Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to the Amadeus IT Group First Quarter 2018 Results Presentation. The management of Amadeus will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions]I am now pleased to hand over to Mr. Luis Maroto, President and CEO of Amadeus. Please go ahead, sir.

[Luis Maroto Camino, President, CEO & Executive Director]

So, good afternoon, ladies and gentlemen, welcome the first quarter of 2018 results presentation and thank you very much for joining us today. As always, Ana is with me here to really go through the financial performance. And I will focus on the most relevant developments in the quarter.Let me start in the 1st Slide by reminding you, as we described at our full year 2017 results presentations, our reported performance in the first quarter of the year has been impacted by ForEx effects, the timing of Easter compared to last year and early adoption of IFRS 16 from January 2018.With our reported revenue, EBITDA and adjusted profit increases of 3.1%, 7.4% and 4.3% all respectively for the first quarter of the year. However, our underlying performance has been stronger supported by positive evolution across Distribution and IT Solutions. Excluding the impact from foreign exchange effects and our early application of IFRS 16, revenue and EBITDA grew 8.2% and 7.9% respectively in the first 3 months of the year.So, as you can see, we have had a strong start of the year and we are positive about our outlook for 2018, although it is probably too early to make changes, but we are confident that if things continue as we have seen in the first quarter, we'll be able to beat our estimates. We can also add to that that we expect a lesser strong ForEx impact, if the USD remains at [indiscernible] levels for the rest of the year as the depreciation of the USD against the euro continued during 2017 after the third quarter. For ease of reference, we have included a slide with the average quarterly dollar-euro exchange rate in 2017 in the appendix of this presentation.Now back to our businesses and distribution, we continue to improve our competitive position expanding it slightly in the quarter, although we were impacted by the timing of Easter and a number of effects. Our TA air bookings increased by 3.7% in the first 3 months of 2018 and Distribution revenue grew 2.1%. Distribution revenue was impacted negatively by ForEx and excluding this effect, distribution revenue grew at a mid-to-high single digit growth rate.In IT Solutions, revenue increased 5.1% in the quarter, highly impacted again by negative foreign exchange. And in this case, excluding this impact, the revenue expanded at a low double-digit growth rate. Our growth in IT Solutions was supported by the positive performance in Airline IT and our new business such as Hospitality IT, Airport IT and Payments.Before I move on to our recent developments, I would like to reiterate, as I usually do, that our investments in technology is fundamental. In the first 3 months of 2018, R&D represented 15.7% of our revenue and it was dedicated to supporting our mid-to-long term growth through product evolution, portfolio expansion, new customer implementations, system performance optimization and our continued shift to next-generation technologies and cloud architecture.Finally, our free cash flow grew 6.9% in the quarter and at quarter end, our leverage stood 1.07x last 12 months EBITDA.And we move on, in Distribution, we continued to secure and [indiscernible] content for our subscribers who are renewing or signing distribution agreements with 9 carriers in the quarter, including Eva Air and Uni Airways. Subscribers of Amadeus' inventory can access over 110 low cost and hybrid carriers' content worldwide. Low cost and hybrid carriers' bookings on Amadeus grew 11% in the first 3 months of the year.Our merchandising solutions continued to gain traction in the indirect channel. In the first 3 months of the year, 5 airlines signed up for Amadeus Ancillary Services. And [indiscernible] 6 carriers contracted Amadeus for Families, including Virgin Atlantic Airways.In March, we signed an agreement with the Air France KLM, enabling distribution through a Private Channel. Amadeus travel seller customers with an