Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2021-Q3

[Operator]

Welcome to the Amadeus third quarter 2021 presentation webcast. The management of Amadeus will run you through the presentation. [Operator Instructions]I'm pleased to hand over to you, Mr. Luis Maroto, President and CEO of Amadeus. Please sir, go ahead.

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

Good afternoon, ladies and gentlemen, and welcome to our '21 Third Quarter Results Presentation. Thank you very much for joining us today. As usual, Till is here with me to elaborate on the key financial aspects of this quarter.So let us start with Slide 4 for review of our financial results in the period. Our volumes continue to improve in the third quarter in this row of a strengthening of our financial results. For the second consecutive quarter, we saw important improvements in revenue and EBITDA growth versus 2019, which also supported cash generation. We have positive free cash flow in the 9 months period excluding cost-saving program implementation cost and expect to increase quarterly free cash flow going into quarter 4 on the back of continued progressing volumes.In the third quarter, Amadeus delivered group revenues of EUR 739 million, representing a 47% decline versus the third quarter of 2019 and advancing 9 points from the evolution we saw in the second quarter. The progress in revenue performance that is to prior quarter was driven by continued improving revenue performance across our 3 segments.EBITDA also continued to advance resulting in the third quarter excluding cost saving implementation cost of EUR 207 million. For the first time since the start of the pandemic, we have a positive free cash flow result for the whole quarter amounting to EUR 104 million in Q3 making, as I was saying, our free cash flow for the year-to-date positive as well and totaling EUR 57 million in both cases excluding cost saving implementation cost. Also we now expect free cash flow to be positive for the full year '21 making an important achievement in this period.In the third quarter of '21 we had for the first time since 2019 a positive quarterly adjusted profit result amounting to EUR 24 million also demonstrating a continued positive trend from prior quarters.Finally on cost implementation -- or cost optimization, sorry, which accelerates our profitability and cash generation as volumes recover on aggregate to date and compared to 2020, our total fixed cost reduction amounts to EUR 186 million. Till will elaborate more on these topics later.Let's move to Slide 5 for a market update. In third quarter we continued to see good progress in volume performance across our segments. Amadeus travel agency air bookings declined by 58.5% in the third quarter compared to the same period in '19 advancing 9 points from their booking performance in the second quarter.By region, North America continued to be the best performing geography, followed by Middle East and Africa, LATAM and CESE regions all of which were close to the 50% mark of 2019. All our regions showed improvements in volume performance quarter on quarter as most notable advance taking place in North America are also relevant was the quarterly progress made in Middle East, Western Europe and LATAM.In the third quarter, the GDS industry contracted by 59.1% and although the regional mix has at the moment a negative impact on our global market share has been performing slower regions such as Western Europe and A-Pac where we are last provider. We have grown faster than the industry supported by market share gains.With respect to our passenger boarded in the third quarter Amadeus PB contracted by 50.7% versus the same period of 2019 improving 17 points of our past quarter's performance. This has been the largest quarter-on-quarter improvement in passengers boarded in the past quarters. We saw considerable improvements compared to the previous quarter across regions and most notably in Western Europe and Central Eastern Europe. Monthly growth rates versus '19 also continued to improve sequentially throughout the third quarter. Our best performing regions were North America and Central Eastern Europe.With the data we have for the month of October compared to September, we have seen again and across regions a strong improvement in the bookings performance. Our bookings growth in the month of October was minus 45% versus October '19 which represents of 10 points enhancements over September's performance. In the last week of data we have bookings growth was minus 39%, the best week on record this year. We also had an improvement evolution in PBs in October with an estimated growth of minus 45% versus October '19 which is 4 points stronger than the performance in September. This is mainly the update for our most important KPIs bookings on PBs.As you know, for our third segment which includes hospitality and payments, we do not report a KPI as we have explained in this segment the weight of transactional revenues is lower. Secondly, in hospitality specifically which is the largest piece in the segment, there is no one operating metric driving the revenue due to the wide range of hospitality solutions that we offer.We have revenues based on different KPIs, properties, rooms, users clicks, bookings, reservations. I would like to say nevertheless that our metrics driving transactional revenues in hospitality such as reservations, bookings, and media clicks have continued to improve this quarter with respect to the previous one and the lack of progress in the hospitality industry as well.Our data sourced at the third quarter demonstrated steady performance for