Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the Amadeus First Half 2023 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, CEO & Executive Director]

Good afternoon. Welcome to our '23 first half results presentation, and thanks a lot for joining us today. I'm joined by Till. I will start with an overview of our most important development. Till will elaborate on the key financial aspects.

We'll start with Slide 4 to review our performance in the period. In the first 6 months of this year, our group revenue increased by 28% over prior year. EBITDA grew 41%. Adjusted profit expanded by 85%. This positive financial performance supported a 57% increase in free cash flow, resulting in net financial debt of EUR 1.870 million, which represented 1x last 12 months EBITDA.

Our results in the first half of the year were driven by our segments' strong operating performance, which was supported by the continued strengthening of the travel industry. Traffic continued to advance through the second quarter, the domestic traffic posting positive growth of pre-pandemic levels and international traffic advancing steadily.

Additionally, we have remained highly focused on our R&D efforts and CapEx programs in the period as we are investing for the future. Our key focus includes the evolution of our hospitality platform, partnership with Microsoft and our shift to the cloud, the implementation projects of new customers across our business, industry-related solutions and capabilities, including our next-generation airline retail offering under the Offers and Orders initiatives, and portfolio announcements and expansion including Airline IT digitalization and enhanced shopping, retailing, and evolution of our portfolio for travel sellers, airports and in .

Finally, we were pleased to perceive shareholder remuneration in full Amadeus an important piece of our capital allocation strategy. In June, we announced share repurchase program of EUR 430 million. And in July, we made payment of our ordinary dividend at EUR 0.74 per share, amounting to a total of EUR 333 million. So I'll review the developments of each of our reported segments.

Please turn to Slide 5, starting with our distributions. In the past quarter, we signed 16 new contracts of renewals of distribution agreements, taking the total to 36 for the first half of the year. We continue to advance with our NDC strategy to expand our customers base and to upsell technology to a number of our airline, travel agency, and corporate customers.

With regards to our volume evolution in the first 6 of the year, Amadeus booking grew by 17% relative to prior year. Please remember that the recovery experienced by the travel industry throughout 2022 impacts our booking growth rates in 2023. Relative to '19, Amadeus booking in the second quarter improved for the first quarter performance by 3.4 percentage points to minus 21.7% versus '19 . This resulted in a minus 23.5% versus '19 performance for the first half of the year, outperforming our industry supported by market share gains.

Our best-performing region remains North America, which grew 4% in the first half relative to '19 and was Amadeus' largest region in the period, accounting for 29% of our bookings. Over the first half, APAC has been the region experiencing the strongest improvement in growth relative to 2019. Finally, in July, we continue to see an improvement in our booking evolution.

Please start to Slide 6 for a review of Air IT solutions. In terms of business development, we recently signed a new Altea PSS contract with an undisclosed airline carrying 25 million passengers annually. Also, several airlines customers signed for additional solutions or implemented new solutions such as Tunisair, Vistara, Air Corsica and KLM.

In airport IT, we continue to expand our reach through new agreements with several players, including Noida International Airport, the operator of Terminal 4 F. Kennedy International, Munich T1 Airline CLUB, a group of carriers operating from Terminal 1 and Spokane International Airport.

In relation to our volumes, Amadeus PB was 37% higher in the first half the year and in the same period of '22, driven by continued progress in travel industry and new customer implementations. Please remember that the recovery experienced by travel industry through '22 impacts our PB growth rates this year.

Amadeus passengers boarded for the first 6 months of the year were 5% below '19. This was composed to organic growth of minus 6% by the organic growth from customer implementations, the more recent ones being Etihad, ITA of Hawaiian Airlines in '23 and India in '22, partially offset by airline customers ceasing or suspending operations of the migrating our platform, including the de-migration of Russian carriers during '22.

In the first half of '23, North America remains our best-performing region, delivering 28% growth over '19. But Western Europe was our largest region, representing 32% of Amadeus' passengers boarded. Over the first half, North America and Asia Pac were the regions supporting the strongest improvements in growth relative to '19. Into July, based on the most recent data that we have, our PB performance versus '19 has continued [indiscernible].

