Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2022-Q2

[Operator]

Welcome to the Amadeus Second Quarter 2022 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 am now pleased to hand over to you, Mr. Luis Maroto, President and CEO of Amadeus. Please sir, go ahead.

[Luis Maroto, President & Chief Executive Officer]

Good afternoon, everyone, and welcome to our second quarter results presentation. Thanks a lot for joining us today. I'm here with Till, as usual, I will focus on our most important developments in the quarter, and Till will elaborate on the key financial aspects.

Starting with slide 4. In the second quarter, we saw an acceleration in travel industry space of recovery. Travel restrictions continue to ease particularly in many parts of Asia, strengthening international traffic, and domestic traffic markets had significant improvements in the quarter as well.

Turning to Amadeus operating and financial performance. In the second quarter Amadeus revenue EBITDA and adjusted profit reached 83%, 84% and 75% of the respective pre-COVID levels. Our quarter two performance as you can see had a strong quarter-on-quarter improvement, which was driven by the progress in volume recovery.

Additionally, as we advanced last quarter Amadeus received a non-refundable government grant in the quarter related to COVID cost in core amounting to €50 million. Excluding these grants, positive effect on our costs, our EBITDA, and adjusted profit in the quarter reached €76 million and €63 million of 2019 levels, equally representing significant progress from prior quarter's performance.

Solid evolution in travel volumes drove a strong quarter revenue improvements across our segments bringing us closer to full recovery. In the second quarter, our distribution revenues were 79% of pre-COVID levels. Air IT solutions revenue reached 85% of quarter two of 2019, and Hospitality and other solutions revenue reached 94% of 2019 levels.

We generated free cash flow of €182 million in the second quarter. This is €188 million excluding cost saving implementation costs paid in the quarter and €137 million, excluding also the positive effect from the government grant. We are very pleased to report that at June 30, 2022, our leverage continues to decrease now stands at 2.2 times last 12-month EBITDA quickly approaching pre-pandemic levels.

Our aim is to be able to resume shareholder remuneration as early as possible. We remain disciplined about our CapEx programs and the growth opportunities ahead. As you will see, our R&D grew relative to last year and pick up relative to past quarter. These efforts are dedicated to support new customer implementation projects, across our businesses, and to advance in our key strategic areas.

As you know, we are evolving our Hospitality platform, investing in NDC, and into Air and IT offering capabilities, as well as accelerating our ship to the cloud among others. We are pleased with the second quarter evolution on how effectively the progress in volume translate into a stronger EBITDA and cash flow generation at Amadeus.

What we see today is the travel industry continuing to advance in its recovery. Beyond the general macroeconomic and geopolitical uncertainty suppressing, when travel restrictions or frictions are eased or lifted what we observe is a strong demand to travel. This should continue to support our business in the coming quarters as we continue to progress towards full recovery.

Let's now turn to slide 5 for an overview of our segments. Starting with an update on our distribution. In the second quarter of 2022, we signed eight renewals or new Air distribution agreements amounting to a total of 29 in the first half of the year. Continue to expand our NDC reaches, and we strengthened our partnership with Finnair and Finnair NDC-source content will be made available to travel sellers globally through the Amadeus Travel platform in the third quarter.

We also renewed and expanded our distribution partnership with Hopper to allow Hopper to soon access NDC-enabled content via the Amadeus Travel platform. Several large players such as Trip.com and Seera Group contracted for additional solutions from our Air Distribution portfolio.

Additionally, we had a number of wins for our Corporation business, where Microsoft Consults and Cytric Travel or fully customized stable self-booking tool for Corporations to transform business travel for its employees.

Moving on to our air booking evolution, booking performance improved in the quarter ending at 75% of pre-COVID levels. This is a 19 points improvement over the performance in the first quarter and an improvement acceleration compared to past quarters.

Our booking evolution was supported by industry recovery and strong market share gains. The GDS industry continued to advance quarter-on-quarter. In quarter two, industry-wide bookings were 32% lower than in 2019, a notable improvement versus minus 48% in the prior quarter.

Region and country mix continue to distort market share evolutions. Not with us understanding this, Amadeus had a strong market share performance gaining share globally and in most regions particularly in North America, our best-performing region in the quarter with 11% booking growth for the quarter versus 2019.