active Private Channel agreement with Air France KLM will be able to book Air France KLM content through Amadeus without surcharge.Our Airline IT customer base continue to expand in the first quarter. We are proud to announce Philippine Airlines had contracted for the full Altéa Suite. Also, Air Algerie implemented ticketing, revenue management, loyalty, payment and departure control modules of the Altéa Suite, as well as additional digital capabilities. This follows the implementation of the inventory and reservation modules and e-Commerce solutions at the end of 2017.Additionally, Qantas has chosen Amadeus as partner for digital redesign and as part of this ambitious process, Qantas has implemented a number of Amadeus e-Commerce solutions.Also, after its adoption of Altéa in 2017, Kuwait Airways has recently implemented Revenue Management. Finally, during the first quarter of the year, KC International Airlines, a new Cambodian carrier contracted and implemented New Skies, and Finnair contracted Anytime Merchandising.We continue to advance in our newer businesses areas and as part of this, in Hospitality IT, we are progressing in the roll-out of the Guest Reservation System with the IHG, with over 1,000 hotels now migrated to the platform and full deployment expected during this year to early 2019.In Airport IT, Cape Verde Airports, a customer of Amadeus' Airport Common Use Service contracted ACUS Mobile. With this cloud-based solution, travelers are able to check-in and drop their bags off at hotels and resorts in Cape Verde Airport.In Payments, with Finnair as pilot customer, we launched Amadeus Agent Pay, a new solution to facilitate payments of bookings made through airlines' call centers without the need to discuss the customers' payment details over the phone. Finnair is using it not only for its call center but also for its chat-based customer service agents.And we turn to Page 6 for our review of Distribution. Distribution industry volumes increased by 4% in first quarter of 2018 [indiscernible] due to the impact of a lower number of working days in the quarter relative to last year due partly to the time of Easter.By region, both Central, Eastern and Southern Europe and Asia Pac were the industry's faster-growing regions. North America and Latin America reported rapidly more limited growth but still strong. And Middle East and Africa and Western Europe's industry bookings experienced a decline relative to the first quarter of 2017. With regards to our own performance, Amadeus' air bookings increased 3.7% in the first 3 months, pretty much in line with industry growth.We were impacted this quarter in Western Europe by Easter, the ceasing of operations of Air Berlin, and by the loss of share of some mid-size online travel agencies resulting from heightened commercial activity in the market. Asia-Pacific, Central and Southern Europe, both of which benefited from robust industry growth as we also increased strongly our competitive position in all of them. And then, North America, that was our fastest growing region in the market. And Amadeus bookings in Latin America also grew healthily in the first quarter.Moving on to IT Solutions, on Slide 7. Our passengers boarded in the first quarter increased 22.7%. Our growth was driven by the impact from 2017 implementations, including South West, Japan Airlines, Malaysia, Kuwait, Boliviana de Aviación, SmartWings, Germania, Norwegian and Argentina, Air Algerie and MIAT Mongolian Airlines on Altéa, as well as, GoAir, Viva Air Perú, Andes Líneas Aéreas, JetSMART and flyadeal on New Skies.And an organic growth of 7.7%, which benefited from the timing of Easter. Passengers boarded growth in the first quarter was negatively impacted by the ceasing of operations of Air Berlin and Monarch Airlines during 2017. Our new businesses continue to advance well, we today have, 280 customers for our Airport IT Solutions.Hospitality IT continue to grow steadily supported by customer implementations and organic growth. In Payments, our customer base also continued to expand and we have over 1,000 customers with contracted services from our portfolio and the volume of payment transactions processed by us delivered a double-digit growth rate in the quarter.Ana?

