Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to the Amadeus First Half 2021 Presentation Webcast. The management of Amadeus will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions]I'm now pleased to hand over to you, Mr. Luis Maroto, President and CEO of Amadeus. Please go ahead, sir. Thank you.

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

Hello, everyone, and welcome to our second quarter results presentation. Thank you very much for being with us today. Till is here with me. And as usual, I will focus on our most important developments in this quarter, and Till will elaborate on the key financial aspects. So let's start with an overview of our results in the quarter.In the second quarter of the year, our group revenue amounted to EUR 624 million, decreasing by 56% with respect to the second quarter of 2019, advancing from the evolution we saw in the first quarter. This progress is driven by improvements in our volumes evolution, coupled with cost efficiency, supported EBITDA generation. EBITDA excluding cost savings implementation costs expanded to EUR 145 million in the quarter, also comparing favorably to last quarter's results.Free cash flow performance amounted to EUR 79 million cash outflow in the second quarter, excluding cost saving program implementation costs paid, impacted by unexpected working capital effect. For the first 6 months of the year, we have had a minus EUR 47 million free cash flow result. Supported by further volume progress and positive working capital dynamics, we expect free cash flow generation to continue to strengthen in the second half of the year, as Till will explain later.We had an adjusted profit loss of EUR 24 million in the quarter, also demonstrating a positive trend from prior quarter. Finally, our cost optimization efforts continued to yield results and will accelerate our profitability and cash generation as volumes recover. In aggregate, to date, in the year and compared to 2020, our total fixed cost reduction amounted to EUR 168 million.If we go to the next slide, Slide 5, for a market update. Throughout the second quarter, our volume performance has continued to improve with an acceleration in the month of June, the best performing month to date since the start of the pandemic. Our travel agency air bookings declined by 67.6% in the quarter compared to the same period in 2019, advancing from the minus 79% reduction that we saw in the first quarter.Throughout the first 6 months of the year, the Amadeus monthly air booking growth rates versus 2019 gradually improved each month with a step up in the month of June, where our bookings declined by 58.7%. By regions, North America continued to be the best-performing geography followed by our Eastern Europe region, which includes Russia. All regions saw the improvement in volume performance in the second quarter versus the first quarter with the most notable advances taking place in North America followed by Western Europe. In the second quarter, Distribution revenue declined by 66.4% versus 2019, progressing with respect to the minus 77% revenue evolution in the first quarter.Our passengers boarded contracted by 67.7% in the quarter compared to the second quarter of '19, representing an improvement over the minus 71% growth we saw in the first quarter. Monthly growth rates versus 2019 improved sequentially through the quarter, most notably in June, where passengers boarded declined by 63.4%. Our best performing regions were North America and Latin America. In the second quarter led by North America, across the board, practically all regions reported improvements in the passengers boarded performance relative to the first quarter's evolution.IT Solutions revenue contracted by 42.8% in the quarter versus, again, the period of 2019. This result a continued improvement over prior quarters was supported by revenues across our business portfolio not directly linked to airline traffic or not driven by transactions, particularly in the area of hospitality and airport IT. Most recently, in the first half of July and compared to the same period in '19 in relation to our bookings, we saw an evolution that remained very much in line with the evolution in June, despite some change in mobility restrictions in different geographies. With respect to passengers boarded, we saw a relevant uptick in the first half of July compared to June as this was seen across regions led by Western Europe and North America.To recap on volumes, I would like to say that we see clear demand and intention to travel as restrictions and quarantine requirements are lifted or lessened. We have seen some progress to date in volumes, and we are optimistic that as vaccination programs advance across the world and travel protocols and rules also evolve, it should translate into a more consistent and stronger recovery over time.In addition to this, I will add that we continue to see commercial momentum in our conversations with existing and potential new customers and the business pulse is good.Please turn to Slide 6 to give you a business and corporate update for the quarter. In the second quarter of the year, in Distribution, we signed 16 new contracts or renewals of distribution agreements with airlines, including Virgin Australia amounting to 37 signatures in the year to date. We continue to make good progress in relation to our NDC strategy through agreements signed on the airline front with United Airlines, Qantas, Qatar Airways, LOT and Kenya Airways as well as on the travel agency side with tiket.com in Southeast Asia, and Seera Group and Sharaf Travel in the Middle East.In relation to Airline IT, we had a number of developments. LOT Polish Airlines signed a renewal agreement covering a wide range of state-of-the-art solutions related to passenger services, airline operations, revenue management, merchandising, passenger disruption management and digital experience. Vistara, the Indian carrier, contracted for Amadeus Network Revenue Management. Nordica, a small Estonian Airline, contracted and implemented a full Altea PSS suite as well as other solutions. Air Burkina implemented the Altea PSS and will implement Amadeus Digital Experience Suite. Uganda Airlines implemented Altea DCS and additional solutions. And finally, Breeze Airways in the U.S. implemented Navitaire New Skies. In Hospitality and in Airport IT, we continue to renew contracts and to grow our respective customer bases. I will list some. In Hospitality, commercial activity included Marriott signing for an expansion of our partnership by adding the Demand360 business intelligence solutions. Also Swire Properties Hotel Management, Siyam World and Millennium New York for Amadeus Digital Media. Shiji, a leading hotel information systems player in China, has partnered with Amadeus to add hotel accommodation options in China to the Amadeus Travel Platform.In Airport IT, Pristina International Airport will automate the check-in and bag drop processes with Amadeus solutions in the U.S. Syracuse Hancock International Airport contracted for ACUS. Also Kansas City International Airport contracted for Amadeus Biometric Solutions, and Pittsburgh International Airport signed for deployment of FIDS.Finally, from a corporate update perspective, we welcome the Europe Commission's decision this month to close the investigation into our agreement with travel agent and airlines opened in November 2018.I will now pass on to Till for further details on our financial performance.