Although, APAC remains the slower region in the recovery, it was the region with the last year's recovery this quarter followed by Western Europe. We saw good and only progress in our bookings through the quarter.

Let me give you some granularity as we have had some questions this morning. Bookings were minus 29% in April, minus 25% in May, minus 21% in June, although the performance in June was supported by positive working day differences. Into July, we have seen a slowdown in bookings compared to June driven by an increase in cancellations which started in June and expect to end in July.

In July, our daily net bookings were up minus 30%, and excluding cancellations was at minus 26%. Please note that in the last seven, 10 days we have seen an improvement as the level of cancellations is normalizing.

We believe this increased level of cancellations response to the airport disruptions and the frictions we are seeing on the supply side of the travel market, which should be temporary. Also into quarter three please note that July and August have lower monthly weights within this quarter than September.

Moving on to Airline IT solutions. In the second quarter, we were pleased to announce that India -- India flagship airline has contracted and implemented the Amadeus Altéa passenger service system and will be implementing the full Altéa PSS suite, including revenue management revenue accounting, retailing and merchandising components among others.

We progress with upselling solutions in the quarter including to Fiji Airways, Binter Canarias and Airlink. Additionally in airport IT Vancouver International Airport will implement Amadeus Flow, our integrated cloud solution for airport to manage passenger services.

With regards to our volume performance in the first quarter, passengers boarded amounted to 78%, representing a 17 points improvement over the levels seen in the first quarter, an acceleration in the pace of recovery seen in past quarters. Several regions saw large improvements in performance quarter-over-quarter was notably Western Europe followed by APAC.

North America was our best-performing region with plus 11.7% versus 19 driven by positive organic PB growth and by our airline migrations most importantly Air Canada, which migrated at the end of 2019.

In quarter two to give you again some granularity here as well is our monthly evolution was also good with PBs in April minus 28%, May minus 21% and June minus 19%. Into July, PBs continue to advance and are at minus 18%.

We move to slide 7 for an update on our Hospitality segment. In the second quarter of the year, Hospitality & Other Solutions revenue was up 94% of the second quarter 2019 levels its very close to full recovery and almost 10 points improvement versus prior quarter.

We saw continued strengthening of the hospitality industry in the second quarter with global hotel weekly occupancies over 2019 levels during the period. The quarter-on-quarter progress was enabled by the volume growth as well as by new customer implementations across our broad portfolio of solutions in Hospitality.

We continue to expand our customer base in the quarter among others Casa Andina signed for iHotelier and Guest Management Solutions. Great Wolf Resorts and Karisma Hotels & Resorts contracted for Sales & Event Management solutions and Aimbridge Hospitality and Sonesta endorsed Amadeus business intelligence solutions for use across their portfolio.

With this, 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 now to slide 9 for an overview of our revenue in the period. In the second quarter, our group revenue was 16.8% below 2019 advancing from prior quarter driven by stronger growth rates across all our segments.

In Air Distribution revenue in the quarter was 21.1% below 2019. This revenue performance was primarily driven by the bookings evolution Luis described and by a revenue per booking 4.9% higher than in 2019.

The higher revenue per booking in the second quarter of 2022 versus 2019 was due to positive pricing impact coming from a combination of yearly price adjustments, incremental deals renewals and others as well as positive FX effects, partly offset by a still higher weight of local bookings although diminishing produced by the relatively higher weight of domestic traffic we still have.

As we have discussed in the past, there are multiple factors impacting revenue per booking from booking mix, the weight of non-transactional revenues as well as the cancellation provision to various pricing impacts that make some from inflation new deals renewals and others.

It is difficult to foresee how all these parts may move in this environment. But as we have said before, we would reasonably expect revenue per booking for the year to be similar or slightly ahead of the revenue per booking we had in 2021.

With regards to Air IT Solutions, revenue in the quarter was 14.6% below 2019. This result was driven by the PB volumes evolution coupled with a 10% higher revenue per PB relative to 2019.

The higher revenue per PB is caused mainly by a proportion of Air IT revenues that are not linked to PBs such as for example services or airport IT, which reported stronger growth rates in the quarter than PBs and PB linked revenues. Revenue per PB was also impacted by positive FX effect in the quarter.