Slide 7, we have an update on our Hospitality segment. Hospitality & Other Solutions continue to advance well, supported by new customer implementations and volume expansion. As a result, our revenues in this segment grew by 24% in the first half relative to prior year. Both hospitality, which generates the majority of the revenues in this segment, and payments delivered strong growth versus prior year. We also saw continued interest in the video from customers or solutions across our portfolio.

With this, I will now pass onto Till for further details on our financial performance initiative.

[Till Streichert, CFO]

Thank you, Luis, and hello, everyone. Please turn to Slide 9. Before starting with a review of our financial evolution, let me clarify that for purposes of comparability between 2023 and 2022, there are a number of nonrecurring elements impacting our performance on the P&L.

In the second quarter of 2023, we changed our tax provision fundamentally due to the positive resolution of certain proceedings with the Indian tax authorities. As a consequence of this change, our income taxes were impacted positively by an amount of EUR 29.2 million and our net financial expense increased by EUR 6.6 million, together combined, resulting in an increase in adjusted profit of EUR 22.6 million.

Let me also clarify, EBITDA is not impacted by any of this. Also, as you know, in the second quarter of 2022, we received a nonrefundable government grant amounting to EUR 51.2 million pretax or EUR 38.9 million post tax, which reduced our fixed cost base and resulted in an increase in our EBITDA.

In order to facilitate the understanding of the evolution of our business in 2023, we've excluded these effects from the performance overview we are providing you with in this presentation. Further details on these effects and the full reconciliation to the reported figures can be found in the half 1 2023 management review.

Now to review our revenue evolution. In the first half of 2023, our group revenue grew 28.2% versus half 1 2022, supported by revenue growth across our segments. In Air Distribution, revenue of the first 6 months of the year was 31.1% above 2022, primarily driven by the booking evolution Luis described and by revenue per booking, which was 11.8% higher than in half 1 2022, fundamentally driven by a lower weight of local bookings in the first half of 2023 compared to 2022 and pricing effects, including impacts from inflation and yearly price adjustments.

With regards to Air IT Solutions, revenue in the first half of the year was 26.2% higher than in half 1 2022, driven by the PB volumes evolution, coupled with a 7.7% lower revenue per PB. The decrease in the revenue per PB in the period was expected and was primarily driven by a proportion of Air IT revenues not linked to PBs, growing at a softer rate than PBs, more than offsetting positive pricing impact from the Altea retail customer mix, inflationary or price adjustments and from upselling of incremental solutions.

To briefly recap on the implementation front in line with plan. As of now, we have implemented Etihad Airways, ITA Airways and Hawaiian Airlines and continue working to implement Allegiant and Bamboo Airways during the second half of 2023. As we said in February, this should bring us an approximate incremental 45 million to 55 million PBs in 2023, resulting from the 2022 and 2023 migrations. Let me remind you that this is post a 2022 PB base reduced by the Russian carrier de-migrations, which in 2022 brought us 25 million PBs.

Regarding Hospitality & Other Solutions, revenue in the first 6 months of the year was 23.6% above half 1 2022, driven by strong performances of both hospitality and payments on the back of new customer implementations and volume expansion. Within Hospitality, Hospitality IT reported healthy growth mainly driven by Sales & Event Management, Service Optimization and Amadeus' CRS revenues, supported by new customer implementations and higher reservation volumes.

Media & Distribution revenues increased notably backed by an increase in media transactions and bookings. And Business Intelligence revenue also expanded in the period, driven by customer implementations. Within payments, all its revenue lines reported strong growth rates, supported by higher payment transactions and customer implementations.

Please now turn to Slide 10 for a review of segment contribution and net indirect cost evolution. Air Distribution contribution grew by 33.2% in the first 6 months versus 2022 as a result of the revenue growth, I've just described, and by a 29.3% net operating cost increase, which resulted from higher variable costs driven by the bookings evolution and other effects such as customer and country mix and an increase in fixed costs largely caused by R&D investment expansion and a higher unitary personnel cost.

R&D investment in the period was mainly focused on the implementation of NDC contracts on the airline and travel agency side as well as the evolution of our portfolio for airlines, travel sellers and corporations. The contribution margin of the segment in the first half was 47.4%, an expansion of 0.7 percentage points from the first half of 2022.

