have approximately $20 million of severance payments remaining from our 2020 cost savings actions, we expect the first quarter to be the lowest free cash flow quarters, primarily due to the timing of working capital items that will have offsetting.
That's over the rest of the year as well as paying out the majority of the remaining severance balance.
We expect our cash burn rate to improve sequentially throughout the rest of 2021.
In 2020 as described we took swift and decisive actions early in the crisis to reduce cost to increase liquidity and extend our debt maturities in total we strengthen our liquidity position with over $2 1 billion of additional capital in 2020.
Two of our capital market transactions, we raised $1 billion from the issuance of senior secured the exchangeable notes.
588 million the net proceeds from our common stocks and mandatory convertible preferred stock offering.
We drew down on our revolver and the amount of $375 million.
Finally in the fourth quarter, we reduced our real estate footprint with the sale and leaseback of our headquarters building, resulting from the net proceeds of $69 million.
This is in line with our new work from anywhere program as we work to rightsize, our global real estate footprint.
In addition to securing capital we took several other actions to further strengthen our liquidity position.
We implemented cost saving actions with the $300 million expected savings on an annual run rate basis.
Financed over $2 million 2 billion of debt we have.
Our debt maturities to 2024 and beyond and we suspended the common stock dividends and share repurchases.
As Sean mentioned earlier, we ended the year with the cash balance of $1 5 billion net.
No significant near term uses of cash.
The 2020, the actions taken to improve our cost structure and balance sheet enable us to continue our important investments as Sean mentioned, we made considerable progress with our <unk>.
<unk> strategic initiatives. This includes our technology transformation and modernization, which is expected to result in over $100 million of annual savings starting in 2024.
Yeah.
We believe our strategic initiatives will strengthen our financial models, resulting net.
Larger addressable opportunities.
More advanced product innovations.
And more of us sales cycles on the product.
Payments.
<unk> infrastructure and unit economics.
Incremental revenue growth on higher margins.
We are pursuing these initiatives alone. This is all supported by our strategic partnership with Google.
Ultimately, we believe our investments will unlock the ability for us to come out on the other side of the prices with the larger revenue opportunities and lower costs.
Sean back to you.
Thanks, John Thanks, Doug.
I Hope you all have found our remarks helpful. In understanding how we can manage the global pandemic, thus far and what we see as the future. The road to recovery will be bumpy, we are a global company with global customers and recovery in each region of the world may be a little different.
Through our data we believe there is pent up demand for travel again. However, we have also seen increases in reported COVID-19 cases lead to more travel restriction and put downward pressure on the travel recovery.
We are hopeful that with the rollout of vaccines and continued vigilance confidence will be restored and travel will rebound.
In summary, we remain focused and confident in the future and feel competitively well positioned post COVID-19.
I want to once again, thank my sabre teammates around the world for their dedication to serving our customers shareholders and each other during this difficult time and with that I would like to go ahead, operator and open the call for questions.
As a reminder to ask the question you need the press star one on your telephone to withdraw your question Christopher balance sheet. Please standby on compile the Q&A roster.
Our first question comes from Josh <unk> with Morgan Stanley You May proceed with your question.
Thanks for the question.
This is sort of both Sean and Doug.
Imagine for many months in 2020, some of your highest priorities were around getting through the crisis, focusing on employees or liquidity raising capital pushing out debt maturities cutting costs and then even the Google partnership and I am wondering like at this point it seems like most of these.
Areas are stable and it seems like there's a shift taking place where you can focus on other initiatives I'm wondering does that resonate with you the shift.
And.
I guess like what of.
Of those five initiatives or others like where are you now spending most of your time and focus.
Yes, Josh.
Take that and let Doug add on but you're spot on it if you go back to 2020 the.
Major objective that we had is we make sure that.
We did ensure that we have plenty of runway to manage the next.
The managed through an extended sort of global recovery and while we also had in the back of our mind is maintaining our focus on our technology and capabilities and the one thing that we haven't lost sight of is we and this is on a pre COVID-19 basis, we believe strongly in the technology needs that we're driving.
