Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, welcome to the Amadeus Third Quarter 2022 Presentation Webcast. The management of Amadeus will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions]

I am now pleased to hand over to you, Mr. Luis Maroto, President and CEO of Amadeus. Please, sir, go ahead.

[Luis Camino, executive]

Good afternoon. Welcome to our 2022 third quarter results presentation. Thank you very much for joining us today. I'm joined by Till. As usual, I will focus on our most important developments, and Till will elaborate on the key financial aspects.

Let's start with Slide 4, where we have a summary of our financial performance in the quarter. In the third quarter of the year, as the Airline industry further advanced in its recovery, Amadeus saw strengthening in operating and financial performance, with revenue, EBITDA and adjusted profit evolutions continued to improve versus past quarters. Group revenue in the quarter was close to 87% of its level in the quarter 3 of 2019, up 3.6 percentage points over last quarter, supported by revenue performance improvements across our segments.

Most notably Hospitality & Other Solutions, quarter 3 revenue is now practically what it was in the third quarter of '19. Air Distribution and Air IT Solutions are also progressing, having now reached 81% and 91%, respectively, of what they were in 2019. Our EBITDA in the quarter reached 80% of its prepandemic levels, improving 4 points over past quarter. This quarter-on-quarter improvement is calculated excluding the positive effect on EBITDA in the second quarter from the government grant received. Additionally, in the quarter, adjusted profit reached 68% of its '19 level, advancing 5 points from the second quarter, excluding the grant effect as well.

Our performance in the third quarter supported free cash flow generation of over EUR 320 million. Our leverage continued to decrease and closed at 1.6x last 12 months EBITDA at the end of the quarter coming very close to our target leverage range of 1 to 1.5x. We are pleased to confirm that Amadeus expects to resume shareholder remuneration in '23. In February of next year, the Amadeus Board will determine a proposal pertaining to the 2022 financial results, which will be submitted to the general shareholder assembly for approval in June '23.

Finally, in our aim to capture the growth opportunities ahead, as you will see in the third quarter, we remain disciplined about our CapEx programs, and our R&D continued to grow relative to last year and pick up relative to past quarter as per our plans. These efforts are dedicated to support new customer implementation projects to advance in our key strategic areas. As you know, we are evolving our hospitality platform, investing to our Airline IT offering capabilities in NDC as well as accelerating our shift to the cloud among other important projects.

Let's turn to Slide 5 on our overview of the quarter by segment. Starting with Air Distribution. In the third quarter, we signed 20 renewals or new distribution agreements, including with American Airlines, amounting to a total of 49 in the first 9 months of the year. We continue to expand our NDC offering. We are pleased to announce that as of quarter 4, Lufthansa Group Airlines NDC content will be available on the Amadeus Travel Platform. Through the quarter, we continued expanding our content and reach with additions such as low-cost carrier Flyer, Jamal Travel Agency and corporation customers contracting for Cytric solutions.

Moving on to our Air bookings evolution in quarter 3. Our gross daily bookings, which are our reported bookings before cancellations and working difference, working-day difference, continue to improve in the quarter from the evolution we saw in the quarter 2, and improved month-on-month from July through October. In the first and second quarters of the year, the impact from cancellation and workday's effects was not relevant. However, in the third quarter, the impact was broader. In July, there was a higher flight cancellation impact, which reduced in August and September and a higher volumes saw workday effect as well. We had more workday's effects in the quarter, which became larger in October.

Workday differences across months or quarters many times offset each other are going to have a relevant impact in our quarter or year. However, in quarter 3, as in quarter 3 -- in quarter 4, I'm sorry, we expect a negative workday effect as well making the quarter comparison a bit tougher. If this recovery continues, we continue to see a lot of recovery still to happen. Airline industry capacity is not at 2019 levels yet. The airlines remain upbeat about the next quarters and are optimistic about corporate travel. Markets in Asia are opening up and important routes have been reinstated.

Also, our bookings evolution in the quarter was supported by strong market share gains. Amadeus had a strong market share performance, even if region and country mix distort market share evolution. Amadeus gained market share globally and in most regions, particularly North America, our best-performing region in the quarter. [ APAC ] remains one of the slower regions. It was the region with the largest recovery this quarter. APAC is important for us. Our growth will be further supported by the progressive recovery of travel in this region.

Please turn to Slide 6 for an overview of Air IT Solutions. We have continued to expand our PSS customer base. In October, Bamboo Airways selected Amadeus as its next-generation technology partner and will implement the Amadeus Altéa PSS solution as well as revenue management and digital experience. In the quarter, we continued to sign upselling agreements, including with Korean Air, All Nippon Airways, Mauritania Airlines, MIAT Mongolian Airlines and Arajet.