[Ana De Pro, Chief Financial Officer]

Thank you, Luis. Hello, everyone. We are now in Page 9. Group revenue grew 3.1% in the first quarter of 2018, as we've seen highly impacted by the negative foreign exchange effects. If we were to exclude these, revenue grew 8.2% supported by the positive performance in Distribution and IT Solutions.Before I move on, let me remind everyone that we have applied IFRS 9 and IFRS 15 from January 1, 2018, and that we have detailed the restatement of our Q1, 2017 figures in Section 3.1 of our Management Review.For the avoidance of doubt, Q1 2017 figures displayed throughout this presentation have been restated for IFRS 15 and IFRS 9 and therefore, growth rates have been calculated over comparable figures. We have also applied IFRS 16 from January 1, 2018, giving rise to new assets and liabilities for our operating leases as of January 1, 2018. And consequently, impacting the recognition of operating lease costs in the P&L. And 2017 figures are not impacted for this application of the standard.As detailed on our disclosure, IFRS 16 had a positive EUR 11.2 million impact on Q1 2018, net indirect costs and therefore, on EBITDA. For more details, please see Section 3.1 of our Management Review.Distribution revenue grew 2.1%, or at mid-high single-digit growth, if we exclude the ForEx impact, underpinned by booking growth, as we have just explained an expansive average revenue per booking, driven by a positive booking mix impact both from a higher weight of global bookings and a declining weight of non-air bookings, which have a lower average fee as well as customer recognition.Revenue in IT Solutions increased by 5.1%, while the low double-digit growth rates excluding ForEx backed by the underlying Airline IT growth and continued positive performance of our new businesses.Airline IT revenue expand at high single-digit growth rates excluding ForEx, supported by higher PB volume and the average PSS revenue per PB diluted as expected, impacted by the higher weight of low cost and hybrid carriers in our customer base.In turn, other the revenue lines, including revenue management, revenue accounting and merchandising, among others, continue to report solid growth albeit at lower pace than the PB volumes. Airline IT non-transactional revenue, which may fluctuate between quarters depending on the timing of the projects undertaken, remain broadly flat in the quarter.New businesses revenue delivered a low double-digit growth rate when excluding ForEx supported by the customer implementations and organic growth.Please turn now to Page 10. Our EBITDA in the first quarter of 2018 grew 7.4% up to EUR 539 million impacted by the negative ForEx effect [indiscernible] already. EBITDA growth resulted from the positive performance of Distribution and IT Solutions and a reduction in net indirect costs as a consequence of the adoption of IFRS 16 in 2018.Excluding ForEX effects and the IFRS 16 positive impact, EBITDA grew 7.9% in the period and EBITDA margin was broadly stable relative to last year.I'll give you some color on our operating cost. Total operating cost, excluding D&A were flat in the quarter versus previous year, and this is a result of cost of revenue growing 9.1%, impacted by positive ForEx effect, which -- the increase was driven by air booking volume growth and a higher unitary distribution costs, which was primarily driven by competitive pressure, a negative customer mix on incentive paid to travel agencies and country mix. Also, cost of revenues was negatively impacted by non-recurring effects related to local taxes.Fixed cost, including personnel and other OpEx declined by 6.2% positively impacted by the ForEx effect and adoption of IFRS 16 in 2018, mentioned before. If we were to exclude both, fixed cost grew moderately in the quarter as a result of a 6% increase in our workforce, a limited manpower unit cost growth and higher no manpower expenses. These effects were partially offset by a reduction in several cost line, such as bad debt provisions which by nature may show a more volatile behavior for the quarter.Below the EBITDA line, D&A increased 13.1%, in particular, ordinary D&A was 15.2% higher than last year impacted by the IFRS 16 adoption. If we were to exclude that, ordinary D&A grew by 5.1% due to previously capitalized R&D costs, which is started to be amortized during the period, partially offset by lower depreciation charges.Net financial expenses declined by 24% as a result of a lower average cost of debt and lower amount of average gross debt outstanding. Also, foreign exchange gains or non-operating assets and liabilities amounted to EUR 0.6 million in the period versus EUR 4.3 million losses in the first quarter of 2017.In this first quarter, our income tax increased by 6.6%. The income tax rate for the first quarter of 2018 was 26%, in line with the tax rate reported in the first quarter of 2017 and higher than the 20.8% rate reported over the full year 2017, which was impacted by a number of non-recurring effects. The combination of growth in operating result plus the growth in D&A and taxes and lower financial expenses resulted in a 4.3% increase in adjusted profit for the period. Adjusted EPS for the period was EUR 0.71, 6.6% higher than in 2017.Turning to Page 11. Amadeus continue investing in R&D, which is for us key to deliver sustained growth and for us to play an important role in the traveler space. Our investment in R&D increased by 10.6%, up to EUR 193 million in the first quarter of 2018, representing 15.7% of our revenue. Our R&D expense, as you know, is [ spent ] in 3 main categories, the largest encompass product evolution and portfolio expansion, including our new businesses, which represent more or less 50% of our R&D investments.During the first quarter of 2018, we continue investing in solutions for merchandising and personalization among others and expanding our resources devoted to our new businesses. We also progressed on the development of our platform to combine content from different sources, such as from existing technology, NDC and content from aggregators and other sources.The second category is customer implementation, which accounts for approximately 20% to 30% of our total R&D investment. And the third one is internal technological projects, which amount for 20% to 25% of the total R&D investment and that focuses on system performance optimization and the continuous enhancement of our overall infrastructure and processes as well as cloud-based architecture and the application of new technologies.CapEx is very linked to our R&D investment, typically more or less 70% of our CapEx is capitalized R&D. And as you know, we only capitalize when there is significant feasibility as to future value generation. Other than capitalized R&D, 15% to 20% of our CapEx generally relates to tangible assets, mainly in relation to datacenter in Erding.And finally, we also invest in contractual relationships and payments to travel agencies in the form of signing bonuses which may be capitalized under certain circumstances.CapEx increased by 5% in the period to EUR 163 million, which represent 13.2% of our revenue. The growth in CapEx was driven by the increasing capitalized R&D investment as well as higher hardware and software purchases relative to last year, which was largely offset by lower signing bonuses paid to travel agencies in the same period.In the first quarter of 2018, we generated free cash flow of EUR 305 million. Free cash flow increased by 6.9% in the period, supported by EBITDA growth and lower taxes and interest paid. We had a working capital outflow of EUR 68 million negatively impacted by accounting effects from non-cash operating items, such as the bad debt provisions, timing differences in payments related to fixed cost and advance of payments to travel agencies.Net debt amounted to EUR 2 billion and at end of March with leverage amounting to 1.1x net debt-to-EBITDA.With this, we have finished the presentation for our first quarter of 2018 results and we are ready to take any questions you may have. Thank you for your attention.

