Release Date: November 07, 2019
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Amadeus IT Group SA (XMAD:AMS, Financial) reported double-digit growth in revenue, EBITDA, and adjusted profit for the first nine months of 2019, with increases of 15%, 11.1%, and 11.9%, respectively.
- The company saw strong performance in North America, with volumes growing at a double-digit rate.
- IT Solutions revenue increased by 31.1%, driven by high single-digit growth in IT Solutions and the consolidation of TravelClick.
- Amadeus IT Group SA (XMAD:AMS) continued to invest significantly in R&D, which amounted to 16.9% of revenue, supporting long-term growth and technological advancements.
- The company expanded its global competitive position by 0.5 percentage points, or 1.3% excluding India, demonstrating resilience in a weak GDS industry.
Negative Points
- The travel agency booking industry declined by 0.8% in the first nine months of 2019, and by 1.1% in the third quarter, excluding India.
- Amadeus IT Group SA (XMAD:AMS) faced challenges in Asia Pacific, particularly due to the situation in India, which negatively impacted bookings.
- The company experienced a high number of airline customer bankruptcies, including Germania, bmi Regional, Avianca Brasil, Avianca Argentina, Thomas Cook UK, Aigle Azur, Adria Airways, and XL Airways France.
- Net financial expenses increased to EUR 43.6 million, mainly due to the TravelClick acquisition, impacting both non-operating exchange losses and interest expenses.
- The company faced geopolitical and macroeconomic challenges in Western Europe and Asia Pacific, affecting overall performance in these regions.
Q & A Highlights
Q: The first question I wanted to ask you is regarding the cross-sell in the airline IT business that you highlighted. Are you primarily seeing the cross-sell take place to Altéa customers? Or do you see Navitaire customers as well taking up the various modules beyond the core?
A: Well, it's mainly Altéa. But of course, we are also using our technology as much as we can with Navitaire customers. But it's mainly the integration with Altéa and the growth developed with Altéa. We also have non-Altéa customers, both our solutions, such as flight management. I mean we have reported on being successful and Revenue Management, we have also sold to Alaska, we have reported that. So the majority of the customers are taking that are Altéa customers.
Q: Can you shed any light on the economics of the private channel agreement with TAP Air Portugal? Is it broadly the same as the traditional full content agreement?
A: Unfortunately, as you can imagine, we do not provide any color on a strategic commercial agreement with any customer. If you are more broadly talking about the overall impact on the renewal of contracts when we have content agreements with our different air providers, normally, as you know, we try to obtain neutral to positive outcomes of the overall negotiations, but we are not going to disclose any specific individual ones.
Q: Could you give us any feel for how material the contract in Japan on the GDS side could be for the GDS business going into 2020?
A: The migration of travel agencies out of the active platform as [job] decommission it and we are the preferred subscriber, will take time. That won't be completed before 2022. So the uptake of bookings would be gradually. So we do not expect a large impact on 2020. And overall, if you take the volumes once completed and taking into account the take-up that we may be doing, it could amount more or less up to 1% of our [12] bookings.
Q: Air France at its Capital Markets Day described the change in their distribution, and they were saying that a combination of direct and NDC bookings have gone from 40% to 47% of their mix over the last 2 years. Has the weakness in the distribution business over the last sort of 6 or 7 quarters been macro-driven and India? Or is that also because you've seen some shift in these channels towards direct?
A: It's a combination of different factors. India is quite important because as we have been reporting, I mean, in India, we had a decrease on the GDS in this year. And in this quarter, it was minus 20%. That was an industry that was growing double digit last year. So this is quite important in terms of industry. Then, of course, when you see the airlines pushing for direct, specifically in Western Europe, yes, this has had an impact in moving to direct, not really related to NDC. It's more the direct channel, much more than NDC these days. So yes, there is some increase of direct sales, I would say, in the European carriers that are adopting more the strategy of some discrimination between the direct channel and the indirect channel. But this is very full to our -- and overall, when we exclude these specific impacts, we haven't seen an increase overall of the disintermediation effect. Okay, when you exclude the specific airline points on concrete cases, plus India, overall has been quite stable. Then, of course, the geopolitical environment has had another big impact. And we have seen that in the Middle East with the situation that is happening there. We have seen the impact of some of bankruptcies of airlines, Aigle Azur and Thomas Cook, all that is having impact, but overall, hopefully, I mean, of course, the overall economic environment is difficult to predict and the geopolitical environment. But hopefully, some of these effects, such as the one of India will start to really not playing in that negative impact there has happened this year as one of the impacts happened at the end of the year, and the bankruptcy of Jet Airways was in -- at the beginning of April. So hopefully, as the time goes on, the negative weight of that and the same with the situation of the European carriers that you mentioned before.
Q: When we do have carriers move and look more at NDC, could you describe, again, generally, the economics for you? Is there any change or material change from what you would have had under the traditional distribution channels?
A: No, not really. No. For the time being, we don't expect that at all. Of course, we are dealing with airlines related to NDC. But in principle, the economics will be quite similar to the ones we have today.
Q: The distribution revenue growth was 5%, quite impressive, given that air bookings were just 0.5%. You've listed a number of reasons. I wanted to, if you don't mind, dig in on 1 or 2 of those. You mentioned volume, booking mix, pricing, et cetera. But this double-digit growth in payments distribution, could you give us an idea of the order of magnitude in terms of the size of that business?
A: Our distribution payment, which is B2B Wallet that we've been talking about for some years, has gained considerable traction in 2019 driven basically by new customer deals. We won't be disclosing the size, but as I mentioned during our presentation, if you are to exclude the distribution payment, the distribution revenue growth was solid, mid-single digit, both in the quarter and in the 9-month period.
Q: There were some nonrecurring effects, just double checking what those were. And then finally, there is FX. And I was wondering, we estimated about a 2% tailwind. Does that sound about right to you?
A: Relating the nonrecurring effects, which were positive in the quarter. But I think it's also important that -- to notice 2 things. First, there were overall negative in the 9-month period. So we repeated many times that you should not look on a quarterly basis because we always have things that may go up and down, contained, renewal, negotiations, et cetera. So the overall 9-month period, the one-off has not only not been positive, but has been negative. And then I would also like to highlight, it is a specific one on the quarter has a negative parallel effect on cost, and therefore, a negative impact on EBITDA. So this positive nonrecurring effect on the revenues in the quarter does not flow down to the EBITDA. So I think that we have seen quite a solid underlying distribution revenue growth based on the performance of our market share gains, which has given us positive volumes despite a weak
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