[Till Streichert, Chief Financial Officer]

Thank you, Luis. Hello, everyone. Please turn to Slide 8 for an overview of our revenue in the period. As Luis has explained, our group revenue declined by 56% in the second quarter of 2021 relative to 2019. This evolution represents an improvement over the first quarter performance and resulted from Distribution revenue declined by 66.4% versus 2019. This was driven by the lower volumes in 2019. Distribution revenue per booking diluted, impacted by negative cancellation provision and local booking weight effects. These impacts were partly offset by contraction from other revenue lines such as revenues from travel agency IT solutions at softer rates than the travel agency bookings decline.IT Solutions revenue decreased by 42.8% versus 2019 driven by the lower PB volumes than in 2019. IT Solutions revenue outperformed passengers boarded growth, supported by nontransactional revenues and revenue streams not directly linked to airline traffic, mostly in Hospitality and Airport IT.Please note the following with respect to our unitary revenue metrics. In the current situation, our quarterly Distribution and IT Solutions unitary revenues, that is Distribution revenue per booking and IT Solutions revenue per PB, are distorted by the lower-than-usual volumes and by other factors, such as the revenue mix from different businesses, the different evolution of transactional versus nontransactional revenues or of revenues linked to air traffic versus nonair traffic-linked revenues.As volumes continue to advance towards 2019 levels, we expect our unitary revenues to trend to 2019 levels. During this period, our unitary revenue metrics will continue quarter-on-quarter, impacted by the effects mentioned. For 2021, we expect dilution in Distribution revenue per booking relative to 2019 levels driven fundamentally by the booking effect. We expect this Distribution revenue per booking dilution will likely be in the single-digit percentage range. And we expect the revenue per PB, which remains abnormally high at the moment, to expand less in relation to 2019 in the following quarters than it did in the prior quarters as PBs continue to grow and nontransactional revenues or revenues not linked to air traffic are not impacted by this PB growth.Please turn now to Page 9. In the second quarter of 2021, our EBITDA excluding implementation costs amounted to EUR 145.3 million; a 75.3% contraction versus the same quarter in 2019, resulting from the combination of the revenue decline just explained; a 72% cost of revenue reduction very much linked to the booking volumes evolution; and a 19.4% decrease in our combined personnel and other operating expenses cost line, supported by our cost efficiency plan.Below EBITDA, in the second quarter, D&A expense declined by 33.1% relative to 2020, resulting from less PPA amortization and no impairment losses accounted for in half 1 partly offset by a small increase of 5.3% in ordinary D&A. Despite an increase in interest expense driven by the new financings in 2020, net financial expense declined slightly by EUR 0.4 million compared to 2020 due to a reduction in exchange losses.Income taxes adjusted for the tax impact from the cost saving program implementation costs amounted to an income of EUR 11.4 million. The group income tax rate was at 28.0%. Supported by the EBITDA evolution, adjusted profit improved to a loss of EUR 23.6 million in the second quarter of 2021.Turning to Page 10 to review our cash flow evolution. Let's start with CapEx. In line with our cost optimization goals, CapEx declined by EUR 50.3 million or 19% in the first half of the year versus the same period of 2020 on the back of a lower CapEx on intangible assets and a reduction in CapEx on property, plant and equipment. The decrease in CapEx on intangible assets over the first half of the year was mostly due to a lower capital -- due to lower capitalizations from software development resulting from a 23.4% decline in R&D expenditure, where we followed a selective approach and prioritized our investment into the most strategic projects.Free cash flow in the first half amounted to an outflow of EUR 47 million, excluding cost saving implementations costs paid. This performance was mainly driven by our EBITDA evolution, a reduced CapEx amount relative to last year and the cash inflow from change in working capital. Free cash flow in the second quarter deteriorated versus prior quarter, as expected, impacted through working capital by scheduled a personnel related and interest payments in the second quarter as well as timing differences between collections and payments versus revenues and expenses accounted for in the quarter. We foresee that free cash flow generation will improve in the third and the fourth quarters of the year from the second quarter. In the second half of the year, we expect free cash flow to be positive excluding implementation costs and based on further volume performance progress.Please turn to Page 11 to review our fixed cost optimization progress. In the first half of 2021, we achieved a fixed cost reduction relative to 2020, together in the P&L and in capital expenditure combined of EUR 167.9 million. As explained before, our cost savings definition refers to the change in costs, excluding cost saving program implementation costs and bad debt. This fixed cost reduction is according to our plans and it supports our confidence in achieving the EUR 50 million cost efficiency target we have set ourselves in 2021 over 2020 in achieving the EUR 550 million cost saving versus 2019.Going forward, as per our plans in Q3 and Q4, we will allow for some discretionary costs to increase compared to these quarters in 2020 related to salary increases, no more voluntary leave programs as we had in the last year, amongst others. So please note that for the next quarter, you should expect higher P&L costs [ than ] Q3 2020 and broadly stable CapEx relative to Q3 2020.With regards to the broadly EUR 200 million of implementation costs related to our cost saving programs, we estimated when we launched them in the first half of 2021, we incurred implementation costs amounting to EUR 25.6 million, thus totaling to EUR 194.8 million incurred to date. The balance to the expected total EUR 200 million will be incurred throughout the remainder of 2021.Finally, of these implementation costs, EUR 74.8 million were paid out in the first half totaling to EUR 108.9 million so far. The balance will be paid out through 2021 and early 2022.With this, we have now finished the presentation, and we are ready to take any questions you may have.