With regards to Air IT Solutions contribution in the first half of the year, this was 28.5% higher than in half 1 2022, resulting from the revenue evolution described before and an increase in net operating costs of 21%, which was fundamentally driven by the expansion of our development teams focused on the enhancement of our portfolio for airlines, customer implementations and services and the unitary personnel increase.

Air IT Solutions contribution margin in the first half was 71.2%, expanding 1.3 percentage points from prior year. Regarding Hospitality & Other Solutions contribution in the first 6 months of the year, this was 42.3% above half 1 2022, as a result of the revenue growth described before and a higher net operating cost of 15.8% and growth in net operating costs resulted from higher variable costs, primarily driven by volume expansion in our B2B Wallet payment solution as well as at our media distribution and CRS hospitality business, and an increase in fixed costs fundamentally caused by expanded R&D teams dedicated to the evolution of our hospitality and payment solution portfolio and to customer implementations and by a higher unitary personnel cost.

Hospitality & Other Solutions contribution margin in the first half was 34%, which is 4.4 percentage points higher than the same period of 2022. Finally, net indirect costs expanded by 11.8%, mainly resulting from an increase in transaction processing and cloud costs as a result of the volume expansion and our progressive shift to the public cloud and the unitary personnel increase.

Please now turn to Slide 11 for a review of our EBITDA . In the first half of 2023, our EBITDA was 41.3% higher than in 2022. EBITDA margin expanded by 3.6 percentage points to 38.9%. Our EBITDA performance resulted from the revenue evolution explained before and a higher cost of revenue and an increase in our combined personnel and other operating expenses cost lines.

Cost of revenue grew by 35.3% in the 6-month period versus 2022, resulting from volume expansion across our segments, particularly in Air Distribution, in our Media Distribution and CRS hospitality businesses and in our B2B Wallet payments business. Cost of revenue was also impacted by several factors, including customer, country and business mixes.

Our P&L fixed costs in the first half of 2023 compared to the same half last year were 12.7% higher, excluding the government grant in the second quarter of 2022. This cost evolution resulted from increased resources, particularly in our development activity to support our R&D investment coupled with higher unitary costs resulting from our global salary increase growth in non-personnel related spend like travel and training, among others, driven by the business expansion relative to prior year and higher transaction processing and cloud costs caused by the volume expansion and our shift to the cloud.

Just to recap on what we said in February, our P&L fixed cost growth in 2023 should range between 10% to 14% over 2022, excluding the EUR 51.2 million government grant received in 2022. We expect fixed cost growth to have in half 2, a similar growth pattern than we saw in half 1. To review the evolution below the EBITDA line briefly in the first half of 2023 compared to 2022, D&A expense decreased slightly by 2.2% and a lower depreciation expense from a reduction in hardware investment, largely driven by our shift to the cloud, offsetting higher amortization expense from internally developed assets.

Net financial expense also declined in the period by 55.3%, driven by an increase in financial income and exchange gains. Interest expense was in line with prior year as a result of higher average cost of debt relative to last year, offset by the lower gross debt. Income taxes increased by 93.6% in the 6-month period versus prior year largely driven by higher taxable income. And finally, resulting from all of these effects, adjusted profit grew 85% in the first half versus 2022.

Please turn to Page 12 to review our R&D investment and CapEx. R&D investment grew by 20.2% in the first half versus 2022. And as Luis has described, we are investing for the future and focusing on several strategic areas, Hospitality, cloud, and we see 1 order to highlight a few as well as our new customer implementations across our businesses. In the first 6 months of 2023, our CapEx increased by EUR 52.8 million or 20.6% compared to the same period in 2022, mainly driven by higher capitalized R&D investment and represented 11.5% of revenue in the first half.

Please turn to Slide 13 for a review of our free cash flow generation and leverage. With regards to free cash flow, we generated EUR 482.4 million in the first 6 months of the year. And in the second quarter of 2023, we collected EUR 42.8 million from the Indian tax authorities linked to the positive resolution of the proceedings I mentioned before. Excluding this collection, we generated EUR 439.6 million free cash flow in the first half of the year, driven by our EBITDA evolution by a change in working capital outflow as expected and higher CapEx and taxes.