As traffic continues to recover, we expect the revenue per PB to continue to trend downwards towards pre COVID-19 levels a mathematical effect from the growing weight of transactional revenues. There will also be positive effects supporting its evolution such as inflationary price increases and upselling.

Regarding Hospitality & Other Solutions, revenue in the quarter was 5.6% below 2019. At Hospitality, the quarter-on-quarter performance improvement versus 2019 was seen across its revenue lines as described by Luis and within hospitality, in Hospitality IT, the revenue performance improvement was supported by volume growth and customer implementations. In media and distribution, it was driven by improving hotel and car booking growth rates, as well as media clicks and business intelligence also strengthened, driven by new customer implementations.

Please turn now to slide 10 for a review of our EBITDA evolution versus 2019. In the second quarter of 2022, our EBITDA amounted to €496 million, 15.8% lower than in 2019. EBITDA benefited from a onetime effect, a nonrefundable government grant amounting to €51.2 million received in Q2 2022. Excluding which EBITDA in the second quarter amounted to €445 million, 24.5% below 2019.

The EBITDA performance versus 2019 excluding the government grant effect, resulted from firstly, the revenue evolution explained before; secondly, lower cost of revenue than in 2019 by 16.9% linked to the evolution of our booking volumes in our hospitality business; and thirdly, a 6.9% decrease in our combined personnel and other operating expenses cost line compared to 2019.

To review our fixed cost evolution, we will focus on the change relative to 2021. Please remember, we completed our cost optimization program last year and thus there are no more associated implementation costs in the P&L in 2022. But we continue to remove these from the 2021 P&L for comparison purposes with 2022. We will also remove the effect of the government grant, which was accounted for as less fixed cost in the second quarter of 2022 for purposes of comparability with prior year.

Our P&L fixed costs in the second quarter of 2022 compared to the same quarter last year were 15.5% higher, this cost evolution resulted from an increase of R&D investment as Luis mentioned and non-R&D spend like travel and training amongst others, driven by the business expansion relative to the prior year. Costs have also been impacted by negative FX effects. And please do note that this negative FX impact on costs versus 2021 is more than compensated at EBITDA level.

Taken together, P&L fixed cost and CapEx, this quarter we had an 18% increase over prior year or 13.3% excluding FX. And for the first half of the year, we had 12.1%, excluding FX growth. All in line with the 10% to 14% ex-FX fixed cost growth range expectation which we have for the year.

For the third quarter, we are expecting a step-up in P&L fixed costs and CapEx growth versus Q2 relative to 2021, as we advance on our investment plan and to support customer implementations. This is as planned and we reiterate our cost growth expectation for the year.

Below EBITDA, in the second quarter of 2022, compared to 2021, D&A expense increased slightly by 0.8%, resulting from higher amortization expense from internally developed assets, largely offset by a lower depreciation expense from a reduction in hardware investment.

Net financial expense decreased by €7 million due to a reduction in interest rate -- interest expense from a lower average gross debt over the period and exchange gains compared to losses in 2021. The income tax rate in the quarter was 24%, lower than in 2021, impacted by a reduction in income tax rates in France and nonrecurring adjustments. Supported by the EBITDA evolution, adjusted profit amounted to €247 million in the second quarter of 2022 or €208 million, if we exclude the effect from the government grant.

Please now turn to page 11 to review our cash flow evolution and I will start with CapEx. In the second quarter of 2022, our CapEx increased by €29 million or 26.5% compared to the same quarter in 2021, driven by higher capitalized R&D investment. R&D investment grew by 31% in the quarter versus 2021. With regards to cash flow, excluding cost saving implementation, cost-saving program implementation costs paid in the quarter, we generated an amount of €188 million. We will still have some cash out this year related to our cost optimization program completed last year, but the amounts outstanding going forward are very small.

Our free cash flow in Q2 benefited from the government grant collected in the second quarter by an amount of €51 million. Excluding the cash from this grant, free cash flow amount to €137 million and resulted from an expanding EBITDA compared to prior quarter, a higher CapEx amount and a higher cash outflow from change in working capital.

