Release Date: July 31, 2020
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) has seen a gradual improvement in air travel bookings, particularly in domestic markets like China and the U.S.
- The company has implemented a comprehensive cost reduction plan, aiming to save approximately EUR 550 million in 2021 relative to 2019 costs.
- Amadeus IT Group SA (XMAD:AMS) has maintained strong liquidity, with EUR 4.1 billion available, ensuring financial stability through 2020 and 2021.
- The company continues to secure new contracts and renewals, including significant deals in Distribution, Airline IT, and Hospitality sectors.
- Amadeus IT Group SA (XMAD:AMS) is accelerating its digitalization and integration programs, which are expected to enhance operational efficiency and customer engagement.
Negative Points
- The COVID-19 pandemic has severely impacted Amadeus IT Group SA (XMAD:AMS)'s financial performance, with a significant decline in revenue and EBITDA.
- Air bookings and Distribution revenues decreased by 78.6% and 73%, respectively, in the first six months of 2020 compared to the previous year.
- The company experienced a negative free cash flow of EUR 462 million in the second quarter of 2020.
- Amadeus IT Group SA (XMAD:AMS) has had to increase its bad debt provision due to the reassessment of credit risk among its customers.
- The company is facing challenges in predicting the recovery of air travel, making it difficult to forecast future financial performance accurately.
Q & A Highlights
Q: Could you talk about how useful your liquidity position could be in enabling you to win business over the next 12 to 24 months? Would you be willing to use cash to help agents migrate to you and also to help airlines pay for migrations?
A: (Luis Maroto Camino, President, CEO & Executive Director) Yes, liquidity is important, and while we need to protect our cash, we can work with our customers to support them and secure additional business for the medium term. We are having many conversations and may be more flexible in some cases, balancing between additional business and cash protection.
Q: Can you help us understand the phasing of the extra EUR 200 million in costs related to the cost savings plan? Is this primarily a second half '20 or more a 2021 expense?
A: (Ana de Pro Gonzalo, CFO) Most of the implementation costs will happen throughout 2020, with some extending into 2021. We will provide details as they are recorded in the P&L and cashed out. The majority will occur in 2020, ensuring that all savings are realized for the full year 2021.
Q: What level of bookings relative to 2019 would you need to achieve an EBITDA comparable to the 2019 level with the new cost base?
A: (Ana de Pro Gonzalo, CFO) It's difficult to provide an exact number as it depends on the mix of local, domestic, direct, and travel agency channel bookings. However, a proxy is that a 1% reduction in traffic typically results in a 1% reduction in underlying EBITDA. Adding the incremental cost savings, you can estimate a breakeven point.
Q: Can you explain why all bad debt provisions went against IT Solutions and not Distribution?
A: (Ana de Pro Gonzalo, CFO) The bad debt is more related to hospitality within IT Solutions. In Distribution and Airline IT, which are transaction-driven and collected through clearinghouses, there is less need for bad debt provisions.
Q: What types of projects are taking cuts versus what remains core in your cost reductions?
A: (Luis Maroto Camino, President, CEO & Executive Director) We are maintaining all strategic projects such as NDC, merchandising, and investments in Hotel IT. We have prioritized and delayed some projects but continue to invest in key strategic areas. The cost savings come from optimizing operations and accelerating some initiatives.
Q: Are you seeing any changes in competitive positioning or aggressive moves from competitors?
A: (Luis Maroto Camino, President, CEO & Executive Director) No significant changes in competitive dynamics. We continue to engage with customers and compete as usual. The competitive landscape remains stable.
Q: What are you seeing in Airport IT? Are airports investing for the longer term while air traffic is slower in the short term?
A: (Luis Maroto Camino, President, CEO & Executive Director) Yes, airports are taking this opportunity to modernize their systems. We continue to receive RFPs and work on implementations. The activity in Airport IT remains high, with many airports moving ahead with their projects.
Q: Can you provide a cumulative PB volume for the airlines yet to be implemented?
A: (Ana de Pro Gonzalo, CFO) We have many airlines to implement, some from the existing pipeline and some new. The largest one is over 40 million PB, but we cannot disclose further details due to commercial confidentiality.
Q: How does the current mix of domestic, leisure versus business travel affect the actual fee rate you are achieving in Distribution?
A: (Ana de Pro Gonzalo, CFO) The recovery is more on domestic travel, which impacts the mix. However, the overall pricing effect is difficult to determine due to the low volumes and various revenue lines. The contracts are long-term, and the pricing impact is minimal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