[Operator]

[Operator Instructions] The first question comes from Adam Wood from Morgan Stanley.

[Adam Dennis Wood, European Technology Equity Analyst]

I've got 2 please. First of all, it's interesting to see the LOT deal. Maybe around that, you could just talk more generally around what the appetite is and engagement you have with airlines around not only renewing, but also both at big broadening of PSS and whether it's LOT specifically or more generally. It looks as if there's a decent uplift there as they take a lot of the new products that you have on offer. It's been -- there's been a big progress since the last Capital Markets Day in terms of the breadth of that. Could you maybe just remind us how big of an uplift do you think there could be for an airline that goes from reservation inventory to taking that much broader portfolio in terms of revenue per PB? That's the first one.Then just secondly, on NDC. I think we always have a lot of discussion around disruption that could cause and change. But it looks clearly as if there's opportunities for you around IT solutions with Altea NDC to bring a lot of value and how the airlines and travel agents construct offers. Could you maybe just talk a little bit again in the context of what you're making with an existing airline with travel agents today, if they took a broad NDC offering from you? Again, what kind of uplift you could get from that process?

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

Okay. Adam, thanks for the questions. Okay, with regards to renewals and negotiation, of course, in any single renewal discussion that we have with all our customers, we don't limit the discussion to the current portfolio of solutions. But of course, we are looking for negotiations to really convince our customers to take a broader scope of solutions. And this is the case of LOT, but I would say it's of many, many cases, okay? It's not just LOT, but in many cases. It is an important milestone to really have this discussion. So overall, we feel confident that we have opportunity to upsell. It's not the same for each airline for many reasons. On the one hand, many airlines have already taken an important part of our portfolio. And therefore, the upside could be less. Other airlines are coming from just the core PSS, and therefore, there is opportunities of upselling at that moment. But as I have reported before, there are airlines that are taking our revenue management, our digital suite and other parts of our portfolio later, and we continue pushing for that.When you talk about appetite, I mean, again, it's very difficult to generalize. But I believe, in general terms, our customers are open, of course, after working with us to really consider additional functionalities that we can offer to them. And again, I mean, as you can imagine, it's part of our goal to really keep upselling and including more functionalities as part of our relationship with them. So more than talking about the specific cases, I would say the general trend is positive and overall we see an increase of our upselling capabilities with the carriers.With regards NDC, I mean, again, difficult to really talk about the specific agreements. We feel NDC is here to stay. As you know well, we have been engaging with airlines and travel agencies to really allow this capability to be part of our negotiations on the market. We continue signing deals with airlines. This is part of overall negotiations with them. And it can be on EDIFACT or NDC. And therefore, we are including NDC as part of the discussions. And again, integrating travel agencies on an ongoing basis, improving our technology, allowing them to integrate in a way that can be valid for the overall industry and economically viable. And we are pretty pleased with this evolution. And we consider that we have the capability and the technology to really move this process forward. Therefore, for us, it's good.I mean as you mentioned, it's not just about the GDS piece or the Distribution piece, but also on the IT front. And we provide technology to really implement this technology on both sides. Therefore, yes, I mean, as far as we can provide this technology, it's an additional plus that we need to bring to the market and allow the airlines to really merchandise with their products in both the indirect channel and the direct channel. So this should translate into more capabilities to sell, more capabilities to serve their travelers, and in principle, an upside for the airlines and an upside for the people that are providing this technology, including us.