Please note, we typically have a cash outflow from working capital in the second quarter due to our annual personnel related payments. For Q3 please remember that working capital is expected to have a positive effect on cash flow generation as opposed to a negative as we saw in Q2, as per our usual working capital seasonality.

And with this we've now finished the presentation and are ready to take any questions you may have.

[Operator]

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

[Adam Wood, Morgan Stanley]

Congratulations on a good quarter. I've got a couple of questions please. The first one is, just as you mentioned shareholder remuneration. I wonder if you could just give us a little bit of help around the framework for that? I mean I remember in the past, we used to talk about a one to 1.5x leverage ratio as we got to the upper end of that, investors would expect incremental remuneration. Obviously, the leverage is higher than that at this point. Are you now comfortable running at a higher level of leverage? And so, you'd be comfortable doing shareholder remuneration more in line with where we are today?

And how would that impact your views on M&A? Is that now kind of less on the table and shareholder remuneration or the focus? If you could just help us understand the thinking there that would be very useful? And then maybe just secondly on working capital. As you flagged the outflow in the first half obviously bonuses, I guess is one part and then bookings running maybe behind PBs is the other in terms of when you're paid. Is there anything else in working capital we should be aware of? And anything you can help us with in terms of when that starts to normalize and be at sort of a drag on cash flow? Thank you.

[Luis Maroto, President & Chief Executive Officer]

Let me start with the first piece, but please feel free to join. I mean of course Adam we are coming back to normality or we try to come back to normality. So clearly in our projections we expect to continue deleveraging as the quarters are passing and the recovery continues. And therefore, I mean we should be close to the range or reaching the range that we had before as a target which was 1 to 1.5x debt-to-EBITDA which is the one that we have communicated in the past.

Of course, we need to assess the situation in terms of, what is going on the macroeconomic environment, how things are evolving and finally take a decision. When you were referring to M&A, I mean as we said always I mean M&A is part of our analysis continues being how we are going to really grow the company and we analyze targets and opportunities and we will always need to really balance between the growth of the company the M&A and the shareholder remuneration that is in our objective to come back the sooner the better.

But of course, considering the net debt to EBITDA that we have mentioned. For the time being, we have not changed our range target and we need to decide when is the final date and appropriate to really come back to this shareholder remuneration. This is part of our debate. We'll have a debate with our Board of Directors and we will keep you fully informed.

So, the M&A shareholder remuneration and investment in the business and leverage and all these impacts that are considered. And as I mentioned hopefully, we will be able to really manage that in parallel and have everything that could give the company further growth and at the same time come back to shareholder remuneration. I cannot tell you when and how because it will depend on the evolution of the business and also the final discussions, we'll have with our board.

[Till Streichert, Chief Financial Officer]

And speaking to working capital you're quite right. So, in the second quarter there are basically just two effects. The change to the working capital dynamics. One is a small one which is related to the payment of our last year's cost saving implementation costs. And the other one which you see literally recurring every year is related to personnel-related payments. This is the seasonality. And I do expect -- I mean you're right we are moving more and more back into -- also a bit of a normal seasonality. And therefore, I do expect that in our third quarter and also our fourth quarter that the negative working capital trend reverses and we've got positive support from working capital as we generate more cash flow.

[Adam Wood, Morgan Stanley]

That’s very helpful. Thank you.

[Operator]

Thank you. The next question comes from Varun Rajwanshi from JPMorgan. Please go ahead.

[Varun Rajwanshi, JPMorgan]

Hi, thanks for taking my question. A couple if I may. Firstly, just a clarification on fixed costs. So fixed costs grew 12% in the first half and you're talking about a step-up in Q3 versus Q2. Does this mean you will now be more at the top end of your 10% to 14% fixed cost growth guidance, excluding the government grant?

And then secondly, can I get your thoughts on the overall demand environment, especially against the backdrop of high inflation in deep macro impacting consumer and corporate budgets. What are your expectations for the rest of the year? IATA is projecting a relatively strong recovery in the second half. Is your thinking inline that what IATA is projecting? And then finally can you comment on the impact of EU travel disruptions, flight cancellations and the associated higher cancellation provision on your financial performance? Thank you.