Relative to prior year and excluding the government grant and cost-saving program implementation costs paid in 2022 as well as the collection from the Indian tax authorities in 2023, our free cash flow was 56.9% higher than in 2022. Free cash flow generation in the 6 months period supported our net debt evolution. Net debt amounted to EUR 1.870 million at the end of June with leverage amounting to 1.0x net debt to EBITDA.

And with this, I'll pass back to Luis for final remarks.

[Luis Maroto, President, CEO & Executive Director]

Thank you very much. As you have seen, we have a good progress in the first half, and we are bouncing well on our strategies across our business areas. We remain confident and excited for the future and the breadth of opportunity for Amadeus.

With this, we have 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.

[Adam Wood, Morgan Stanley]

I just wanted to start off with a better way from you on the CRS and the Hotel business this quarter. I understand you probably won't want to comment directly on that. But can you just comment more broadly on the competitive landscape around CRS. Our perception was there coming out of COVID, the technology lead had widened significantly, given other competitors came out in a lot weaker position. Are we maybe being a little bit too optimistic on that? Or is pricing more of a factor in those deals we might have thought?

And then secondly, on the distribution side of the business. We've traditionally talked about your competition with the other GDSs. But I guess with NDC, we now see other aggregators in the market whoever we think a decent share on the NDC volumes. Could you talk a little bit about volume scale, how you're seeing market share shifts happen on the distribution business? Are you seeing share move away from them back into the additional GDS market as you expand the NDC offerings?

[Luis Maroto, President, CEO & Executive Director]

Okay. Let me try to go ahead. I don't know if I got completely the last part, Adam, but I would try to cover what I'm just told that the -- and if not chat with me now [indiscernible]. With regards to the CRS now, I think we are still optimistic about the CRS. Of course, there is always competition. But we keep talking to customers, of course, our biggest project today, as you know, is the migration of Marriott. But there are prospects there, and we keep being optimistic about the future of the CRS and hopefully, we'll be able to really get attraction and sign additional customers, but so far so good, and we keep complementing the platform and pretty optimistic about that again. There will be some sales in the market that would compete with us definitely, yes. But we feel what we have developed is to understand that they are system and with a lot of capabilities to compete.

With regards to the GDS, competition is always there. Of course, you have different dynamics. As you said, their country, their region, our goal is to keep increasing sale. And then -- and we see -- that we see an increase of volumes on the GDS, but still small as we keep implementing customers. And we keep this year, I mean, for me this is a journey where you have -- still, despite the fact that they are standards, there are different partials of the connectivities, different APIs in the way you connect to the carriers and also how we integrated the system.

We believe what we have make sense. But of course, we all suspect our competitors or whoever is dealing with content aggregation will compete with us in the future. We are confident about our investments in this front and we have been doing for years. We have signed 40 customers so far and 20 have been implemented there. And again, we see an uptake of bookings but still low levels that probably in the coming years will definitely increase.

[Adam Wood, Morgan Stanley]

I guess where it's coming from is -- if you look at the aggregators that are kind of new entrants into the market when NDC came on, do you believe that you're growing more quickly on NDC volumes than they are as NDC scales?

[Luis Maroto, President, CEO & Executive Director]

Well, look, this is difficult to say. Of course, there's been a number of aggregators, we are getting into some pieces of the volume because when you need to contract especially when you have connectivity, which is one by one. We can also provide that but our approach is to really integrate and provide the travel agencies with the alternate, we collect content from different airlines out from different technologies to do that in an economic way.

And therefore, as soon as this gets traction, we expect to really grow faster. But at this point, as I said, the volume -- I mean, of course, we are growing fast, but from a very small base. There are some travel agencies that are more advanced than others, especially when we talk about the airline space. But the business side of the business is behind, okay?

And we will try to really provide a solution that is serving the different needs of the different travel agencies. So there are some aggregators that are doing some connectivity directly to the airlines. For us, this is a long-term journey, but I believe the GDSs are very well positioned to redo that in the proper way where you can integrate the different sectors.