the global hospitality market. Worldwide occupancy through the much of the quarter remained in the mid to high 50% range. There is still room for improvement to return to 2019 occupancy levels in the mid 70% range. They now consist a single wide occupancies offer optimism. The U.S. leads all regions. Canada show a significant increase in occupancy in this quarter and Europe show a noteworthy increase in performance as occupancy rose steadily from 40% at the beginning of the quarter to a high of 59% in late September.Asia and LATAM continue to experience variable occupancies impacted by changed internal regulations. Leisure travel continues to drive the most demand and booking lead times continued to improve, but have not yet returned to 2019 lead times.Let's move to Slide 6 to really have some of the business update. We continued in the quarter to expand our customer base across our segments. In our distribution, we signed 14 new contracts or renewals of distribution agreements with airlines including JetBlue, Eva Air and UNI Airways amounting to 51 signatures in the year-to-date.Progress in relation to our NDC strategy continued through new agreements signed with Etihad and Cathay Pacific. Amadeus today have 17 airlines signed for distribution of their NDC content through the Amadeus travel platform. Additionally KAYAK and Amadeus have renewed and expanded their IT partnership to power KAYAK's ability to process billions of queries across its platforms with Amadeus' flight service technology.In relation to our IT, we are pleased to announce Etihad Airways signed a landmark multiyear agreement with Amadeus for a major digital transformation and we will be implementing the full Amadeus Altea PSS Suite in addition to several other solutions including digital experience and Amadeus Altea NDC. Also Pakistan Airways contracted for the full suite of Altea PSS and ultra-line of Colombia and ultra-low-cost carrier contracted New Skies.Our upselling efforts continued to yield results during the third quarter and Lufthansa Group Airlines have contracted for digital experience suite and Amadeus supported Lufthansa Group in launching its new airline Eurowings Discover which has implemented a range of Amadeus solutions including the Altea Suite for reservations and inventory.Saudia contracted for passenger recovery and Air Algerie for several solutions including several D&A, Amadeus anytime merchandising and Altea NDC. Finally Azerbaijan Airlines adopted Amadeus segment revenue management.In hospitality, we renewed our strategic partnership with Ctrip for access to extensive hospitality content. Flemings Hotels contracted for integrated booking suite and the leading hotels of the world have selected Amadeus as its provider of business intelligence. We also expanded our partnership with Cvent allowing hotels using Amadeus sales and event management to expose their function space to Cvent planners, enabling this to seamlessly book any available inventory at any time.In Airport IT, we continued to see momentum during the third quarter. Sofia Airport and Prague Airport both contracted departure control for ground handlers and we also continued to expand our footprint in the U.S. Memphis International, Missoula, Montana, Louis Armstrong and Sacramento International Airport contracted for solutions from our airport IT portfolio.I would also like to highlight Amadeus as a digital connector and tech-enabled. Intra-rail has created a range of solutions to support the recovery of travel. Traveler ID for safe travel is one of these solutions, which supports self-service check-in and allowing passengers to verify their help documentation directly through the airline app or website. Out of 12 airlines are now using this solution with Lufthansa and Airlink being the latest airlines to announce implementations in the quarter.With this, I will now pass to Till for further details of 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 this period. As Luis has explained, our group revenue declined by 47.3% in the quarter of 2021 relative to 2019. This evolution represents an improvement over the second quarter performance.Air distribution revenue declined by 57.7% versus 2019. This was a 10 percentage points improvement relative to prior quarter, supported by an enhanced volume performance versus 2019, as Luis has described. Also, despite the negative effect from the higher weight of local bookings versus 2019, air distribution revenue per air booking expanded compared to 2019, supported by contractions at a softer rate with the air booking decline in several revenue lines such as revenues from solutions provided to travel sellers and corporations.For Q4, our current estimates point to air distribution revenue per air booking being single-digit percent dilutive when compared to Q4 2019 as a result of the continued high weight of local bookings in the mix relatively -- relative to 2019.AirIT Solutions revenue performance in the quarter improved again over prior quarter, decreasing by 39.4% versus 2019. This result was driven by the lower PB volumes in 2019, coupled with decreases at softer rates in airline PB and several revenue lines that are not directly linked to PB evolution, such as services and Airport IT among others.As you will have observed, the average revenue per PB in Q3 diluted relative to Q2. Whilst the revenue per PB remains high relative to 2019, we expect it to trend towards 2019 levels progressively quarter-on-quarter as PBs grow quarter-on-quarter.Hospitality and other solutions revenue also improved relative to the second quarter, contracting by 30.2% versus 2019, impacted by the