Do believe that we're going to see COVID-19 driving accelerated the changes in the ecosystem. So and I do believe technology will be of catalyst and I think we're well positioned so when you look at it relative to what we have done with cost structure, what we have done with liquidity.
Pushing out the debt maturities I am laser focused on what we are going to be doing post COVID-19 and what I feel really good about is there was a lot of work that was done by the organization essentially organizational alignment streamlining expenses.
That allow really the team to focus on the day to day business really in 2021 and 2022.
There's a group of us that are very focused on the next decades to come because we believe that the initiatives that we put forward a very important and the reason I gave you of some of the data points as it relates to the initiatives as they are essentially important in the conversations that we're having the new deals.
They are very important as it relates to what I've talked about the hospitality. So as I look at it we allowed we've laid the foundation really well, we'll continue to monitor here because as we know it's going to be of choppy recovery, but again I'm looking forward to continuing to drive in the future of this organization.
I don't know if you have anything else.
I might add even though it's not a strategic initiatives obviously the other thing we did do during 2020 was the combined create.
On the TS organization and so one of my focus right now is to make sure that I of the people processes and systems in place to support not only that restructuring, but also these five initiatives because there will be changes from some of our systems and some of our processes to support. These initiatives. So you are absolutely correct I'm more term I turned board of that's now on the future of in the kind of just making sure and sure enough.
And making sure we can get through the pandemic.
Great. Thank you.
Thank you. Our next question comes from Matthew Broome with Mizuho Securities. You May proceed with your question.
Thanks very much.
So in.
In terms of the Google Cloud migration, you mentioned the target of moving at least 15% of your.
Net range well close the DCP the CA.
As the environment now fully stood up and when do you expect the sources of.
On the work needs to be fully migrated.
Yes, so the.
And I'll have Dave Shirk jumping on this as well the important thing that has been taking place really with in 2020 in 2021.
As you heard in my remarks is really setting up the landing zones around the world and there's a lot of essentially migration of data that will be happening.
David If you want to get into maybe a few of the specifics that are taking place it would be helpful from Matthew I believe yes.
Yes, Matthew the answer to your question is yes, we've been setting up the development and certification testing and rollout of environments across the United States in Europe, So that piece is well underway.
We're also moving.
Now.
Interconnected all of the networking and the networking for high capacity.
Capability of exchange that take place around that this is all setting up.
The development and build out areas, we will move 15% of our mid range systems, which is about 250 production applications.
We will start that process, we expect to have the air shopping for travel solutions also moved to the Google platform sometime in 2021.
And then.
My take some steam from my colleague.
Scott Wilson here, that's on the call on hospitality solutions. The team will also be going live in the production. They have their development of test environment set up and so that's also planned for this year. So that's kind of the.
The broad range of the things for this year with the Google platform.
Okay. That's definitely helpful. Thanks, and then regarding the update on your strategic initiatives.
Do you anticipate R&D spend increasing to meet these objectives or do you already have the resources.
That you need.
Yes, I'll, let I'll, let Doug comment on that but it's really within the envelope that we have been talking about and managing to so Doug you can provide a little more color.
We have all the all of the resources, we need right now between us.
The providers. So we're in good shape. It's included in our cost run rate right now.
Okay I appreciate that Douglas.
The last one just in terms of AD bookings do you still need to get to.
70% of 2019 levels to get to the neutral free cash flow.
No what we've done is just given the look.
It will.
Exited the on our cost structure is youre actually correct before depending on what the mix was between business and leisure and the inner.
National domestic because right now those of running a little negative to what we spoke of.
<unk> seen on right now of the Goalposts of you who used to be 60% to 70%, they're now more like in the 56% of 67% range of improved by 3% to 4%.
Great. Thanks very much.