[Operator]

And the next question comes from Victor Cheng from Bank of America.

[Victor Cheng, Bank of America Merrill Lynch]

Two, if I may. Just a question on the -- kind of latest U.S. airline commentary. There seems to be a trend pushing faster the NDC adoption. And they also talk about unmanaged corporate travel recovering faster than managed corporate travel. Do you see any impact from this in Q2? And what are your expectations on this going forward?

And the other question is again on hotel. Obviously, you commented about it just now. But can you talk a bit about the dynamics on both the CRS and PMS pipeline? Like Adam said, it's a pricing pressure with the peers. And on the PMS side, obviously, you have developed all-around solution, but probably still looking for a marquee customer. Is there any update on that front?

[Luis Maroto, President, CEO & Executive Director]

So let me start with the last one, and then I'll cover the first one. On the CRS, no, it's not that we've seen any pricing pressure on that, not at all. It's a matter of competition, value proposition, functionality. Now we are -- and timing of sales and implementation.

As I said before, I mean, we are confident and optimistic about that and look hopefully, this will continue to be in the journey, but it's not that we have changed our prospects for this part of business and that we have been more pessimistic than before. I mean I always mentioned, this is a growth area for the company. We have 2 big chains, and we hope that we will keep increasing ourselves with big change around the world and then move progressively to medium-sized chains to really complement the software. So I don't see it or I don't see any price pressure or anything that is comparable to what we are saying that, of course, there are solutions in the market that can be an alternative depending on what people are looking for and the sophistic case on that 2 parts.

With regards to the first point, as you know and as I mentioned, we have contracts with many airlines including some of the U.S. carriers for LEC, and we try to really provide the functionality that is needed. And therefore, we are not expecting short term. I mean, again, we will need to see if the volumes are coming through the GDS, but our assumption or expectation is that we are going to be able to benefit from the NDC moving forward, I guess, there will be competition. There may be some cases of content that is going to be managed, but no different from what, in my view, has happened during many years as the airlines trying to push their direct sales to the market.

And therefore, we keep our confidence that the volumes in the coming years will be here as they have been in the past. I mean it could be, in some cases, volume that is getting out and volume that is coming back to the system depending on the conditions and depending on the regions, but we are not assuming a negative impact in the coming quarter, definitely not.

[Victor Cheng, Bank of America Merrill Lynch]

Got it. Very clear. I think the last part of my question was in hotel PMS, property management systems. I mean you had obviously [indiscernible] many years ago. But just wondering, obviously, that didn't happen for some other reasons. But any kind of visibility into the potential kind of pipeline?

[Luis Maroto, President, CEO & Executive Director]

I mean, as you know, our strategy for the PMS is very linked to the CRS. So we are -- I mean, we have a PMS solution that work, but our focus is much more on the CRS than the PMS. So the PMS as a standalone, we are not approaching the market. We are approaching more in combination with our CRS. And if this happens in the future. And hopefully, this will be the solution because we believe that the CRS and the sophistication that we have there is going to really have a different way of dealing with the PMS in the future.

And therefore, the combination of both may make sense, but the PMS for us is a consequence of the CRS more than the PMS trying to compete completely independent with the players that are around in the market. So the integration of the different functionalities is what we are doing. And therefore, of course, we keep conversations with different players on the world when we talk about CRS and PMS.

[Operator]

The next question comes from Sven Merkt from Barclays.

[Sven Merkt, Barclays Bank]

Great. First, a question on the revenue outlook. Are you able at this stage to provide us some further color where within the range you expect to end up, especially after yet a recently raised the 2023 forecast? And the second question is really just a clarification on the comment that fixed growth will follow a similar pattern to H1 in the second half. Do you think it should be, again, going around the 12.7% level, did I understand it correct? So in the upper end of your 10% to 14% fixed growth guidance. And if so, what's the change that drives that?

[Luis Maroto, President, CEO & Executive Director]

With regards to revenue guidance. I mean, look, so far, things have evolved positively. We see, again, July been positive, but it's too early to really change the full year outlook. I mean, as you know, look, we see capacity being positive, too, for the months to come. I mean, overall, the capacity, which is an important driver for us.