effects of the COVID-19 pandemic. Hospitality continued to outperform payments in terms of growth with respect to 2019, driven by hospitality's higher weight of non-transactional revenues. Payments is largely composed of transactional revenues and remains most impacted by the pandemic effects within the third segment.Within hospitality, we group our hospitality solutions offering into 3 sub-segments. First, Hospitality IT Solutions, primarily including central reservation, property management, guest management, sales and event management and service optimization solutions; second, media and distribution, mainly comprising digital media solutions as well as hotel, card, insurance content distribution through the Amadeus travel platform; and third, business intelligence, including our suite of business intelligence solutions.In the third quarter of 2021, the best-performing sub-segment within hospitality in terms of growth versus 2019 was business intelligence, supported by a high weight of non-transactional revenues, followed by hospitality IT, which has a mix of transactional and non-transactional revenues and saw an improving quarter-on-quarter performance in CRS transactions.Finally, media and distribution, whose revenues are highly transactional, saw the largest quarter-on-quarter improvement within hospitality versus 2019, supported by a notable increase in media clicks and bookings performance.Please turn now to Page 9. In the third quarter of 2021, our EBITDA, excluding implementation costs, amounted to EUR 207 million, resulting from the combination of the revenue evolution just explained and a 59.7% cost of revenue reduction, very linked to the air booking volumes evolution and an 18.5% decrease in our combined personnel and other operating expenses cost line. Excluding bad debt effect on cost-saving plan implementation costs, our P&L fixed costs in the quarter started to increase slowly.Below EBITDA in the third quarter, D&A expense declined by 12.9% relative to 2020, resulting from less PPA amortization, no impairment losses accounted for in the quarter and a small decline of 1.6% in ordinary D&A. Despite an increase in interest expense, driven by the new financings in 2020, net financial expense declined by EUR 4 million compared to 2020 due to a reduction in exchange losses and upfront financing fees incurred in the third quarter of 2020 in relation to the new financing.Income tax adjusted for the tax impact from the cost saving implementation costs amounted to EUR 4 million. The group income tax rate was 28%. Supported by the EBITDA evolution, adjusted profit amounted to EUR 24 million in the third quarter of 2021.Turning to Page 10 to review our cash flow evolution. Let's start with CapEx. As per our cost optimization goals, CapEx declined by EUR 73 million or 18.9% in the first 9 months 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 9-month period was mostly due to lower capitalizations from software development, resulting from an 18.8% decline in R&D expenditure, where we have followed a selective approach and prioritized our investments in the most strategic -- into the most strategic projects.Free cash flow in the third quarter amounted to EUR 104 million, excluding cost-saving program implementation costs paid and was mainly driven by our EBITDA evolution, a reduced CapEx amount relative to last year and cash inflow from change in working capital. We are expecting continued free cash flow expansion from Q3 into Q4, supported, among others, by volume performance progress, driving EBITDA evolution and the working capital inflow.As Luis has explained at the beginning, our free cash flow in the first 9 months of the year was positive, excluding implementations cost paid, and we expect free cash flow for the full year 2021 to be positive.Please turn to Page 11 to review our fixed cost optimization progress. In the first 9 months of 2021, we achieved a fixed cost reduction relative to 2020 in the P&L and in capital expenditure combined of EUR 186 million. As explained before, our cost savings definition refers to the change in fixed costs, excluding cost-saving program implementation cost and bad debt.To date, our fixed cost reduction in 2021 versus 2020 exceeds our stated target of EUR 50 million. Remember, the EUR 50 million, together with the EUR 500 million we achieved last year, would take us to the EUR 550 million fixed cost reduction in 2021 versus 2019. In Q4 2021, we are expecting fixed cost growth versus Q4 2020 as planned likely in an estimated range of EUR 30 million to EUR 60 million, with a larger part coming through the P&L and the rest through CapEx, driven by discretionary spend gradually coming back.Therefore, we will exceed our EUR 50 million fixed cost reduction target in 2021 versus 2020, and please note this excess in cost savings over our EUR 50 million target is not a structural fixed cost reduction, and we expect this cost to come back in 2020 versus 2021 progressively throughout 2020 -- 2022, apologies, 2022.With regards to implementation costs related to our cost savings program, in the first 9 months of 2021, we incurred implementation costs amounting to EUR 33 million, thus totaling EUR 202 million incurred to date. The balance of -- the balance to what we expect the total to be now around EUR 210 million will be incurred in Q4 2021.Finally, of these implementation costs, EUR 95 million were paid out in the first 9 months of the year, totaling EUR 129 million so far. The balance to the EUR 210 million will be paid out through Q4 2021 and half 1 2022.With this, we have 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.