[Operator]

The next question comes from Stacy Pollard.

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

So one quick follow-up on NDC since you were already on that topic. What would you say is the customer penetration at this point? And do you think eventually everyone will go to NDC? Is it that compelling? Or is that never really going to happen all the way? So that's one. Number two, can you just talk more about the reduction in R&D? Remind us again, what you've kind of taken out and maybe what you are prioritizing. And do you think that pushes out your hospitality plans at all? And then third question, just from the competitive side. We didn't hear that much from Travelport for a while. And then suddenly, they seem to be coming out more aggressively as they kind of consolidate their customers onto a single platform. Do you see -- are you seeing anything particular in terms of pricing or market pressure from them?

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

Okay. Let me start with the last one. I always say, but that's the reality, of course, competition is there. We respect them, including Travelport. And look, they will compete with us as they have done in the past. This is our expectation. Yes, they have announced 2 things, as you know, that they will engage with Amazon to really move to the cloud. And they are also moving to a single platform, but they also announced it will take some years to really go into that single platform. We know all these technology projects are complex. So it will take some time to really move there. But I will expect them to keep competing as they have done in the past. We have less information definitely as they are not a publicly quoted company any longer, so we have less public information. But I will expect them to keep competing.On the priorities of R&D, again, we have reviewed our portfolio. We are not reducing anything that we consider as fundamental or strategic for us. Hospitality being one of the cases. So by no means, we are pushing back hospitality. The same as NDC and other areas that we consider are important. But we have also done a review of our portfolio. And in some areas, we have decided that, okay, this is not going to be so strategic moving forward. But again, it's the normal portfolio review that we have done in many years. And in this specific situation, we have taken a view of what will be fundamental for us in the future and what are the changes that the industry may bring to us after this pandemic, and therefore, things that we consider are nice to have, but not so fundamental for us. So by no means, as you mentioned, hospitality, this has impacted our hospitality business where we feel quite confident and optimistic about our future.And with regards to NDC, I lost exactly. What was the question?

[Till Streichert, Chief Financial Officer]

Penetration.

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

It was really just the penetration. Where we are today?

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

Yes. Penetration. Yes, the penetration. I mean it's here -- yes, it is here to stay, yes. I mean I think NDC is here to stay, yes. Are airlines going to move? Look, NDC is providing new capabilities to the carriers that it depends how you want to use. So of course, some carriers are more keen to move into that or faster. Of course, the bigger you are, the more capabilities you have to optimize the technology that NDC is offering. So some people are more keen of moving into that. But I will say with time, NDC -- and probably with time, we will not be talking about NDC any longer. There will be new technologies that allows you to really merchandise better your product.So look, NDC has been here, as you know, for many years. Still, the penetration of NDC is low, okay? Again, it depends what you call NDC, but the pure NDC integration and moving forward with that worldwide is still -- I will expect this to increase in the years to come as technology evolves, standards are clearer and company like us provides the capability to integrate that in the proper way. So I will expect this to increase.What is going to be the speed per airline? I think this is going to be independent of each airline. But I will say the technology that is allowing NDC, in my view, is here to stay, but it will take years, okay? It will take years to have the traction and the penetration, okay, worldwide. Yes, go ahead.