But at the same time, I mean -- do you see some airlines being more prudent than others. You see the current economic environment that may impact volumes in the future. So at this stage, I mean, we stay with the guidance we provided to you at the beginning of the year, and we feel confident that we will achieve that. I mean, of course, things may evolve. But if this is the case, we'll provide you with further updates in the next quarter results. So up to today, things are positive, but there are enough doubts of the coming months to be a bit prudent. That's the way I would describe.

[Till Streichert, CFO]

And on the cost question, so look for the full year, we, of course, expect to be within our fixed cost growth range outlook that we gave, the 10% to 14% at the beginning of the year. But there you're right. So I do expect that from a growth rate pattern, probably a similar figure for the second half of the year, which is relating more to the evolution of our headcount ramp-up, and we have seen an opportunity in particularly service businesses, which is high in demand on the airline side, and we consider it as good business, and that is driving a little bit of that cost element.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest, UBS]

Apologies if you covered this in your opening comments, Luis. I had a bit of an issue getting online. But on the GDS business, I mean, the European and American trend year-on-year does look great. What are you seeing there specifically? And what are you expecting for the second half of the year?

Till, just coming back to the last question. Do you also mean that from a seasonality point of view, we'll have the same as Q1 and Q2 in Q3 and Q4, i.e., Q3 growth rates are going to be much higher than Q4. And then just finally on the new airlines win on Altea. Was that from a competitive platform or a legacy migration? Can you give any more color around that?

[Luis Maroto, President, CEO & Executive Director]

Let me start with the last one. I mean, this we cannot disclose. I mean we've have been asked by the customer, not to talk about this. So I cannot give you more color. What I can tell you is that we are very pleased with that. It's a growth, it's in a growth market. So it's underlying that is, I mean, a good growth. But for the time being, we are not allowed to really provide you with more information because of the relationship with the customer.

With regards to the GDS in Western Europe. I mean, one of the factors, of course, that we have been mentioning to you is that still, the growth of local have been stronger. I mean, in Western Europe, definitely. I'm not talking about traffic. I mean, the growth of Ryanair compared to some of the more full-service carriers. I mean there is a big, big pickup in terms of growth.

So of course, as traffic recovers -- and the international traffic and business traffic recovers, hopefully, there could be further growth in Western Europe and therefore, impacting positively our volumes again, I mean, Ryanair is a customer of us as many of the low cost. And therefore, in terms of volumes for our PBs and our IP, this is positive. But of course, they are less intermediary and therefore for the -- I mean there is less volume overall in the GDS. This is why the bookings are behind.

So look, I would expect also the full-service carriers to keep recovering in the coming months. But again, it needs to be seen because definitely, low costs have been moving well ahead and relation of travel has been doing much better on business during the last quarters. And the last question?

[Till Streichert, CFO]

The cost, just to reiterate. So first half of the year, we had a fixed cost growth excluding the grant of the 12.7%, which you see in our numbers. And yes, for the second half, I would expect a figure similar to that from a growth rate point of view, which leads you then kind of the full year growth rate as well in that range.

[Michael Briest, UBS]

Right. But Till, it was 14% odd in Q1 and 11.5% in Q2. So we do not -- there's no reasonable that's received...

[Till Streichert, CFO]

Look, there's seasonality between the quarters. So therefore, it rather take the first half kind of as a reference and then kind of what I said for the second half. Again, you may also have between the quarters, certain seasonality or differences. But I think the objective and the purpose was to give a full year view. And again, as I said before, within the range of 10% to 14%, but probably similar to what we have seen in the first half of the year in terms of overall .

[Operator]

The next question comes from Toby Ogg from JPMorgan.

[Toby Ogg, JPMorgan Chase & Co.]

A couple for me. Just firstly, just on the gross margin development, the 74% in the quarter. I know there are various mix shift dynamics that are happening across the business segments, as you mentioned earlier. But could you just give us a sense of how you expect those mix shift dynamics to evolve going forward? And whether we should expect some continued pressure there on the gross margin? Or whether you think 74% is an appropriate floor to be thinking about?