[Adam Dennis Wood, European Technology Equity Analyst]

I've got 2, if I could. First of all, one of your competitors mentioned that they lost the domestic business with a major OTA in North America. Could you maybe just help us -- I didn't see that as a win that you announced during the quarter. Could you talk about whether that was business you were competing for and on one or whether that was business you were not competing for and went to somebody else in the GDS industry?And then secondly, if you could follow up a little bit on the cost progression in Q4 and into next year. If we put the middle of that range in for the fourth quarter of EUR 45 million, I think we get to about EUR 530 million of CapEx, P&L, OpEx for the fourth quarter. If we were to annualize that number for 2022, would that be a reasonable starting point in terms of thinking about your plans for costs next year?And could you maybe just talk a little bit about the gives and takes, if we see gradual progression, is that the right way to think about it? What would you -- what would lead you to put more money into the business? Would it be a much more rapid recovery? Would it be customers asking for R&D and you're seeing opportunities to do more business?

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

Thanks for the questions. Let me take the first one. I mean, usually, as you know, okay, we talk about our engagements with travel agencies, but travel agencies use more than one GDS and our objective always is to get the bigger pie, especially the ones that are using different GDSs in parts of the world. At the beginning of this year, we communicated to you that we reinforced our partnership with Expedia, covering air, but also covering other parts of the business such as car, hotel and IT solutions.So we have a very broad relationship with Expedia. And we already started to see the results of this enlarged partnership with incremental business. So our figures in the third quarter have started to see incremental volumes in different parts of the business. So we are extremely pleased with the relationship with Expedia.Look, let me say that Expedia is, again, very important, but we have had a very strong commercial performance across the board, and we have increased our market share in this third quarter in most of the regions. There is still a country and regional mix. That's why we are not -- and it's a bit subjective, the way you can read into the figures, but our underlying performance has been very positive. And of course, again, it is our objective to engage with Expedia, a very, very important customer. But all that is also very important to really get medium, small, all kind of travel agencies and increase the volume of -- that we have in our platform.And finally, just to mention that this situation of the pandemic, in my view, has got an impact. And it's the fact that many travel agencies are faced with requirements of investing to aggregate content to have an end-to-end user experience, and they are trying to simplify their operations and working with tech players that can support them in this evolution. And I consider we are extremely well-positioned to benefit from that. And coming back to the Expedia question, yes, we expect to benefit from our relationship with them and seeing volumes coming to us. More than that, I'm not going to share.

[Till Streichert, Chief Financial Officer]

Let me take the cost question and just walk you through from a different angle. So first of all, just confirming, again, the EUR 550 million are structural. And as you rightfully point out, we are obviously planning to exceed this cost-saving target in 2021. So a way to look at it is basically, if you start off from the third quarter and you actually -- which we have highlighted, we are now EUR 185 million higher cost savings compared to 2020.So the first thing is how much is going to come back in the fourth quarter, and we've guided you EUR 30 million to EUR 60 million, if you pick the midpoint of EUR 45 million, that's your choice. That's perfect. That's fine. But of course, we needed EUR 50 million over and above the EUR 500 million that we had achieved already in 2020, and that would give you an idea of the excess savings that we would be ending up -- that we would be ending 2021.So the next point, if you now think about 2022, those excess savings, they are not structural. So I do expect, as I said, for them to come back throughout 2022. And so that's the first thing, and that is in line with what we always said, EUR 550 million structural. Now the third point is, and we've spoken about it before, when you think about now our cost base as we are in 2022 and also 2023 and beyond, of course, we are exposed to inflationary increases, which we've talked about. This you always need to consider as one of the factors that is driving up our cost base again as it is exposed, payroll cost. And most of our business is also exposed to inflationary cost increases.And then the fourth point, which we also spoke about is about wherever we go into where we've got new deals that come with additional revenue and additional contribution margin, of course, we will also continue to invest into.

[Operator]

The next question comes from Neil Steer from Redburn.

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

Just have a couple, if I may. Luis, thank you for your color on the relationship with Expedia. The reality is that it seems from Sabre's comments that what you appear to have done is effectively seen a transfer of around about 15% to 22% of their overall GDS volumes from them to you. The last time we saw such a marked shift in market share, I think, was a few years ago when Sabre themselves seem to take a large chunk of volumes away from Travelport.And what we then saw over the subsequent sort of 2 to 3-year period, that was a period of somewhat irrational incentive payments going through the market as the loser of market share tried to sort of stabilize and reclaim. Do you anticipate a similar period of irrationality in incentive fee? Or do you guess you, Sabre is having a balance sheet that's too weak in order to be able to fight back? That's the first question.

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

I mean, look, we are trying to really increase our positioning with customers. You've seen all kind of competitive weapons and advantages that we have used in our technology, as we mentioned -- I mentioned before. Incentives are part of that, the content aggregation, the capabilities we offer. So look, I don't know what they plan to do. We will try to do our best, compete with them. They will compete with us. And sometimes we will win and sometimes they will get customers.And overall, hopefully, we will be able to really increase our share. But I don't think I should speculate about the reactions or the strategies of our competitors. Again, we will try to focus ourselves in keeping relationship with our main customers, Expedia being one of them, but there are many -- and overall, try to keep what we have always tried, try to keep increasing the volume and the content into our platform and try to really make a difference with our technology to convince customers that we can support their business evolution. But more than that is difficult to speculate, Neil, about reactions and competitive dynamics in the market. We will need to see, and as always, compete in the market for getting our customers.