[Operator]

Thank you. [Operator Instructions] We have a first question from Stacy Pollard of JPMorgan.

[Stacy Elizabeth Pollard, Head of Software and IT Equity Research]

I have 2 questions, please. The first one is just on the M&A front. Do you feel you have everything you need in CRS and PMS for hotels or are there some opportunities to acquire technology and/or clients in Hotel IT? And the second question, just relating to Western European booking volumes, they were down, and I guess I see this in 3 buckets, so maybe you can help us understand, first of all, what portion was the Easter effect? Secondly, what portion was reduced volumes due to surcharges? So, obviously you can give impacts from specific airlines, but hopefully, there are enough now to discuss the overall impact of surcharges on GDS volumes, so just how you're thinking there? What you're seeing? And then also, I guess thirdly, the market share loss in Europe on, you mentioned mid-sized OTAs due to heightened commercial activity, can you say whether this will -- this kind of pricing pressure will continue and if there is more pricing pressure looking forward or risk maybe in this region or other regions?

[Luis Maroto Camino, President, CEO & Executive Director]

Okay, I'll start with [indiscernible]. Okay, the M&A, we are always looking for opportunities, it is clear that what we have, as you know, we are developing on the CRS, we believe this is quite unique and special. And also, on the PMS front, we are evolving to deliver the functionality required today for Premier Inn. However, I mean when we do M&A, it's not just about technology. It could be about acquisition of customers, it could be about the teams that we are having and there may be opportunities in the market are not obvious, are not easy, but of course, we are continuously looking for M&A opportunities that can really give us a better competitive position or a better market presence. So, it's difficult to be concrete about that, Stacy, I mean of course, if there is something at the right price available that can fit into our strategy, we are continuously looking into these opportunities. We did some acquisitions. We haven't done in the last year of [indiscernible] but again, if there is something available that make sense, we will continue looking for that. If we took out Western European, let me start giving you an overall picture and then we talk about the Western Europe situation. I mean, I already mentioned that the GDS industry has performed strongly, I mean, you have seen this 4% with [indiscernible] above what we expected, I mean we see North America growing above the average of the last year, pretty well despite Easter. Asia-Pac [indiscernible] in double digit. Western Europe had [indiscernible] decrease, which is above 2%, the decrease. Eastern is an important part of that as we have seen already a recovery coming back in April. At the same time, yes the surcharges and the current situation in Europe may also have an impact. And then we have the Berlin bankruptcy part of the volume is not moving to the GDS, it's really difficult to isolate all these effects in a proper manner. I mean, we have seen that Western Europe decreasing, which is what we expected and this is the reality. When we talk about markets, I mean, you know our policy, we have explained to you, we try to grow on a profitable way, we try to invest on our technology, we try to really choose the customers, we try to really be reasonable on all the deals that we sign. And overall, of course, in the medium term, our goal is to increase, we cannot just be after each single customer because this will definitely deteriorate our profitability. We also need to consider in Europe, the situation to date that between the relationship between airlines, travel agencies, GDSs, [ we took charges ] with the Private Channel agreements. And again, we need to manage this evolution very careful. And in this environment, so much specific medium size online travel agency, because this is what we are talking about, I have decided to have part of their volumes with our competitor. And again, nothing to do with technology, I think it has to do with, in this case, in our view, with some economics. And as you can imagine, not all the travel agencies have the same importance to us in terms of profitability and in terms of the strategic view. And again, in this environment, when there is this movements in Europe, there is also some movements in the ownership of some online travel agencies, some consolidation in some ways, well, there is this impact on some travel agencies have decided this way. We feel extremely comfortable and our goal continues to be in the same in the long run, to keep increasing our share in a profitable way. This is what we have done, and we are confident we will continue with that.

[Operator]

The next question is from Adam Wood of Morgan Stanley.

[Adam Dennis Wood, European Technology Equity Analyst]

A couple from me, also. Just first of all on the IT Solutions business, it's only a small slowdown and obviously there's a number of moving parts here that we need to get decrypted, but it looks as if that business was back ex-Easter, maybe the kind of high single-digit run rate versus the low double-digits that we've been seeing last year and I think you're probably more expecting. Could you just give us a little bit of feel, is that running a little bit below your expectations as well, are there any particular reasons for that, you've obviously had some pretty big migrations going on with Southwest and then IHG, is that maybe taking the attention a little bit away from sales and how should we expect this to develop looking forward? And then just secondly, you are at the low end of your leverage target, we know you've got a buyback plan in place, you know, what's the thinking there, should we be expecting the pace of buybacks to increase to get you back within that leverage target over the next few quarters?