[Luis Maroto, President & Chief Executive Officer]

Let me start giving you an overall view, and then Till will cover the details. I mean, it's very difficult to really know what may happen in the rest of the year. For the time being, what we have seen is more the second part of what you mentioned, disruptions cancellations I mean, adaptation of capacity due to staff shortages and the situation we have seen. That's much more than a matter of demand at this point.

Of course, when you talk about the macroeconomic environment inflation or the prices I mean, this may have an impact of course and we are not seeing that for the time being, but this may come in a month to come. It is also true that you see IATA and other sources, is still quite positive and the majority of the airlines are positive about the rest of the year. They consider that the underlying demand may offset the potential macroeconomic environment, but this needs to be seen.

And of course, we see -- what we see, we does have our volumes that we have provided to you. But we also of course follow closely our conversations, with airlines the external sources the estimations of people and still people are bullish in general, over the second half of the year. Saying that, look things are changing in the macroeconomic environment and in an inflationary environment, of course this may have an impact in the final demand. But again, today what we see in general is more issues on the supply side and on the demand side.

[Till Streichert, Chief Financial Officer]

On the fixed cost side just, let me reiterate. So obviously, our first quarter, ex FX we've achieved 10.9% in terms of cost growth compared to 2021 in the second quarter was 13.3%. So at half 1 we are at 12.1%. And you have seen, which is actually exactly in line with our plan, we increased our R&D quite a bit and focused it on our key investment areas.

The Hospitality platform, our Airline IT digitalization, customer implementations, of course our cloud services, cloud migration and also our co-innovation program. So this is very much in line, with what we had planned and what we are also expecting.

Speaking about the third quarter, where I'm just flagging, that I do expect a slight step-up in terms of cost evolution again this is also entirely in line with our plan. And we would -- I do reiterate, our 10% to 14% range. Could we be possibly slightly on the higher side, as basically things continue to progress and evolve positively. I wouldn't rule that out. That could be.

But again, if you look at it from a cost control and cost management point of view I think, in particular considering that we -- when we issued this 10% to 14% range, that was at the beginning of the year. And in between you've had also -- you've also noticed a significant increase in inflationary levels. So if you put all of that together, staying within that range I think is a very clear statement.

The other question, on the EU travel and the cancellation provision. Actually, the -- what we are seeing in terms of the impact and Luis has commented on it as he unpacked June and the July trend, is not very big. And therefore, also from a cancellation provision point of view, it is actually fairly insignificant. And therefore, from what we've seen towards -- within the second quarter and also towards the end of the second quarter, would not going to change the numbers or be visible in that regard.

[Varun Rajwanshi, JPMorgan]

Okay. Thanks for the color.

[Operator]

Thank you. [Operator Instructions] The next question comes from Sven Merkt from Barclays. Please go ahead.

[Sven Merkt, Barclays]

Great. Good afternoon. Thank you for taking my questions. The Air Distribution contribution margin is now already back at the 2019 level. Could you comment, if this was purely driven by the cost you took out during the pandemic, or if there's anything else we need to consider? And also could you comment, where you see the margin once volumes have fully recovered?

And then my second question is, across most regions bookings and passenger boarded have recovered at a pretty similar speed, but in Europe bookings are weaker than the passenger boarded. Could you comment, what is driving this? And if this is a mix between corporate and leisure travel?

And then finally, just a question on the head count, which is kind of flat compared to the year-end and still 15% below the 2019 level. Is this level sufficient for you, for the implementation that you have in the pipeline and overall demand you see, or will you see headcount, or do you expect headcount to grow in the second half? Thank you.

[Till Streichert, Chief Financial Officer]

We start with the first one, which is the air distribution contribution margin question. So just to recap, we are indeed actually back to the contribution margin where we've been in 2019. That's very pleasing. In terms of, just the drivers of it. If you think of variable costs, this is very much behaving in line with bookings. Also from a unitary, if you think of that the dynamics are very healthy. And indeed, the effect or the benefit that we've got we did see in the Air Distribution segment, as part of our cost-saving program an opportunity to reduce the fixed cost in there and that actually is helping as well as the margin evolution and being back there already to 2019 levels.