Yes, maybe the add on that you could probably drop but it's just it's a testament to the organization and just managing costs getting more cost out because that is cost driven the other thing that I think is also helpful. For people to understand is sort of what we're seeing on the domestic the international mix.
Historically on the pre crisis basis that has been 45% of 55% International and what we have again to see is that is in Q2.
2020, where that 70 30 mix domestic to international.
It has been improving because of when you look at it the international is more profitable for us.
In the fourth quarter. It was a 60 40 mix. We've also on the leisure corporate basis have seen some trending in the right direction to historically that has been 40% to 45% on a pre kind of crisis basis leisure $50 to 55% on corporate and again in the Q2, we are sort of $75 25 in Q4 were <unk>.
The <unk>. So these are small incremental improvements that we actually see taking place.
Okay. Thanks again.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from Jed Kelly with Oppenheimer. You May proceed with your question.
Great. Thanks for taking my question.
Just looking how your solutions bookings and your GDS booking.
Our trending versus some of them like the TSA data. It seems like the GDS is the sort of lagging some of the overall industry recovery of the solutions is kind of growing more in line.
We're kind of go in the next 18 to 24 months, you sort of expect that GDS and the lag in your solutions segment the become more important and then as a follow up.
Or are you in terms of solutions contracts over the next.
The call it 24 months.
Okay. So Jed let me take the first part of that question and then I'll let.
Scott and Dave talk about it from a from a contracting perspective.
Our correct when you look at it.
I look at sort of the Crs bookings as well as the <unk>, the <unk> bookings, which of the airline it youre seeing that part of the thing that we're seeing as it relates to the GDS and we've talked about this in the past is because theres more of the leisure mix you are finding that more of that is going to airline dot com and.
On that do go back to what I was just referencing as it relates to domestic and international and leisure and corporate as we see the mix begin to normalize back to pre COVID-19 levels of pre crisis levels I think you'll begin to see that GAAP close so.
As we've talked about because we have a large book of our business and the Gds's business related that goes through the GDS, but because of the leisure component of you're finding that you are going to have that mix issue that we're that we're seeing right now so that addresses your first question as it relates to contracting Scott why don't you go first and then Dave <unk>.
Thanks, Sean.
We actually in addition to the two deals we just announced this morning, we actually have seen some of the strongest pipeline or levels of engagement from enterprise hoteliers that we have seen in our history I think of a lot of that goes through the frankly the mixes platform is the.
Not only the most capable CRM platform in the market, but the strength of our distribution network is really important right now and it's hoteliers looking at recovery, that's going to be really key factor in their own recovery. So we're very excited about the next 24 months and we hope to have more to share.
The progressing forward.
Hey, Jed to add the day to add to what Sean and Scott just talked through as you know we've talked about this for.
Years over the last three years, we've got a pretty major renewal cycle on our it solutions set.
That continues to bode well through 'twenty four 'twenty five the other thing as you see here is we had some pretty sizable renewals whether that was west Jed We're lion air.
<unk> those were all strong.
Renewals going forward for many years, and then our operations wins and portfolio of pieces with the likes of Jetstar Australia.
Eric of plant and the endeavor and Mesa those were all.
Nice renewal cycles or wins that took place within the quarter. So.
Navigate through the through the recovery cycle, but right now we own.
We always have a handful of renewal cycles that were working but.
Over 80% of our contracts have been renewed through that 'twenty four 'twenty five period.
Great. Thank you and then just one more quick modeling question for Doug.
Looking for next year I guess, you do have the best visibility on expenses I.
On the <unk> expense numbers in SG&A and tech cost I mean are they a good baseline the model from.
Yes.
With baseline bits of model off of.
Obviously there'll be some merit increases that will come on.
There are good base I think the other thing you should make sure you capture is the Tam.
<unk> rate going forward because in this situation.
Benefit on the losses, you should assume the tax rate of 5% to 10% not 20%.
Thank you.
Thank you. Our next question comes from Victor Chu of Bank of America. You May proceed with your question.
Thank you for taking my question just two from my side.