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

Okay. And just one clarification. As you went through the prepared remarks, you mentioned what is -- if we just take the sort of the headline airline IT revenue figure and divide that by the PB volumes, obviously, it looks as though sequentially in Q3 on Q2, there was a fall. But obviously, there's a mixture of transactional revenues and non-transactional revenues there. On an underlying basis, is there any reason to suppose that there has been any change whatsoever in the actual PBC that either Navitaire or indeed Altea is charging? Or has that been fairly constant as we've gone through the last year or so?

[Till Streichert, Chief Financial Officer]

So you're quite right. We have obviously seen a super strong PB growth quarter-on-quarter. I mean, we added more than 100 million PBs quarter-on-quarter, 64% up, but our revenue did not grow as fast. It grew by 15% because we are benefiting still from a number of non-transactional revenues in the mix. And that basically as transactional part of that revenue mix is starting to increase, we obviously are trending from this unusually high revenue per PB. We are trending downwards. But look, I mean, from an underlying point of view, I have not seen any changes in our -- in the Altea or in the Navitaire -- on the Navitaire side.

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

Okay. And just one final quick one. Free cash flow positive in the fourth quarter. Is that excluding restructuring charges or including the restructuring charges for the fourth quarter?

[Till Streichert, Chief Financial Officer]

For the fourth quarter, it would be, in essence, look, provided that we are seeing further support in the volumes, we expect to be free cash flow positive also, including having paid the restructuring cost, absolutely.

[Operator]

[Operator Instructions] The next question comes from Stacy Pollard from JPMorgan.

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

Two from me on the hospitality side. So first of all, can you talk about the sales pipeline for CRS and PMS? Or perhaps maybe just discuss the kind of environment, how open hotels are in discussing these solutions with you? And then secondly, you signed a leading hotel of the world for business intelligence, and you talked about that. Can you dig in a little bit more on the subsector, maybe exactly what you offer in BI? How big is that division? How many customers do you have today and who the competitors are? Is this more other travel specialists or generic data analytics providers?

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

Okay. Let me try to cover both hospitality -- I mean, Stacy, I know you asked this question quite often. We keep working on that and talking to customers. We are optimistic about our capability to sign additional customers for the CRS. The pipeline is good, is positive. And again, hopefully, this will translate into final signature of contracts. More than that it's difficult to say because until we have a contract, nothing is real, okay? But the pipeline is good. There is an appetite in the market. We are well-positioned. We have a good solution and hopefully this will become a reality.With regards to BI, look, we offer many capabilities on the BI space. There are different information on data that we offer to the hoteliers. This was coming mainly from the acquisition of TravelClick. It's a sizable business, has been doing very well with the recovery now -- an expectation about this recovery, this information on data is quite relevant. So we are using that quite actively in our discussions with the chains, with hoteliers. There are competitors.Yes, there are mainly more local ones and they are also the fact of chains, trying to leverage their own data to really estimate the market, but we have a broad information that we use, and we provide information about many different things, [ Yanisa ], I will say a good way of having a use case for exploring -- for exploiting data that again, we inherited and we are developing and we are enhancing this capability.So this is a business that we expect to grow, and this is why signing new customers is important. And look, there are a number of offers that we have with regards to market information in the different properties, in different cities. I mean, there is a kind of broad range of offers that we provide very customized to the customers' needs. So competition is always there. But I will say, even if there is competition, of course, is more trying to leverage the data and the information that we have to offer that to the industry somehow. So yes, there are people that can do that. But of course, it depends the access to data and information that they may have themselves.

[Operator]

The next question comes from Neil Glynn from Credit Suisse.

[Neil Glynn]

If I could also take 2 questions, please. The first one on broader air travel market recovery. We've heard from IAG this morning, for example, stressing the pace of recovery on the transatlantic. But as Asia opens up more slowly and in a quite a fragmented fashion, I'm just interested in the early feel that you're getting for the pace of recovery on the bookings coming in on Asia international routes. Are we seeing a similar velocity to when the transatlantic announcements were made or is there a more cautious approach to booking international travel in Asia?And then the second question on the R&D side. Till, you mentioned selectivity, which has been clear over the past 18 months. But I guess, as we get closer to the market properly recovering, I'd love to understand your thoughts on what the most appropriate level for R&D for the business is in 2022, 2023, particularly as your balance sheet is strong, and some of your competitors are challenged, whether that's as a proportion of revenue or indeed in absolute terms?