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

And Luis, just to confirm, that is a value uplift for you as well from a pricing perspective? A little bit or?

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

I mean look, it depends, okay? I cannot be very, very concrete about that, okay? So it depends. And each negotiation is going to be different. We feel that NDC, as I mentioned, could bring incremental volume, okay, in terms of -- because look, one of the questions always is, look, how the indirect channel is going to offer capability for the carriers to differentiate themselves and to really bring the offer, okay? You have always the direct channel and the indirect channel.I believe if NDC works in the proper way and allows the carriers to really merchandise their products and differentiate their products, there is no reason to believe that this cannot be done in the indirect channel. I mean as you know, this is not exactly the same, but similar to what we were talking about ancillaries, okay? Many carriers at the beginning were pushing for ancillary solutions in the indirect -- in the direct channel more than through travel agencies or the indirect place. But then, it become part of the alternative channels that -- I think in NDC, it could be similar if we do the right things. Volumes that could be more outside of the channel should bring back to the channel because the capabilities will be there.So look, we don't expect -- our assumption is that should be neutral, okay, or positive for us in the medium term, not negative, okay? This is not our assumption. But then in terms of pricing and how you deal with that, I think it's very difficult because, look, we have individual negotiations, not just about NDC, but about EDIFACT. And as part of the overall negotiations, we are talking about these alternative technologies. Look, again, technology and business model is not exactly the same, okay? And they are 2 different things. But as part of the debate, we include now the capability to manage the volumes in NDC and in EDIFACT, and with each carrier, the discussions are quite different, I will say, okay?For some carriers, it's neutral completely because they say, "Look, for me, the technology is not changing. The way I operate in terms of paying for the channels with other carriers, they consider we are talking about different things differently," okay? So it's difficult to generalize. But if I talk about how we see that ourselves, we are not assuming this will be detrimental to our P&L in the medium term.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest]

Two for me as well. Till, just looking at the head count trajectory. I think year-to-date, it's down about 4%. In terms of average employees, it's down 2%. So we would expect in the second half that you'd see a cost benefit from that. I mean firstly, is that head count now at trough? Are there no more employees leaving? And you talked about costs coming back in the second half. Can you sort of say what it is that you're spending on? Because presumably the personnel costs will be lower.And then just around the Airline IT installed base, you've got 208 airlines contracted, Luis. I mean I appreciate there's a bit of a status while airlines wait to see what happens. There's maybe a few bankruptcies. There's a few small ones joining, but it doesn't feel as though there's really a dramatic change there. Can you talk about what sort of level of engagement you have with noncustomers that might drive that number up more meaningfully as we get into a recovery phase? Or is this still something which might take quite some time to come to pass when are we going to see that number growing?

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

Let me start and then, Till, you can cover the other part. I mean look, of course, we expect this number growing. It's very difficult to really be very concrete, as you can imagine, Michael, but I mean, it's our objective to really keep signing contracts with airlines. And we -- are we engaging with them? The answer is yes. Can we confirm when we will announce contract? The answer is no. But I really hope that this number will increase. It's our goal to really keep engaging and increasing -- and it's not about airlines waiting and see. It's about the process that it takes to really -- for the airlines to take a final decision about moving and then the migration that they need to really face. So I will say, look, we have a healthy pipeline. And of course, we expect that some of this pipeline will become a reality. So more than that, it's difficult to say. What I can tell you is that we are engaging and engaged with customers as we speak. And I really hope that we will be able to really sign some of these contracts.

[Michael Briest]

Maybe, Luis, just a follow up. Could you say quantum-wise, are you in a lot more discussions today because of the crisis than say in 2019 when it was business as usual for you, your competitors and customers? Is there actually more engagements today than in normal ways?