[Ana De Pro, Chief Financial Officer]

Okay, so let me try to explain. I think I was trying to already, especially the reasons for the growth in Airline IT. And as you're saying, there is several different blocks moving in different ways. So, Airline IT expanded at a high single-digit growth, if you are to exclude the ForEx, which I think is in line with the outlook we were given excluding ForEx. And this is basically, of course it's not growing at the speed of the passengers boarded because you have different caption, which is not all of them are growing at the same path or the upsell and cross-sell is growing nicely, but not at the speed of passengers boarded. The same thing happens even with the captions of the new business activities, which are growing double-digit, but not at 22% that our passengers boarded are growing in this quarter. Then in terms of pricing, you have higher growth on the hybrid and low-cost carrier segments, which have a lower unitary fee. So, as a result of all of those combination, we are having IT Solutions revenue growing in line, I think with what we were expecting, but of course below the speed of the volumes that we are showing. But I don't think that there is anything there that we are especially worried about. And then the timing of migration also impacted. So, of course, in the next quarter, in 2017, we already had the migration of Southwest at the beginning of May and then you will have the impact of the migrations happen in this year. In terms of customers acquisition, I think that Luis has mentioned several of the things that have been going on during the first quarter of 2017, which I think we feel quite confident on how the different new solutions is going and we have signed Philippine Airways, with a new customer for PSS. So, I think that to your question [indiscernible] we are moving the focus on sales, I think the answer is no. I think we are quite keen on continue expanding the range of products we sell to our existing customers and bringing new people on board and the same theme for the new business.

[Operator]

The next question is from Neil Steer of Redburn.

[Neil Steer, Partner of Software and IT Services Research]

Just 2 quick ones from me. Thanks very much. The first one is just going back to this issue of Western Europe volumes and the OTA dynamic. If there's essentially another GDS taking OTAs were you were sold and taking it to dual supplies, that essentially is dynamic and if that is the dynamic, how vulnerable are you or what is the likelihood that that will persist as we go over the course of this year and continue into next year?

[Luis Maroto Camino, President, CEO & Executive Director]

Okay. Well, this is not a dynamic, it could be in some specific travel agencies, they made cycle, so one of the [indiscernible] the way they get their economics with different alternatives but it's not the case for everyone. And again, [indiscernible] future is very difficult, really see what will be there. The evolution, and I mean this is always depending on the economics and depending on the decisions of our competitors and ourselves, how we deal with this matter, and as I said before, we have our own discipline internally, our own strategy, our own decisions, but it's not that the travel agencies are moving into that on a general sense, is that some travel agencies may decide to do so depending how they access the content, what are their agreements with the airlines, what are their agreements with us, what are the economics, what is the importance of the technology. So, there is a number of factors. And again, surprisingly or not surprisingly, this is mainly -- this has mainly happened in Western Europe, where the dynamics and the movements and the situation of the online space is still to be clarified. Because, as I mentioned, there has been some movement, and in my opinion, there will still be some additional potential consolidation on the space. So, this will need to be seen in the future how things evolve. But as I said, look in the long run, we feel quite confident about that. We are not, of course, we would like to really get all the volumes at the right economic terms with everyone, but sometimes this is not feasible and this is the case, like I said. Overall in the medium term, we are really confident about our capabilities here.

[Neil Steer, Partner of Software and IT Services Research]

And sorry to get back to, but when the question was asked earlier on about portioning for the decline in the European market between Easter, surcharging impacts and so forth, if the market, as you define, it was down 2% in Europe in Q1 this year versus last year, was surcharging an important component of that 2% or the impact of surcharging, important components of that 2% volume decline?

[Luis Maroto Camino, President, CEO & Executive Director]

Well, it's very difficult, again as I said to, at least, draw conclusions. I mean, overall, we have not seen this intermediation increasing and you can see in the numbers in the last year's, but of course, when you implement a surcharge, there are always some small volumes that can move on specific months in some specific markets. And then again, I mentioned [indiscernible] situation where part of this volume could go to Lufthansa, part of that could go to other airlines, I mean to really extract definitive solutions is difficult. We also have some estimates [indiscernible] Easter, but it's not the same when it's at the end of the month, at the beginning of the month, so it's mainly internal estimations. So, I'm sure some small impact may happen from surcharge, some of impact from Air Berlin and some impact from Easter. When we will have April figures and May, and we see the second quarter and we'll have -- altogether, we'll have a better view of that. As I said, I think all the factors may play may have an impact, but again due to the fact that we have seen in April, [indiscernible] which is expected because of Eastern, okay, we'll have a better view putting it together.