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

Okay. Let me start with Asia. I mean, as you know well, and you've seen the figures, and it has been reported broadly by different sources, Asia has been well behind the rest of the world in terms of recovery. The main recovery was still happening in domestic market. I mean you probably have seen the figures of China. India is also coming back after months where the situation was quite difficult. International traffic is still small. It is also true what you mentioned that there are countries that are talking or announcing opening of borders, and this should slowly start improving the situation. And it's true, we have seen an improvement in Asia, but it's still lagging well behind the rest of the world.So we see some improvement overall, also in the international traffic. But again, well, well behind what is happening in the rest of the regions that the levels have been recovering much faster. So it is clear that Asia -- as soon as Asia recovers, I would say this is the main pending region of the world and also in the international traffic to really bring our figures to a stronger rate at what we see today. So the trend is positive. We see improvements every week, but look, like always, things may happen and decisions may take us back. But for the time being, the evolution of Asia is positive. And this is the -- the main hope is that it replicates what has happened in the other areas.With regards to R&D, look, R&D is subject of many different things. Of course, we have the core technology that we need to keep and the maintenance of our solutions. We have some transversal projects being the biggest one our migration to the cloud that we have announced to you. And then you have big customer projects. So of course -- and success that we may have. Of course, part of that will depend on how successful we are in getting additional customers into our business.So I will say, look, we were selective, it's true. We review what we were doing, and we took some decisions. But I will say more than talking about the specific numbers for R&D will depend a little bit on the evolution of the business. We have kept all the investments that we consider were needed for the company. We are going to really keep the transversal projects. And again, as we said, cloud being one important part of that.And then depending on the evolution of our customers' needs and the demand that we see, this part may vary in the future. But again, as a technology company, investment in R&D will be -- has been and will be fundamental for our future.

[Operator]

The next question comes from Sven Merkt from Barclays.

[Sven Denis Merkt, Equity Research Analyst]

Over the last number of years, some airlines moved away from full content agreements. And I was just wondering if you could help us with what currently the proportion of booking is, it is coming through full content agreements. And then my second question is just on the mix of travel agent. Could you maybe comment how this is evolving? And how this might be different from pre-COVID?

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

I mean, look, I will not talk about the full content agreement per se. I mean, you have seen the amount of deals that we signed with airlines. Some of them include, I mean, different agreements for different aggregation methods with NDC, with EDIFACT. I mean, our goal, of course, is to have content available in our platform and try to really have that as an offer to our -- to the different consumers of this content, being travel agencies, being corporations or the metasearch or all the players that are part of this industry.So we keep working with all the airlines in engaging with them, in providing them the right technology of our aggregation. And this is what we do. And continuously, this is an ongoing process. Of course, things evolve. And there are different deals around the world that we have with different carriers.

[Till Streichert, Chief Financial Officer]

On the travel agency mix, just to remind you, Sven, historically, 30% came through TMC, 30% through online travel agencies and 40% through retail agencies. During the pandemic, we saw this mix -- this historic mix from 2019 shifting more towards the online travel agencies. They took a higher share, also related to the itineraries that were actually booked there. But we have seen quarter-on-quarter that this mix started to shift more towards the historic mix. And also within the last quarter, basically months on months, we've seen that this shift continued.So over the longer term, I do think that all of those 3 travel agencies play a key role in providing services and also the retail travel agencies, which saw a strong rebound actually for leisure for the consumer continue to play -- will continue to play a significant role.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest]

Yes. Two for me as well. Just on Etihad, obviously, it's a major win for you. Can you talk a little bit about the timing of the project starting, when you expect it to complete? And obviously, with the industry in a pretty tough position, have you sort of changed payment terms? Should we expect working capital to maybe be sort of larger going forward as airlines perhaps get longer payment terms on these sort of migrations? And then secondly, Till, on the bad debt provisions. I think at the end of last year, it was EUR 174 million. We haven't had an update since. Can you talk about how that's trended? Are you beginning to bring that sort of balance down as the market outlook gets better or has it continued to expand?

[Till Streichert, Chief Financial Officer]

Yes. Let me take that question first, the bad debt one. Look, we've only recorded a relatively small bad debt increase in the quarter. Look, I mean, what are we observing? I mean, obviously, we feel in the interaction with our customers and -- which includes, obviously, also the collection side, the stabilization and improvement. And hence, from a provisioning point of view, we felt that there was less of a need to basically increase that bad debt provision at the rate we've done in the quarters before.So in that regard, I am actually -- I am actually -- I'm just confirming, we've seen actually a small increase only in the bad debt provision. So -- and I would also expect that with travel volumes and travel recovery that obviously also the airlines will significantly benefit from that, and this will help the recovery of the entire ecosystem.