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

I mean look, there are more engagements, yes. There are more -- but as simple as, of course, we have taken this opportunity of the crisis to really try to prove our value, and therefore, has been activity in approaching customers and showing them our value for 2 reasons. I mean first, because, of course, they were in a difficult situation as we were. But okay, our model is very variable, as you know, based on transactions. And probably was the right time to really prove to them that they can variabilize their costs and not having fixed costs internally, especially when we talk about people that are still keeping the systems in-house, okay? So of course, we have approached the customers. Of course, we are engaging with many of them as we did in the past. I would say, probably, we're open to listen. But again, I mean, I wouldn't say that in 2019, we were not doing that. We have taken a little bit -- I would say, a bit more aggressive tone in talking to customers that are not our customers today. But nothing really new because, of course, the commercial team is chasing as many customers as possible around the world. So that's the reality. But again, how this is going to be translated into contracts, then at the end, this is always difficult.

[Till Streichert, Chief Financial Officer]

Just on the cost saving program. So in essence, we have delivered according to our plan. And you've seen we've achieved now in the first half, EUR 170 million of savings in total. It's true that a substantial part, obviously, this year was expected to come from the manpower side. You had also last year some manpower-related savings, but they were more of short-term nature, like the voluntary leave program that we benefited from last year. And this now has all turned into structural cost savings for this year.So we've done well on that side. Actually, probably, if you look at just the quarterly split, again, Q1 was high compared to 2020 in terms of cost savings. But that's what you would expect because we started to reduce costs only at the very end of Q1 2020. In Q2, we are actually a little ahead in terms of the cost savings that we wanted to achieve. And for Q3 and Q4, I expect that the increases that I've been talking about that they are coming from more on the discretionary side still, which is, in essence, on the travel side, the training side, the consulting side. I think the position, the way I would describe it is, it does give us flexibility. We will be delivering. I'm confident about the EUR 550 million structural cost savings for 2021. And as we are tracking now, in terms of overall cost savings, we have got some flexibility in relation to the discretionary cost savings side.

[Operator]

The next question comes from Sven Merkt from Barclays.

[Sven Denis Merkt, Equity Research Analyst]

Restrictions for travel are slowly coming down in some markets, but we obviously have now all these new requirements, like test, proof of vaccination, passenger location forms. And the rules are also changing all the time, and it remains clearly a major impediment for the return of travel. I know you talk to your Sabre travel solution, but more broadly, why don't we see the industry adopting more tech solutions to address these pain points and what role could you play here? And secondly, I was wondering if you could comment on your partnership with Hopper. I know they offer a Cancel for Any Reason solution, but I was wondering if you could comment just how the business and financial agreement looks like of the partnership and how this might be integrated with your own offering.

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

Okay. Look, we have been active in trying to really support the travel recovery with our technology and also with some integration in what we call safe travel, where we are supporting the carriers with our technology to integrate health information into the departure control and the boarding pass to really automate these processes. So we are trying to do our best in dealing with that. Again, I mean, look, what you mentioned is true. There are a lot of regulation and complexity around that. And we are trying to integrate the different certificates and validation to really support our customers as much as we can. I mean but -- I mean, as an industry, there is collaboration, definitely. There is a common interest of pushing for travel. But again, this is not at all preventing the restrictions that are happening between governments. So it's difficult to really manage that, okay?But what I can tell you is that we are very active more in Europe than in the rest of the world as we are based here at all levels, to really try to support the discussions that we have with governments, with carriers about how we can simplify and improve the travel processes and try to really -- is in the interest of everyone to try to recover travel. I think one of the things I mentioned at the beginning or in my presentation is that there is clearly an interest of travel around the world. I mean, we see with the domestic traffic, okay, when you don't have restrictions, the recovery of domestic traffic and you have seen the latest figures from IATA are good. I mean the recovery in some countries is not very far from the figures of 2019.So domestic traffic has recovered, I will say, quite quickly, but still international is very low. So of course, this has an impact, and this is related to what you mentioned at the beginning, restrictions, changes, the fact of the certificates and so on and so forth. So look, we are trying to do our best at all levels. But again, this is not exactly what is going to really change the picture. I think one important matter is what governments are really going to do. And the second one related to...

[Unknown Executive]

Hopper app development.

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

Hopper -- okay. Look, this is a very small matter, okay? Very, very small. We have deals around the world. I mean I didn't even mention that. I mean this is an app, okay? And very often, we have APIs, and we have connectivity with very local providers around the world. So this is very, very, very small. I mean it's not that we have a new business model. I mean we work with a lot of companies around the world, again, as part of our open platform where people can really use our technology and partner with us. But this is extremely small at this point.

[Operator]

Next question comes from Guilherme Sampaio from CaixaBank BPI.