[Neil Steer, Partner of Software and IT Services Research]

And just a very quick one. Ana, you suggested, I think as you were going through the CapEx that CapEx on implementations and so forth was roughly 50%. Was it around about 50% or were you just indicating above 50% or thereabouts? Importantly, Q1 this year versus Q1 last year, now that the Southwest spends ahead of the implementation is actually obviously moved out of the system, can we assume the CapEx on implementations in absolute terms was actually down year-on-year Q1-on-Q1?

[Ana De Pro, Chief Financial Officer]

What I was trying to explain is that normally 50% of our investment goes to new products, new customers, new portfolio, the 20% to 30% is customers implementations and the remaining goes 'to internal technology and the enhancement of our platform.

[Neil Steer, Partner of Software and IT Services Research]

I think that was R&D, I was specifically talking about CapEx.

[Ana De Pro, Chief Financial Officer]

70% of our CapEx comes from R&D, so the proportion goes more or less in the same way. This year what we have had is a reduction of the CapEx on signing bonuses in the first quarter, which have offset mainly the increase on CapEx that we've seen on the intangible assets, which is the capitalized R&D that's basically the trend. And we have customer implementations, you're thinking of Airline IT customers, which of course account of a larger part of the investment, but we have also implementations of new travel agencies, of new airports or airports acquiring additional solutions, et cetera. So, there is not -- and we have new customers, which we are working for, like Air Canada, we will start with Philippine and we have also implementations of other modules on other customers. So, in overall terms, the percentage remains more or less as they will be.

[Operator]

The next question is from John King of Merrill Lynch.

[John Peter King, Research Analyst]

2 questions, please. First of all, on the market share dynamics. Obviously, historically you've taken a lot of market share, I think principally because of the technology platform that you have to -- you've had -- is there anything that you've noticed in the competitive environment where some of your competitors have maybe stepped up a little bit in terms of things like response rates that maybe make them more of an option in the OTA space than they were previously? Or do you maintain your lead in technology is still pretty robust, and this is really about economics? That was the first question. And the second one, actually following on from what Ana, you were saying that you didn't mention Hospitality IT rollouts, so just wondering if you can give us an update as to how that's going. Generally, is that on track obviously, I think we saw a slight push out through the IHG timing last quarter, I think you were saying that was more from the customer side than yours, but just be interested in internal development there, whether that you felt is on track?

[Luis Maroto Camino, President, CEO & Executive Director]

I mean, on the technology front, I mean we invest a lot of money on the technology front and in the area of sales retail potential. We have launched new capabilities, new functionalities on that front. And of course, some other competition all the time so people -- I'm sure our competitors are also evolving their technology. And trying to really catch up and we are trying to be ahead of the time, and they will try to really be ahead of us, it's very difficult. I mean, it's more subjective statement, our belief is still we are ahead of that. this is our belief. But again, I mean it's not something that, of course, it could be debatable of that, but we are continuously investing a lot of money on that front, a lot of resources and a lot of capabilities to do so. However, again, what I can tell you is that in the case of these specific cases we are booking, I don't think it has to do with technology at all. It's not that okay, customers are happy with our technology release that they have a better technology. That's not what we get. But it's more about, as I mentioned, optimization of economics and also the relationship they have with airlines and the situation between the different models that today are happening in the European market, and we deal with that, okay?

[Ana De Pro, Chief Financial Officer]

And in terms of the rollout of IHG, as far as today, we have already to 1,000 hotels implemented, there are more or less 6,000 to be implemented and we will finish that by the end of 2018 or the beginning of 2019, as expected.

[Operator]

The next question is from Michael Briest of UBS.

[Michael Briest]

A couple from me as well. Just in terms of revenue management, I noticed that you are now reporting 35 customers have signed up. Can you talk about how that business has accelerated because you don't give numbers every quarter but I thought of just a handful of customers 6 or 12 months ago on what the pipeline is for new additions into 2018, '19? And then secondly on the hospitality side as well, can you say where you are with Premier Inn, in terms of whether you're actually starting to roll-out there yet, or when that will start and hopefully end? And also, if there is a -- you would be optimistic of adding new logos sometime in 2018 or not?