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

With regards to Etihad, we have disclosed what we can disclose. Unfortunately, we cannot tell you in this case exact dates, but you could expect -- I mean, we are already working. We have started to work in the migration and working with their teams. So you should expect a normal timing that usually takes for our migrations, but we cannot disclose then some dates about that, unfortunately, in this case.

[Michael Briest]

More generally, can you say something about payment terms on any -- or generally around your airline IT contracts? Have they become longer because of the industry situation or as they were pre-crisis?

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

No. No, no. I would say nothing really changing compared to what we had before, not really. I mean, look, as you know, our contract terms are pretty long. But if you talk about payment conditions and negotiation with customers in general I mean, look during the pandemic, yes, we had some renegotiation of payment terms, but that was mainly for short-term situation than really a structural situation with them. So I will not expect that change in relation to that. We had that one-off impact, and we had these negotiations, mainly, I would say, much more in 2020 than 2021, but this should come to an end as things are recovering. So nothing really structural, medium-term, was more really a short-term impact.

[Operator]

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

[Victor Cheng, Research Analyst & Associate]

Two, if I may. Maybe, first of all, we increasingly see a trend where over the last few months, were not only just tier 1 airlines, but also a few tier 2, 3 airlines starting to add surcharges to indirect channels. I understand there's obviously a very minimal impact to actual bookings right now. But can you provide more color on your long-term market perspective and how you can offset this through potentially other offerings?And then secondly, on IT solutions, can you help bridge the gap between the high PBs recovery and the higher revenue per booking versus this slow IT revenue recovery in Q3?

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

I'm not sure I followed the second piece. But if it is about the mix or the average PB fee, Till?

[Till Streichert, Chief Financial Officer]

Yes, I can walk you through the mix effects, both for revenue per booking and equally the same on the PB side. So let me just get started on the revenue per booking. You have seen that our third quarter revenue per booking was actually positive relative to the third quarter of 2019. So a couple of comments in relation to that. Let me first distinguish our core underlying revenue per booking declined at a single-digit percentage rate compared to 2019, which was driven by a higher weight of local bookings in the mix, okay? However, the non-booking revenue caption, so the revenues that are not -- transactions that are not booking-related, outperformed the booking revenue, and that produced this positive effect that you could see the 1.8% compared, 1.8% growth in terms of revenue per booking, okay? So that's the key thing.Now what do I expect? What do I -- and we have seen actually that the mix, albeit still elevated in terms of local bookings compared to 2019, it has started to improve. And the international and the regional bookings started to take a higher weight, which is obviously supporting the mix. What do I expect for the fourth quarter to just deal with that as well. I do expect in the fourth quarter that we are going to see in comparison to 2019 fourth quarter, a decline still by the higher weight of the local bookings. But again, as mix as basically volumes shift, I do expect that to improve further.Now if I shift to the PB side, there, we have seen that revenue per PB from a abnormally high level started to go down. But again, and I've tried to explain that in my previous answer, it is a function of very strong PB growth and the revenues that are not transactional, not linked to PBs, like revenues from services, airport IT and others, we're obviously not growing as fast as the PB grow -- as PB, passenger boarded growth was. And that created basically that reduction in revenue per PBs.But again, and let me now conclude, we are still in the third quarter substantially higher than what we had seen in 2019. So therefore, my guidance is as we go forward in the fourth quarter, and as basically we are adding further passengers boarded volumes, and they continue to recover. The weight of these non-transactional revenues over total revenue continues to decrease. And therefore, we expect that the revenue per PB also continues to trend downwards more towards the 2019 levels. It's basically a normalization that's taking place.

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

With regards to the first part, which if I understood properly, was related to the surcharges of some airlines. I mean, look, again, this is not new. Airlines have always tried to really boost as much as possible to the direct sales and in some cases, creating different offers for different solutions and sometimes with different pricing because at the end, it's a different pricing between different channels. That's the decision of the airlines, we respect that. Of course, this is a commercial decision.We don't feel this is the best approach to really have a different pricing in the indirect channel because the indirect channel is bringing value. And what we need to do is to continuously work with airlines to really convince them and how we can optimize and improve the technology and the capabilities of the indirect channel versus the direct channel. Saying that, of course, each airline may have their own strategy and their own profile about how they want to deal with the different channels moving forward. And again, not new things. So I will expect some airlines will continue doing that, and others will not.

[Operator]

The next question comes from Guilherme Sampaio from CaixaBank BPI.