On the progression of the cost savings of 100 million by 2024, how long should we think about the savings between now and then are they generally proportionate to the west you migrate over to the cloud and then.
The other question is.
All of the friends of approximately 400.002 million 20 cost savings that you have how much of that.
We will be continue forward to 'twenty and 'twenty one.
Thinking about the temporary of head count savings that you have how much of that will well the.
The cover and when do you see that recover.
And that's it from my side.
Okay.
Alright, let me take that.
On your two questions one with regard to at the <unk>.
Last quarter, we talked about the incremental $100 million savings on how that would play out.
It's really no different than what we presented last quarter, mainly the majority of that $100 million.
We will be realized in 2024 and beyond some will come in there on but most of that will come on the majority of it will come until the 'twenty four and beyond.
As regards to the actions number youre actually correct. The actions that we took in 2020 generated.
The savings of $275 million in 2020, however, youre right. Some of those items that you referenced will not continue into 2021, but will continue into 2021 and beyond as the head count savings of $175 million and then some of the benefit from the Dx the contracts of 25 million debt the debt $200 million will continue.
For 2021 and beyond.
Got it thank you that's clear.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Neil Steer with Redburn. You May proceed with your question.
Alright. Thank you very much on that joke with two quick ones. The one follows on from the.
The loss.
So the question that you have the.
Head count reductions of 175 in the deck.
The 25.
As the timing.
Because of leap day through 'twenty, two 'twenty three 'twenty four.
You would not fleet.
Liam.
In the head count.
Is it right to assume the wells.
So you get the initial zone.
Of the.
The 100 to some level of my head count side.
The business would come from revenue.
Obviously there'll be some operating leverage there.
The consideration.
I'll take that in a day.
I'd add on if you'd like I think.
I think what will the the head count.
It'll be modest growth as the way I would describe it but nowhere near proportional to what the topline will go I think the comfortable with where we get some leverage benefits from the increased revenue strength I think we entered the.
You'll remember we kept our workforce solutions continue to invest in the tech transformation of the touch on the back.
So it's not like we're going to have the continued to build up cost in both the support that initiative, so there'll be modest growth.
There won't be proportionate to the top line growth.
Let me jump in Doug on this I think it's important when you look at it and that's where I was going to go relative to what what Doug had stated is when you think about the way that we have managed through COVID-19. It was one that yes, we did take some actions as it relates to cost reduction.
Some of the things that Dave Shirk has led within travel solutions has really streamlined that organization I think that we are finding one of the efficiencies of reduced head count and of its unfortunate because we did have to look of some of our sabre team members, but what I can tell you is the way that organization is running I think has a lot more efficient so I feel good about that.
The other thing is we were very careful on the balance of the number of employees that we let go because we knew that there was a number of things that we needed to get accomplished even though bookings are down transactions are down the level of engagement as you would imagine with customers around the world is very high so sales force.
The people that are focused on that are there as we focus on the technology piece. They continue to move forward. So as Doug articulated I think.
I feel good where we are right now theres always going to be a level of additional head count that will be added in but its going to be really based on what recovery looks like.
Okay. Thanks, and the other question was most of the day with the the.
The true shape of the market in the future.
And then dissipate the material shift from sort of the traditional travel agencies the community to move the.
Yeah.
The booking day.
We're arguing.
Net back if I can use the product.
Normalized market situation the proportion of the bookings from the Otas.
On the pandemic the win.
One of the booking of television.
And then because I'm thinking the importance of it.
The Iga.
Were able to negotiate on the unit free basis.
Yes, good question, Neil and it really does get into what is the shape of recovery and I think the the way that I look at it is listen to be fair. When you. When you really look at it from an airline perspective of hotel perspective, and then you look at it from an agent agency perspective.
Or be at brick and mortar T M sees.
When there is the when theres less of essentially demand that's out there there's going to be probably some rationalization that's taking place.
You would believe you go down the path and we're really seeing this in the numbers that otas have recovered faster than the tmc's have recovered and in doing that.