[Guilherme Macedo Sampaio, Analyst]

Two if I may. The first one, and I apologize if I missed your earlier comments. Can you provide a bit more color on how the Delta variant of the virus is impacting bookings? And the second one, should we expect positive cash flow both in Q3 and Q4?

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

Okay. Look, what we see -- and again, I cannot say how this may impact, but what we have seen in July is that bookings were more or less in line with June, okay? It's true, we were coming from continuous improvement in the majority of the regions and this Delta variant has impacted in the sense that, okay, the recovery has mainly not continued, but it has not gone down. And again, I caveat because I don't know how things may evolve in the future, but this is what we have seen in July. So movements per region and per country. But again, domestic traffic keeps improving around the world, and this is what we have seen. So the -- overall, pretty much in line in July with what we have seen in June, okay? So still to be seen, but it does not seem to have a big impact or at least a negative impact for the time being in the overall figures.

[Till Streichert, Chief Financial Officer]

On cash flow, so just remember, so we are pleased with what we have achieved in terms of free cash flow, free cash flow outflow in the first half of this year, which was excluding implementation costs, EUR 47 million. But remember that the second quarter carried also seasonally higher cash outflow, which, obviously, weighed in the -- on the second quarter. Look, I wouldn't want to be specific on exactly Q3 and Q4 separately. I do expect, obviously, that cash flow is improving progressively. And for half 2, I do expect with some recovery assumed in terms of volumes, that we are free cash flow positive, excluding implementation costs.Now you may ask the question, okay, what does recovery mean? And on that point, to just clarify that if you just think of what IATA is assuming for the second half as a directional curve of recovery, I think this is a good guidance to use.

[Operator]

The next question comes from Neil Steer from Redburn.

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

It's a question -- sorry to go back to the topic on NDC. My understanding was [indiscernible] gives carriers opportunity to have much more sort of flexible offerings and make those through the system to the travel agents. I was just wondering, how does that change the comparability of those offers as they're actually seen by the travel agents? And the reason I'm asking the question is, obviously, American Airlines are suing Sabre for their new merchandising platform has offered to Delta. I know that wasn't NDC, but it looks as though the crux of the American Airlines lawsuit is the fact that Sabre can incentivize the travel agents to book away towards Delta from American or at least that's the American view. And obviously, one of the sort of the great opportunities that NDC should offer you in the future is to be incentivized by the airlines to internally incentivize the travel agents on the ancillaries. And I'm just wondering to what degree any lack of comparability of offers actually changes that opportunity to upsell and get better revenues for yourself in the future.

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

I mean it's a bit difficult. I mean, look -- and I cannot judge and enter into whatever happens between Delta, American and Sabre. I mean we will offer the capabilities, but it's not our intention to try to promote one or the other. NDC's offering, like today, you may have not with NDC, but with fare families and airlines currently use alternative ways of showing their fares, and you have the ancillaries, as you mentioned before. So NDC [indiscernible] open more possibilities. How you are going to compare, okay, you will have -- as you have today, the basic fare and then other fares or other kind of ancillaries that can be offered in the system. I would imagine this is quite similar, it will evolve. It will have more capabilities. I mean look, again, from what I read -- and again, look, without entering into the details because it's more the reading than the reality. What American Airlines is arguing is that Sabre was promoting Sabre versus American Airlines, and this was not what they had agreed. But again, I don't know what they have agreed and I don't know what Sabre is doing, and it's not our role to judge that, okay? But I think NDC is just offering additional opportunities. How the comparison between offers is going to happen, I would say not very different from what happens today with more possibilities for the airlines to show alternatives as they do today with the ancillary services. A bit more complexity technically, yes, of course. And this is why we are investing there to really try to provide that in the best way to travel agencies and also in the direct channel.

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

Okay. But just to clarify, do you think in the future you will be incentivized by the airlines and be able to incentivize the travel agents for the separate ancillary services on top of the basic distribution fee? Or do you think it will always be a basic distribution fee?

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

I mean look, I think we need to differentiate between how we offer that and what is the model of -- business model with the airlines. I mean look, again, the fact that the pricing changes with regards to the sales is one thing. And then we see how we deal with that. Another different thing is, okay, we will offer the same capabilities to the airlines, so we will try to really discriminate in the channel. As you know, one of our roles has been to be neutral in the way we have operated in the past. And therefore, we have not, on the distribution front, promoted one carrier against another one. I think it has been one of the roles of the EDSs in the past.You're asking me, are we going to change that? I will say not now. I cannot say forever because things may evolve in the industry. But today, it's not our goal to promote or to really try to sell one airline more because of the economics. I mean, you could argue the same today already based on the booking fee. If you have different booking fees or different economic conditions per airlines that you try to really promote one airline versus the other. And this -- we have not done that, and it's not our plan to do this, at least, I will say, in the short term. Again, how this industry is going to evolve in 5 years from now, it's difficult to see. But it's not our objective to really discriminate one airline versus the other based on economics.