Additionally, in Airport IT, in North America, Palm Springs International Airport and Wilmington contracted for ACUS. Several other customer airports, such as Syracuse Hancock International Airport and Sacramento, contracted for additional solutions from our Airport IT portfolio.

With regards to our volumes performance in the third quarter of '22, passengers boarded reached 84% of quarter 3 to 2019 levels, representing a 6-point improvement from quarter 2. As you can see, PB growth continued to improve each month during the quarter and into October. By regions in the quarter, several regions saw large improvements in performance, most notably NORAM, Middle East and Africa and APAC. North America was our best-performing region with plus 21% PB growth, driven by positive organic growth and by our airline migrations, most importantly Air Canada, which migrated at the end of '19.

On the implementation side, please note our Russian carriers, Pobeda, Ural Airlines and S7 have demigrated from our platform due to the geopolitical situation. Together, they carried circa 35 million PBs pre-COVID. Now to recover our [ announced ] customers, we implemented Air India in quarter 2 of this year, which carried over 20 million PBs pre-COVID. We are working at present to migrate ITA Airways, Allegiant, Hawaiian Airlines, Etihad, an undisclosed carrier and Bamboo Airways. These contracted customers together would carry an estimated 110 million PBs annually in a recovered scenario. Of this, we reasonably expect 70 million PB to be implemented by the end of '23.

We turn to Slide 7 for an update on our Hospitality segment. The third quarter, Hospitality & Other Solutions revenue reached over 99% of quarter 3 levels of '19, improving 5 points over prior quarters. We saw continued strengthening of the hospitality industry in the third quarter with global hotel weekly occupancies over 2019 levels through the quarter. With quarter-on-quarter progress, Amadeus had and was enabled by consistently stronger revenue performance across our revenue lines, supported by volume growth as well as by new customer implementations across our portfolio of hospitality solutions.

We continued to expand our customer base in the quarter, among others, Preferred Hotels & Resorts with a portfolio of more than 700 hotels, resorts and residence across more than 80 countries, issued exclusive endorsements for Amadeus’ Demand360, Agency360 Plus and Sales & Catering solutions, with additional recommendations for GDS, Guest Management and Service Optimization Solutions.

As you can see in the quarter, we continue to have good commercial and [indiscernible] results. Our financial performance and cash generations are getting stronger each quarter. We see the travel industry continuing to advance towards its recovery and setting aside macro and geopolitical considerations in the short term, we are confident about our prospects for the future.

With this, I will now pass on to Till for further details financial performance.

[Till Streichert, executive]

Thank you, Luis. Hello, everyone. Please turn to Slide 9 for an overview of our revenue in the period. In the third quarter, our group revenue was 13.2% below 2019, advancing from prior quarter driven by stronger growth rates across all our segments. In Air Distribution, revenue in the quarter was 19.3% below 2019, improving from minus 21.1% in Q2. This revenue performance was primarily driven by the bookings evolution, as Luis said, and by a revenue per booking, 12.6% higher than 2019. The higher revenue per booking in the third quarter of 2022 versus 2019 was achieved due to multiple effects, including various positive pricing impacts coming from a combination of inflation and yearly price adjustments, incremental yields, renewals and others, positive FX effects and other nonbooking revenues outperforming the bookings evolution.

These effects were partly offset by a still higher weight of local bookings than in 2019, produced by the relatively higher weight of domestic traffic over international traffic we still have. At this time of the year, for 2022, we reasonably expect revenue per booking to continue to remain amply ahead of the revenue per booking both in 2019 and 2021.

With regards to Air IT Solutions, revenue in the quarter was 9.5% below 2019, advancing from minus 14.6% in Q2. This result was driven by the PB volumes evolution, coupled with an 8.3% higher revenue per PB relative to 2019. The higher revenue per PB is caused by a proportion of Air IT revenues that are not linked to PBs, which reported healthier growth rates in the quarter than PBs and PB-linked revenues. Revenue per PB was also impacted by positive FX effects in the quarter as well and as well as by positive pricing impacts, inflationary or price adjustments and upselling of incremental solutions partially offset by mix effects.

Quarterly volume seasonality considerations aside, as traffic continues to recover, we expect the revenue per PB each quarter to continue to generally trend downwards with respect to prior quarter as it has done in these times caused by a mathematical effect from the growing weight of transactional revenues. There will also be positive effects to support this metrics evolution, such as inflationary price increases and upselling.