[Luis Maroto Camino, President, CEO & Executive Director]

Okay, I take the Revenue Management. I mean, this is an important product for us, it complements very well our portfolio of solutions. It takes time, it's quite strategic, as you know, dealing with the yield and we have been implementing and convincing customers to work with us on an ongoing basis. [indiscernible] accelerated in the last months, and of course, we have a portfolio or pipeline of potential customers to get into that solution. I mean, again, we are optimistic, we feel we have done the right investment, the product is good and hopefully will be a successful product. Again, I mean the size of course, in terms of revenues, is not less than the full Altéa Suite. But it's having additional revenues and additional services to do the Airline product. So yes, the product is going well and we are having a good traction and expect to really get additional customers, more than that is difficult to be concrete about the product. With regards to hospitality, I mean Premier Inn, I know, Premier Inn, we don't disclose, I think we don't disclose the specific matters here, I am looking around to the people because I don't know what is public really, but look, the project is going as suspected and there is not much more to say, I mean it's own plan, good relationship according to what we have agreed with the customer, working with them and evolving as expected. In terms of pipeline, of course, we have mentioned before, we have a good pipeline of customers that we are having conversations. Today, the focus again is to really continue with the roll-out of these 2 customers. I'm talking here of the CRS and the PMS. I'm not talking about sales and catering, which is having a different maturity and of course we continue selling this product. But for the CRS, I mean, we need to mature again, the product to really what we call prototype, which is mainly getting customers that can't make the product available and mature to be rolled out. We are still in the process of working and improving the functionality with IHG and of course, same with Premier Inn, the richness of the functionality will be there. And then of course, having the opportunity to roll-out the product as much as we can, it doesn't mean we are not selling, but the focus to the Asian delivery, what we have committed to the customer and finishing the functionality. So, look [indiscernible] in 2018, difficult to say at this point, I mean we are having conversations with potential interested customers that are seeing now the functionality, the feedback from the implementation we are having with IHG from the hotelier seems to be positive overall, and of course, we'd like to say as much as we can, because this is part of the game on this industry.

[Michael Briest]

And just on the NDC Level 3 aggregator status, have you got a sort of more exact date on when you expect to achieve that?

[Luis Maroto Camino, President, CEO & Executive Director]

Not exact date. I mean, we have said that it will happen during 2018, and this is where we are, okay, so nothing has changed. Again, this is according to our [indiscernible] plan but of course, we are having debates with travel agencies and airlines how to -- how we will implement that and how we are going to be certified on that front.

[Operator]

The next question is from David Togut of Evercore ISI.

[David Mark Togut]

2 questions please. You have highlighted strong 4% GDS industry growth in the first quarter. What's your outlook for GDS industry growth for this year as a whole? And would that be equivalent to global airline traffic growth or is there any change in disintermediation expected?

[Luis Maroto Camino, President, CEO & Executive Director]

Again, today we have seen a strong performance, it's also through a strong performance in terms of traffic from the airlines. So, disintermediation again, we don't expect big changes on the disintermediation front. So as far as the traffic keeps us strong, I mentioned at the beginning, I mean look, this 4% was a very positive figure. So, of course, with the impact of Easter, this figure should be better going forward, but too early to really see what could be the final outcome. That's why we said, look, if things continue as they are, seems to be a very strong figure. The traffic is also good, so figure seems to be ahead of what we originally plan, but again to really have a prediction about the rest of the year today, both for traffic and for the GDS industry is a bit difficult, okay? But today, the figures of the first quarter seem to be strong, definitely.

[David Mark Togut]

Quick follow-up, and you've commented on this earlier but Travelport grew its agency commissions by 4x the rate of revenue in the first quarter and of course that includes the virtual payments business. And you've already addressed Western Europe, but I'm curious if your primary competitors continue to be very aggressive on travel agency commissions, are you prepared to take any steps to counter that?

[Luis Maroto Camino, President, CEO & Executive Director]

I mean, I mentioned at the beginning, look, we try to balance the environment, the customers, with some customers we may be more aggressive, with some customers we will not, and this is part of our daily life. And again, our objective again is to keep this business for the long term and look -- take the right decisions. Of course, we kind of be in the shoes and take the decisions on behalf of our competitors, they have their own strategy, of course, it's not that we don't compete with them. But we need to choose our battles on the side, how we are going to handle that, because we believe this will bring us to the right place in the medium term, we continue investing a lot on the technology front, we also make payments, to travel agencies [indiscernible] we have now deals, again as I mentioned, related to the situation in Europe with airlines. We have also the privates channel agreements. So, all of that plays into account and then we will take decisions based on individual names and individual customers. So it's very difficult to really have an absolute answer about that, it's one, we'll try to find a way, overall, as you have seen, we are still increasing. And we are having a very strong growth in some parts of the world. And in Europe, I'm sure at one point, we would also have increases of markets there, but again we think about the medium term not about the next 3 months. But, of course, depending on the competitive environment, we'll take our decisions.