[Luis Maroto, President & Chief Executive Officer]

I mean you were talking about the difference between PBs and bookings. I mean in this still we are not at the completely normal timing because again bookings of course have been increasing at the beginning of the year faster. Maybe it's catching up because of course you need to -- you start getting your inventory. But it's also true that what you mentioned is right. I mean the lesser -- some of the lesser or low-cost carriers have been growing faster than the full-service carriers.

And therefore, we have benefited more from the PB growth in Europe than what we have seen in the booking environment. That has been a reality. However, I would like to mention that we have seen a strong rebound of business travel, not just lesser in the last months and business travel has been very close in percentage terms to the levels for the booking side that we have seen in 2019 in the last part of the quarter.

And therefore business travel is also coming back. But yes, in terms of the mix of our passenger boarded in Europe, we have as you know some of the biggest low-cost carriers that some of them are already in positive ground compared to 2019 and I think that's it or there was some--

[Sven Merkt, Barclays]

There was one more on the headcount.

[Luis Maroto, President & Chief Executive Officer]

Yes, on the headcount question.

[Till Streichert, Chief Financial Officer]

Look I mean on the headcount side we are obviously also ramping up as we said. And that is what you very much can see also in the R&D investment. And again, are we well set up for the projects that we try to implement? I think we are. So, from that end we are in a position where we are able to attract talent and get very good colleagues and people into the company for those projects. So, yes, I would say we are in a good position in that regard.

[Sven Merkt, Barclays]

Very clear. Thank you very much.

[Operator]

Thank you. The next question comes from Fernando Abril from Alantra. Please go ahead.

[Fernando Abril, Alantra]

Sorry I was on mute. So, just a quick follow-up question with regard to the cost savings. So, I've also noticed that the tangible CapEx is quite low, it's still quite low. I mean you are, I don't know, roughly speaking €15 million in the first half. And you used -- investing €100 million in the past. So, I don't know if also a great part of the cost savings. We'd also know -- we'll be allocated to this CapEx line in the past or put it in other words. I don't know where and when do you see this CapEx recovery?

[Till Streichert, Chief Financial Officer]

Sure. So, let me take that question. So, just on the tangible CapEx reduction we are benefiting here as well from the reduction in hardware investment. Remember we are moving to cloud in partnership with Microsoft. So, that's our Azure Cloud migration program. And as an effect of that we are not investing as much as we've done in the past into our data center.

[Fernando Abril, Alantra]

Okay. And what about the software investment also with the -- where you move into the cloud? I mean those investments where are they going?

[Till Streichert, Chief Financial Officer]

The -- in the effort that goes into the cloud migration, look where we are creating an asset of course this effort is capitalizable as well. So that you would see also in our intangible asset line in the end showing up yes. I mean this is it. But again this is a project effort.

But let me just reiterate to your question in terms of tangibles or hardware, obviously, reflected before we would see some benefit as basically investment in our data center is being reduced and is going down.

[Fernando Abril, Alantra]

Okay. Thank you very much.

[Operator]

Thank you. The next question comes from Guilherme Sampaio from CaixaBank. Please go ahead.

[Guilherme Sampaio, CaixaBank]

Hello. Thank you for taking my questions. So, two if I may. The first one could you provide some granularity on bookings trends in July per region? And the second one if you could remind us when should we expect the impact of Expedia bookings? Thanks.

[Luis Maroto, President & Chief Executive Officer]

I couldn't hear very well. You were mentioning about APAC?

[Guilherme Sampaio, CaixaBank]

No, no. I mentioned about in regional terms, how have been the bookings trends performing in July specifically?

[Luis Maroto, President & Chief Executive Officer]

We don't provide this information as you know per month because otherwise we'll be giving too detail now. What we mentioned of course is that some of the regions have been impacted by this disruption more than others.

Some of that -- I will say mainly Europe has been more impacted by disruption it's not the only region, but in other parts of the world we have seen, especially in Asia-Pac the fact of recovery. So you have a mix of behavior.

But I would say, look, the impact of cancellations has been more in Asia and rest of the world and others be in Europe the main one where we see the biggest part of the disruption happening there. It's also true in the US that there has also been disruption in airports. As you know, so we have seen some impact in those two regions. But look the figures we have provided to you are global yes. But we don't provide all these details with you.