[Operator]

The next question comes from Victor Cheng from Bank of America.

[Victor Cheng, Research Analyst & Associate]

Two, if I may. So just another question on the NDC side. I appreciate there are a lot of discussions on the Distribution side, and we continue to see momentum on that. How should we think about the opportunity, maybe just looking from the IT Solutions side? Is there opportunity for you to add more value to the PSS for NDC and, hence, better pricing potential on the PSS side as you may be able to unlock more value through dynamic pricing and customized offerings and whatnot? And secondly, another question on the IT Solutions side. So I understand there's a sizable piece that's not PB related, but the recovery -- the revenue recovery quarter-on-quarter is lower than that in the Distribution side. How much is that a function of late bookings in June, so with PB sort of realized in Q3? And can you provide a bit more color on the revenue contraction in new businesses that you have alluded to in the slides? And any color on the appetite for hospitality IT relative to airlines, please?

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

Okay. Let me start and then, Till, please jump in. For NDC offering. I mean look, NDC offers capabilities, but many of our solutions offer capabilities, okay? And many of them are on the optimization of the operations of the airlines, so cost savings and -- are very important part of the solutions we are offering on IT are related to revenue opportunities for the airlines, NDC being one of them. So you need to differentiate between value that we offer with our solutions, okay? And clearly, NDC technology will offer value. And another thing is how much you charge for this value, okay? And as you know, there are competitors to us that, of course, are offering NDC solutions. And again, they charge for that. So the normal way will be this is an upselling opportunity for us. Then if the argument is, look, based on the potential value that the airlines get, can you get an upside on pricing? Look, of course, we will try, as always. The more value you offer, the better you can price your product. That's the reality. So we will try to really look -- get incremental value from the capabilities that we offer to the airlines. But again, I wouldn't say this is different from other solutions that we are offering on the digital space or in other areas of our business, okay? So that's about NDC. Second question is more...

[Till Streichert, Chief Financial Officer]

On the revenue side, I'll just take you through a little bit of the dynamics last. I think first about the IT Solutions side, I can cover as well the Distribution side also. So just in terms of the second quarter, IT Solutions revenue was at minus 43%. And with that, it declined at a softer pace than actually the -- just bought it, which were at minus 68%. And I think that's what I've tried to comment on in relation to what are the elements. And of course, there are elements that are actually not transactional. But you've got literally really 3 factors in that IT Solutions revenue bucket that drives this ratio. The one thing is that, obviously, our new business areas, and that includes largely hospitality, which, at a later point in time, we will obviously also provide you with enhanced disclosure. This has been obviously growing and holding up better during the pandemic, and therefore, outperforming as well the PB volumes.The second element is we do have revenue lines that are just not transactional. And therefore, they gave us basically a floor, respectively, just support to our revenue performance compared to our PBs. And also, we had certain airline IT transactional revenue growth underlying. And all of that together was basically establishing this relationship, whereby, you had revenue per passengers boarded in the past couple of quarters actually being a lot higher than the historic levels that we had seen before.On the Distribution side, perhaps just a few comments on the dynamics there. I had explained that also before, we are at the moment in an environment where the recovery is a little more led by the domestic itineraries. Domestic itineraries, to a certain extent, drive also the booking mix between local, regional and global bookings, more towards the local bookings. And while we have seen over the past quarters, again, a bit of a rebalancing also to the regional and global booking mix, there's still a higher weight of the local booking mix in it. But in our Distribution revenue per booking, we also have got nontransactional elements which basically have given us, in the past, support. And going forward, as the transactional volume[Audio Gap] to come back, obviously, the nontransactional part is -- and the effect of it is getting relatively smaller. And then it is a question really of the underlying business trend, what is the mix between local, regional bookings driven by the itineraries.

[Operator]

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

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

So thank you very much to everyone for your questions. Thank you for being with us today at the end of July, and we'll talk for the third quarter. I'd like to wish you all a nice holiday season. Thank you. Bye.