[Operator]

The next question is from Suhasini Varanasi from Goldman Sachs.[

[Suhasini Varanasi, Equity Analyst]

Just a couple from me, please. On hospitality, if I remember correctly, I know you mentioned that it grew low double digits in the first quarter ex FX. I just wanted to check given you've just done 1,000 hotels for IHG, as this rate continues to increase through rest of the year, do you expect acceleration in this hospitality revenue growth through second half of the year? And the second one is, relating to IHG, obviously, since the contract was signed a few years back, they have expanded in size, increased the number of branches, hotels, rooms, etc. Is that something that's probably going to help with the revenues from this contract? Not asking for details, just generally, help with -- do you think the expansion and the size will help with revenues compared to your initial expectations?

[Ana De Pro, Chief Financial Officer]

What I said is that new business, part of the business was growing double digit, low double digit, excluding the ForEx. I have not disclosed which part is for hospitality or which part is for airports is. In general, all of the new business activity that is growing double-digit. And our business is volume driven, so of course the same way we grow with our customers in airline as they grow the passengers that they board or that we grow with travel agencies as they continue to increase in the number of bookings, if hotels today or in the future may work with us continue to expand as we charge their transaction driven business model as volume grow, we grow with our customers, that's part of our business model. So, I guess the answer is that in the future, yes, if the customers that we contract for CRS, PMS or any other kind of solutions continue to expand and get more properties and have more bookings in those properties, where our revenues will grow with them, because it's a transaction driven, based on volumes business model.

[Operator]

The next question is from Alex Tout of Deutsche Bank.

[Alexander William Tout, Research Analyst]

Just the dynamics going back to the Distribution side of things, the dynamics, where you saw a fall in volume in Western Europe, but an increase in the average booking fee. Can we take this to mean that the Private Channel efforts that have been announced where you should logically see -- continue to recognize volumes but see a lower-booking fee, those have so far had minimal impact and the most of the surcharge affected airlines are seeing their GDS bookings declining as agents move to direct. And how do you expect this trend to develop going forward? And then just on the IT Solutions side, can you give us some kind of idea of what the [indiscernible] passengers boarded growth was organically and in terms of the passengers boarded fee within IT Solutions, is that trending in line with the trends that you've outlined previously around the mix shift towards low cost carriers, Navitaire or anything else to note there?

[Ana De Pro, Chief Financial Officer]

Okay. So, let me try to help you in understanding how the booking fee is moved. So, within the booking fee, you have the mix, which means mix within like-for-like airlines, if you have more global bookings compared to more local bookings that impact the evolution of your booking fee, then you have the mix between different kind of products. So, it's not the same, if you're talking about bookings for airlines or bookings for rails or bookings for hotels, which also have different pricing and depending on how the volumes go up and down, that also impacts the booking fee and then of course you have renewals of agreements that happened across all the regions. So, if you see the numbers in the first 3 months of the year, we have renewed content agreements and the same thing happened last year, which also have an impact on the evolution of the booking fee. So, we do not disclose individual customers, so I'm not going to enter into the agreements that we may get on our Private Channel or with a given airline, but those are the dynamics, which are effectively helping us on the unitary booking fee evolution in this first 3 months, where all of those have worked on the positive side. So, you have a positive mix in terms of the regions where the bookings have been originated, a positive mix on the kind of bookings that we have here [indiscernible] and a positive outcome of evolution of the different agreements that we have had with airlines in unitary terms across all the regions. So all of them have worked positively to support this growth on the unitary booking fee. And in terms of the IT Solutions, we don't disclose the organic growth for Altéa or New Skies, what we are giving you is that the total organic growth has been around 7%, of course, that has been boosted by hybrid and low cost more than by full service and also because there has been some strikes, the weather conditions that have also impacted organic growth more on the full service carriers than on the low-cost. But Navitaire basically serves the low-cost carriers and their traffic growth organically as per the low-cost organic growth, which is higher than the full service.

[Operator]

Thank you. There are no further questions. I now give the word back to Luis Maroto for final remarks.

[Luis Maroto Camino, President, CEO & Executive Director]

Thank you very much again for joining the call, and we will talk again with the first half results. Thanks a lot, and have a nice weekend.