[Guilherme Sampaio, CaixaBank]

Okay. And in terms of Expedia bookings, if you could provide some granularity on when should we expect them to analyze?

[Luis Maroto, President & Chief Executive Officer]

Look Expedia bookings are part of our reporting already. So you see that in the figures that we are providing to you. I mean, again, we have these bookings already in the figures. It's not that projection. So we just started in quarter three of last year with the migration of that. So I would say, look at the end of quarter three this should be analyzed.

[Guilherme Sampaio, CaixaBank]

Thank you very much.

[Operator]

Thank you. The next question comes from Victor Cheng from Bank of America. Please go ahead.

[Victor Cheng, Bank of America]

Hi. Thanks. Victor Cheng here. Just two questions if I may. Given many airlines across the industry probably have renegotiated and extended multi-year PSS contracts at the peak of COVID, should we expect fewer new wins in the next 12 months?

And then a follow-up on the MPEL cancellations. I know you have provided quite a bit of color already, but can you talk a bit more about the demand that you're seeing, I heard you say, it's improving in the last 10 days? And then what should we expect in terms of the timing on the refunds, cash collection and net working capital going to Q3?

[Luis Maroto, President & Chief Executive Officer]

Look, Till, you mentioned about the working capital, I mean, look as we mentioned before the cancellations, again, yes, we have seen an improvement in the last days. At one point the cancellations were increasing due to the cancellations of flights and also the fact that people were canceling some of the bookings that's a reality and it's true. We have seen in the last days that is becoming more normalized. But I won't say this should have a huge impact on the way it works with the working capital but…

[Till Streichert, Chief Financial Officer]

No. And just adding to it as Luis has pointed out, I mean, in the end we are talking just about a few percentage points that we are noting here in terms of just July versus June. So from an impact in terms of working capital, I don't expect that there is any significance to that. Again, and we've seen in the last couple of days an improvement from the first two weeks of July. So this is the best view we can give at the moment.

[Luis Maroto, President & Chief Executive Officer]

And then with regards to pipeline of airlines, of course, we will try to pursue that. There are always opportunities in the market. Again, I mean, look yes, there are contracts in place and we will follow that. I mean, there is not much more to say, whether again there are opportunities from other companies or still some of the companies that are keeping their internal systems and we keep having conversations to really keep this pipeline healthy and to be able to sign more contracts.

Of course, sometimes you sign more at one point, and sometimes it takes a bit more time. But again, look we are not -- we don't know exactly the date of the contracts of our competitors, because this is private as our contracts are private to, but we will keep talking to the different airlines around the world being our customers or not being our customers to try to upsell or to really convince them to work with us. More than that I'll be more concrete and that is difficult at this line.

[Victor Cheng, Bank of America]

That's very clear. Thank you.

[Operator]

Thank you. The next question comes from Carlos Treviño from Santander. Please go ahead.

[Carlos Treviño, Santander]

Yes. Good afternoon and thank you for taking my question. Regarding contribution margin in Hospitality & Others, despite a significant growth in revenues on an annual basis or the margin is well or slightly below the level of last year. I would like if you could elaborate a bit on the reasons for this decline in the margin? Thank you.

[Till Streichert, Chief Financial Officer]

So you're right in terms of Hospitality & Other Solutions. We haven't reached yet the 2019 level of contribution margin in percentage terms. Look at this, we have seen actually obviously strongest recovery in that segment from a top line point of view, which we are very pleased with. And therefore, it's actually more a question of the mix of the contribution within hospitality and other solutions that is creating the slight margin drag.

And the other element is which is a function of the mix, because we've seen stronger growth in media and distribution. There you've got also a little more associated cost that comes with it. And this is the explanation. But other than that again, with the segment as such and its recovery and reaching already 95% of where it was in 2019 very pleased.

[Carlos Treviño, Santander]

Thank you very much.

[Operator]

Thank you. The next question comes from Michael Briest from UBS. Please go ahead.

[Michael Briest, UBS]

Yes. Good afternoon. Could you sort of comment maybe on the PB trend? Because I think you called out it was minus 18% in July, from minus 19% in June. So it seems to have slowed.