And then secondly, just coming back on the hospitality side, of the business again, the growth deceleration was a little bit more pronounced than expectations. Could you just talk about what you're seeing in that segment on the demand side across the different and whether you've seen any incremental impact from the macro environment in that segment?

[Till Streichert, CFO]

Well, let me start off with the relative to gross margin question. So maybe just on the components of that. We've got various effects within there, and I've commented on that before and also during my comments here now, we've seen hotel, media and distribution business evolving well within the hot segment. And this does have also some incentive payments and cost of revenues driven by that.

We've seen our B2B Wallet business within the payment space growing well. And these are factors which impact as well as the cost of revenue. And of course, you also have got kind of the traditional classic incentive side to the travel agencies. But again, there are mix effects in it, also still a little bit linked to customer mixes, regional mixes and so on and so on. But yes, these are the dynamics within that. And I would expect that these things kind of trend a little bit towards kind of what we have seen in 2019, but nothing that we've seen -- nothing different than what we've seen before.

[Toby Ogg, JPMorgan Chase & Co.]

The second question is for challenging demand.

[Luis Maroto, President, CEO & Executive Director]

Well, I mean, look, in terms of demand, I don't know if you were referring to different that we have. But if we talk about the overall demand and overall rates that we see in terms of occupancy. We still see a strong demand in hospitality overall from what we have as the statistics. So a lot changes compared to the past.

I mean, the occupancy rates are very close to 2019. The demand in some parts of our business and Till mentioned distribution and media are doing very well. So we don't see that [indiscernible] that this may come in the future. But for the time being, the figures are not showing a weakness demand, the figures that we manage ourselves internally.

[Operator]

The next question comes from Charlie Brennan from Jefferies.

[Charles Brennan, Jefferies]

We've covered a fair amount of ground already, but can I just ask a question on pricing particularly in distribution. I think you're expecting pricing trends or at least price growth to moderate in the second quarter. It's come in at 11% or 12% growth. That's obviously still a pretty decent number. Was pricing better than your own expectations in the quarter? And how do we think about that evolving into the second half of the year?

[Till Streichert, CFO]

Look, pricing has been obviously kind of positively evolving as you can see. But let me also just add, of course, when you look at it quarter-on-quarter, the first quarter comparing to prior year first quarter was comparing an Omicron quarter, okay? And since then, we've seen positive evolution of booking mix, which was obviously helping us, which again was quite positive.

But beyond that, we've seen in pricing, of course, also kind of our yield realization increases, price adjustments and so on and so on. So what I would expect for the second half of the year is a little bit of moderation in terms of price and growth compared to half 1 and obviously, still staying good and positive compared to prior year.

Has this been kind of in line with expectation? I would say pretty much that is what we've been expecting. So yes, let's see, that's the trend on the pricing side, which is obviously supporting our margin evolution.

[Operator]

The next question comes from Guilherme Sampaio from CaixaBank.

[Guilherme Sampaio, CaixaBank]

Two, if I may. The first one, a follow-up on the previous question. So according to IATA, looking only at international routes between Europe and other regions, traffic is already 20% below 2019. Conjugate performance has been roughly stable at minus 35%, minus 40%. If you could help us reconciling these figures? And the second question about gross and net [indiscernible]. If you could provide some further color on this?

[Luis Maroto, President, CEO & Executive Director]

I just tried little bit to listen you well, but if you are talking about the difference between IATA and the GDS, I mentioned part of that. I mean, of course, you have the impact of China that is recovering strongly in the last months, especially on the domestic front. As you know, this has nothing to do with the GDS as we saw in pre-pandemic, but it has accelerated in the last quarters with altering of China, you have the impact of low costs that I mentioned before.

And then, of course, the direct sales of airlines that usually the airlines have been pushing organic sales within -- many, many years. Again, nothing really different from what we have seen, I would say, some acceleration in the China impact in the last quarters compared to what we have seen previously. But I think I mentioned that -- hear you well about the numbers you were breaking in.