[Guilherme Macedo Sampaio, Analyst]

Just 3 if you don't mind. The first one. As airlines implement NDC, how it's been, I mean, generally, the updates and the interest in your Altea NDC model? The first one. The second one. Market share gains across all regions have been mentioned. These are a function of greater aggressiveness of Amadeus or a generally better competitive environment? And third one, are there any corporate travel demand recovery references that you can provide?

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

We struggle a little bit to understand you, but let me try to see -- I mean, look, the second question I understand was about market share. The main reason, look, like always, there is no one single reason. We try to really convince customers. I think technology is an important piece of that. As we mentioned before, the integration of the content and the fact of we act and support our customers. But again, it's not a single matter. We try to do that.Sometimes we have an acceleration. Sometimes it's a bit less depending on the movements of the customers. So this is an ongoing process with a lot of work from the people on the ground, plus the fact of integrating the content, the technology and working with the customers. More than that is difficult to really explain because, look, I have the full respect to -- also to my competitors that are also part of this competitive environment. And sometimes, as I mentioned before, we win and sometimes we lose. But overall, of course, our target is to really keep increasing our share and the volumes in our platform.I didn't get exactly the other 2 questions, to be honest. I don't know if the first one you were talking about NDC.

[Guilherme Macedo Sampaio, Analyst]

Yes. So airlines have been implementing in this year, and they have been talking a lot new wins on the distribution side, but less about the Altea NDC model structuring this deal.

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

Ah, okay.

[Guilherme Macedo Sampaio, Analyst]

So if you can comment a bit on how has been the uptake and your conversations around these Altea NDC models with airlines?

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

Yes. I mean, look, no, it's -- okay, we also talk about that. I mean if I was referring to Etihad, I mean, look, that we have both. We talk more about the distribution piece because it has different dynamics there when we talk about the way to aggregate content. But of course, the NDC capabilities that we offer as part of our IT solution is a given and many airlines are taking as part of their portfolio our solution of NDC technology as an IT provider, okay?So yes, the uptake is relevant and many airlines are using that. Some others may use other people like in any one of our modules that we are offering. Of course, the integration of our NDC of IT, the integration of NDC for the distribution piece and the core technology of the PSS is a big advantage in our offering as with the rest of the functionalities that we are offering to the industry because of the full integration of our solutions. But yes, I mean, look, we have been successful on that front, yes, for the IT piece.

[Till Streichert, Chief Financial Officer]

Your third question was about corporate travel or...

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

On the third front. [indiscernible].

[Guilherme Macedo Sampaio, Analyst]

Yes. Yes. If there are -- if there is any reference that you can provide regarding the pace of the recovery in corporate travel?

[Till Streichert, Chief Financial Officer]

Look, I mean...

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

No, look, let me start, but Till, if you want to provide any color. This is happening. And again, we see that at the beginning of the pandemic was mainly [ Laser ] driving the recovery. But as the quarters and the months have evolved, business travel has also came back, still not at the levels of 2019 in terms of mix because, again, what we track is a mix of travel agencies more than the purpose of the trip.But it's coming back more towards more normality as months are evolving. I mean, again, beginning was domestic and Laser and then both international and business are being an increasing piece of the total bookings that we have today as volumes increase and start to really come back to normality in some parts of the world.

[Operator]

The next question comes from Paul Kratz from Jefferies.

[Paul Kratz, Equity Analyst]

Just maybe 2 questions on my end. I mean, we've seen you guys have really good momentum on NDC, I guess, particularly in the U.S. as well and obviously, outside of that. I guess it'd be helpful to just kind of understand with the ramp of these contracts, should we start to think of unitary revenue in your distribution business is potentially looking a bit more deflationary versus maybe flat to maybe sometimes up prior to the pandemic? And maybe could you also help us understand the unit economics of these contracts on NDC. As you get more volumes, is there some give or take, I guess, at the level of gross profit that maybe changed a little bit the way you think about that business?

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

Okay. Look, I think we have communicated or we have mentioned to you in the past, I mean, we expect overall that NDC will be neutral positive to us. There are a lot of negotiations and contracts around the world, even for the -- not just for NDC, but for EDIFACT. And you have a mix of agreements. So it's quite difficult to really tell you this is the way it's going to evolve. Volumes will be progressive on NDC. It depends on the kind of airline and the integration of that.So look, more than that is difficult to really say with you. The only thing, as I mentioned, is that we don't expect this to really be negative to us in the medium term, okay? But again, the mix of customers will have the mix of regions. The agreements that we have are completely different per airline. But overall, look, we don't expect that to be negative.

[Operator]

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

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

Thanks again for joining the call and for your questions and looking forward to the full year results in -- at the end of February next year. Thanks a lot.