To what extent do you attribute that to the cancellation and disruption effects? And to what extent to perhaps macro weakness, until could you just say to clarify how the cancellation provision is calculated for the quarter, because my understanding is not based on the sort of monthly trend there's a sort of period of time that's fed into it?

And then just finally on bad debts, I noticed that you've quite reasonably sort of loosened the provisioning policy. I think previously it was 1.5% for debt that's not due and 5% of those overdue and it's now 0.5% -- 3.5%. So can you say what the bad debt provision is now? It was €179 million at the end of last year? And where any reversals would have flowed into the P&L? Thanks.

[Luis Maroto, President & Chief Executive Officer]

Okay. I missed Michael about the demand side. I mean I mentioned already, it's very, very difficult to really know the exact reasons. why there could be a bit less growth. I think my view and I said my view is that, the demand is strong. I mean there has been a big jump of demand.

We see and we have analyzed the number of cancellations that the airlines are having in terms of the capacity even if the capacity keeps increasing, but at one point there was a number of cancellations, but airline are of course impacted the PBs as well as the booking projections for the future.

But again, I mean, on top of that, there may be people that decide not to travel when they see the situation that is happening in some of the airports around the world difficult to know exactly the reasons what we are still seeing, and we get that from many sources is that the demand is pretty strong.

I mean you see the load factor of airlines is very high. I mean in some cases they are already at the levels of 2019 and this is officially reported by them. And therefore there is a strong demand and a strong load factor.

So I will say in my view for the time being and I mentioned before, it's more related to the capability to really face this, huge sorts in demand that has happened since the beginning of the year. And you know the lack of staff and resources in many airlines and many airports. And therefore, this in my view is the main reason.

But of course look there may be that also people are thinking about traveling due to the current microeconomic environment. I'll say based on the factors that I mentioned, there are lot of factors the comments of the airlines the amount of staff that is being bring back to the industry and the recruiting and the offers that are in both Hospitality and Airlines.

But here in the case of airline being more extreme around the world that is more related to the supply side and to the demand side. But again, saying that, we cannot be completely sure and there may be some effects on the demand side at this point. So...

[Till Streichert, Chief Financial Officer]

Moving to cancellation provision and then also the ECL the expected credit loss ratio which you are referring to, just cancellation provision. As a reminder, it's driven by two things. One thing is the size of the inventory. And the second one is the actual cancellation ratio that we want to provide for.

And we always take into account several months. And of course you do this on a backward-looking basis. And based upon that you calculate what you need. And I mean, if I just indicate from a quarter-on-quarter movement actually, while our first quarter was affected by a higher cancellation provision which made obviously a lot of sense as we were in the middle of Omicron still for several weeks there.

Our second quarter actually has seen the cancellation provisions slightly being decreased. Now, if your question zooms in do you expect something from the cancellations and the disruption that we are seeing right now that Luis has commented on, again from a financial point of view, in relation to cancellation provision, in the grand scheme of things how you actually estimated and provide for it, I would think small, okay? We'll talk about it in the third quarter, when we next time speak. But this is what I would say at the moment.

The second point on the expected credit loss provision, you're right. This has improved. And again this just strictly follows IFRS. And you look at a multiyear you take a long-term view looking backwards. And of course as basically the -- as we are moving out of the pandemic period and it's waiting in that calculation. You also do expect that overtime to see further improvement. And other than that and this is quite standard as well of course for any high-risk customer anything that happened for example in relation to Russia or also you can assume that we made adequate treatment and adequate provisions.

[Michael Briest, UBS]

Thank you. But as the provision come down? And where would the reversals go?

[Till Streichert, Chief Financial Officer]

It has slightly -- I think it has slightly grown in the quarter, but again this is more related to just things that we also made sure we are adequately provided in relation to Russia than basically anything from an underlying point of view.

[Michael Briest, UBS]

Understood. Thank you.

[Operator]

Thank you. Ladies and gentlemen, we have now reached the end of the results call. I will now give back the word to Mr. Luis Maroto, for the final remarks. Thank you.

[Luis Maroto, President & Chief Executive Officer]

Thank you very much for attending the call and looking forward to the next one after the third quarter. And hope that you have a nice summer season. Thank you.