[Till Streichert, CFO]

Let me -- if I understood you correctly, you were -- the second question was about gross and net bookings, if I'm not mistaken. So look, the difference of gross and net bookings, we have been actually talking about towards -- during last year when we were talking about kind of month-on-month evolution compared to 2019 because it became more relevant in that context.

But what I can tell you is that the cancellations as such, things have started to move into a more normalized trend overall. Otherwise, we would have highlighted it as something in the numbers. So you can say it's pretty much back to normal. Of course, this also depends upon kind of now a bit of summer period and the airlines capacity and capability to deliver the schedules at the bookings as they get approach. But so far, I would just say this is all back to normality more or less.

[Guilherme Sampaio, CaixaBank]

Just on the first question, a follow-up. I was referring to international routes between Europe and other regions. If you could provide some color on why there's such a relevant gap between your performance and -- GDS performance and IATA's traffic?

[Luis Maroto, President, CEO & Executive Director]

Sorry, we are trying to understand exactly. We have probably a problem to really understand the question...

[Guilherme Sampaio, CaixaBank]

No, I was talking about...

[Luis Maroto, President, CEO & Executive Director]

Between our PBs and IATA, I mean, look, again, and I don't know, look, we can follow up with you. But of course, we have the number of customers which are purely passengers, the customers we manage. I mean if we think about Western Europe, of course, we have the majority of the airlines. So mainly should be very close to IATA figures with some exceptions, of course, because there's no big difference, but we need check exactly what you mean and try to reconcile them and start look -- we'll follow up with you, the team will continue to try to understand that.

[Operator]

The next question comes from Carlos Trevino from Santander.

[Carlos Trevino, Banco Santander]

Two, if I may, both on profitability. In you commented that these were expecting a slight decrease in profitability in the margins of hospitality. However, we have seen a significant increase on we were in the very first -- the first half of the year. So my question is do you still expect a small decrease for the year as a whole? Or do you feel now a bit more positive? And also the reasons on this better-than-expected profitability? And the second one will be also on profitability in airline business, in those your revenues are now based at organic level where contributions margin that is still well below the community levels. I mean I would like to ask you for that and this excludes this level profitability historically. And when we see that we will see an acceleration on margins in IT solutions?

[Till Streichert, CFO]

Okay. I had some difficulties of understanding, but I think I got the 2 key points on hospitality profitability. And you're right, we have seen hospitality margin -- contribution margin evolving positively in the first half of the year. There were a number of moving parts in that, that were actually positive and helped. There were more favorable segment mix effects. We also had an element, of course, when you run your business, you also have got bad debt. This year, we had less bad debt than we had last year, which is positive. And there was also kind of better operating leverage within the hospitality segment as such.

So for the full year, I do think there is a gap of more than 4 percentage points of margin expansion versus prior year may perhaps shrink a little bit or may just narrow down slightly. But I do expect that contrary to our expectation that there would be slight margin contraction probably we can say that in the hospitality segment, we will be seeing slightly positive margin evolution this year, which is good yes.

On IT margin evolution. So a couple of things there. Compared to the 2019 levels that you are referring to, I mean, there's obviously a segment mix, which does play a role. We have highlighted that subsegments or sub-business lines like airport IT is performing better. Airport IT does have a lower margin within the mix. We have highlighted as well, and we had an opportunity and we deem it as an attractive business opportunity expanding a bit the -- the services business with the airlines where we are providing services through competency centers or running part of their operations outsourced to us.

There are also certain mix effects that play into from a customer mix point of view, that play into the margin at Air IT. Remember, there's also between the platform mix between and Altea. And of course, let me also say that we still have got a certain gap in terms of operating leverage because we are still short by a couple of percentage points in terms of volumes. And having said all of that, I would expect that in a year to go, so for the second half, that this distance versus the 2019 margin starts to narrow a little bit more, but mostly from PB growth, so mostly from volumes coming or we are expecting to come...

[Operator]

Ladies and gentlemen, there are no further questions in the conference call. I will now give back to Mr. Luis Maroto for his final remarks.

[Luis Maroto, President, CEO & Executive Director]

Thanks a lot to everyone for attending the call for your questions. Looking forward to the next call, and I wish you all a nice summer season. Thank you.