Leisure driven I think it's all going to be based on the mix of recovery and as I stated leisure will be leading that recovery I think business will be lagging the recovery. So when you think about it booked.
Bookings via OTA will probably be ahead and continue to be ahead of what we're seeing on the TMC basis. When we look probably two to three years in the future and I get asked the question often about business business mix I do think you have to look at it relative to duty of care and how organizations are essentially going to allow employees the travel.
The first step of that is offices actually have to open for people to travel to I think youre going to see domestic travel or short haul travel will be next and then it's going to be the international side. So I do think it's going to be a longer period, but specific to your question Neil I think youre going to see leisure recover faster than the the TMC side of the equation.
The you are optimistic the longer term loans.
There's not going to be on sort of the significant structural shift.
Once we get into much of the travel bag.
Don and I go back to and I've said this on a couple of different times in previous calls I think you do have to go back and look at history and you look at nine of 11, you look at.
Essentially what took place on the financial crisis.
This is bigger than those two to be fair, but there was also of the comment that we're not going to see a strong recovery in business and we did over a period of time. So I think everybody just has to be.
Probably a little cautious on calm about recovery and what it looks like over a longer period of time.
Thank you very much from Q.
Thank you. Our next question comes from Victor <unk> with Bank of America. We proceed with your question.
Hi, sorry, It's me again, just one more question from my side.
I'm just thinking about the obviously the meal kits.
The piece that you're expanding on be it the Google partnership and on the Sabre smart retail and Jane dynamic of availability or.
Or in D C.
Or you're actually hearing from clients on what they are interested in most and I guess, if you will.
What is at the top of the party on it spend ASM.
When the volume recovers.
Yes, Theres a lot in that question and I'll, let Doug talk about the cost component of this.
Part of everything that you just walked through.
Does it go back to the strategic initiatives on what's taking place on if I look at it relative to the retail engine I look at it relative to things that are taking place with Google each and every one of the engagements that is happening on the travel solutions side as well as what's happening in hospitality.
These are key things as it relates to the opportunities wanted to retain business, but also wind business going forward and.
There are important things that if we werent engaged in these things I think it would put us at a disadvantage on the marketplace and everything that we're focused on is the transformation.
So from from that perspective.
Feel good with what we're doing the top of mind for our customers. That's why I stated.
In my prepared remarks, as I was walking through the initiatives, what's happening essentially as it relates to commercial negotiations.
And I would say, it's very high because there are those that are very focused they've done a lot of work as it relates to their own balance sheets from their focus on the opportunities. They see going forward. So I'm encouraged by those discussions that are happening.
Doug I don't know if you want to comment on the cost side, but it really is within the envelope that we talked about.
Within the envelope on I think Victor you were talking about whether or not you are seeing interest from the customer base and I think.
Dave and Sean as I talked about the vast interest.
Lot of commercial discussions going on with both airlines and hoteliers of part of it right now doesn't come out of Q4. So yes. They are top of mind for our customers.
Got it thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Mr. <unk> for any further remarks.
I'd like to thank everybody for joining us today on the update of the.
The 2020 results, but also talking about how we're looking at 2021 and beyond.
I do want to thank my Sabre team members around the world I Couldnt be more proud of an organization on what they've actually gotten accomplished in a very tough period of time, they've been very professional working from essentially different locations throughout the world at home as many of us have.
As I sit here as we've entered 2021.
I also look at it on what we have accomplished really over the past three to four years.
And there's been a lot of discussion of lot of questions relative to not only just how we are managing the business, but what we have done from.
Positioning ourselves financially and Doug and team have done an enormously.
The amount on the work that have allowed us to be in a position that we can lean into the opportunities and I think that's where I'd like to close is.
In the running this organization for the past four years, we are entering 2021, probably with the best pipeline that I've seen.
And in the era that Theres a lot of headwinds. So again. Thank you for taking the time to get the update from Sabre and look forward to talking to you on the future.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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