Regarding Hospitality & Other Solutions. Revenue in the third quarter was 0.8% below 2019, improving from minus 5.6% in Q2. At Hospitality, the quarter-on-quarter performance improvement versus 2019 was seen across its revenue lines as described by Luis. Revenue growth in the quarter was supported by positive FX effects within Hospitality and Hospitality IT, CRS, Sales & Event Management and Service Optimization revenues were the main drivers of the revenue performance improvement, supported by volume growth and customer implementations.

Media & Distribution had a strong performance improvement supported by growth rates in transactions, media clicks, hotel car bookings, and Business Intelligence also progressed supported by new implemented -- new customer implementation.

Please now turn to Slide 10 for a review of our EBITDA evolution versus 2019. In the third quarter of 2022, our EBITDA amounted to EUR 450 million, 20.5% lower than in 2019 and 4 percentage points ahead of prior quarter's performance, excluding the EUR 51 million government grant received in the second quarter. The EBITDA performance versus 2019 resulted from the revenue evolution explained before. Lower cost of revenues ended 2019 by 13.9% linked to the evolution of our booking volumes and our hospitality business and a 3.9% decrease in our combined personnel and other operating expenses cost line compared to 2019.

To review our fixed cost evolution, we will focus on the change relative to 2021. Please remember, we completed our cost optimization program last year, and thus, there are no more associated implementation costs in the P&L in 2022, but we continue to remove these from the 2021 P&L for comparison purposes with 2022. Our P&L fixed costs in the third quarter of 2022 compared to the same quarter last year were 18% higher. Excluding negative FX effects, our P&L fixed costs grew by 11.5% in the quarter. This cost evolution resulted from an increase in R&D investment, as Luis described, and in non-R&D spend, like travel and training, amongst others, driven by the business expansion relative to prior year.

Taken together, P&L fixed costs and CapEx in the first 9 months of the year, we had 14.1% ex FX growth, excluding the Q2 round in line with the 10% to 14% ex FX fixed cost growth range expectation we gave for the year, which we reiterate once more. Below EBITDA, in the third quarter of 2022 compared to 2021, D&A expense decreased slightly by 1.1%, resulting from higher amortization expense from internally developed assets, offset by lower depreciation expense from a reduction in hardware investment.

Net financial expense decreased by EUR 22 million due to a financial income of EUR 20 million, driven by the partial repurchase of the EUR 250 million outstanding notes with a maturity in September of 2028. Also, interest expense was 2% lower as a consequence of lower average gross debt over the period. The income tax rate in the quarter was 24%, lower than in 2021, impacted by a reduction in income tax rates in France and nonrecurring adjustments. Supported by the EBITDA evolution, adjusted profit amounted to EUR 220 million in the third quarter of 2022, 32% below its level in 2019.

Please now turn to Page 11 to review our cash flow evolution. I will start with CapEx. In the third quarter of 2022, our CapEx increased by EUR 47 million or 47.3% compared to the same quarter in 2021, driven by higher capitalized R&D investment. R&D investment grew by 43.9% in the quarter versus 2021 and by 31.4% year-to-date, in line with our expectations and focused on customer implementations, our hospitality platform, enhancing our Airline IT Solutions offering, our NDC-related solutions and capabilities and our partnership with Microsoft.

With regards to free cash flow, excluding cost saving program implementation costs paid in the quarter, we generated over EUR 324 million. This equals to 88% of free cash flow generation in Q3 of 2019. We will still have some cash out this year related to our cost optimization program completed last year, but the amounts outstanding going forward are very small. Free cash flow in Q3 resulted mostly from our EBITDA generation, and the cash flow and the cash inflow from change in working capital impacted positively by seasonal working capital dynamics.

To recap on where we are at Amadeus, we are seeing positive profits being generated, strong cash flow generation approaching pre-COVID levels, we are practically at our pre-pandemic target leverage range, and we are expecting to resume shareholder remuneration, which is one more step back towards normality. Additionally, please note that at our next earnings call for Q4, in February next year, we plan to return back to providing you also with an outlook for the year 2023.

With this, we have now finished the presentation and we can take any questions you may have.

[Operator]

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

[Adam Wood, analyst]

I wanted to dig in a little bit on the data you've given us for October. So you've said that if we normalize that for working days and cancellations, there would still be an improvement on September. Could you maybe just give us a feel for the mix of working day versus cancellation impact? Could you talk a little bit about what you think is driving the cancellations in October? I guess July was understandable given what we were seeing in that month, is maybe a little bit less obvious now.

And then you've given we're not seeing as maybe as big a recovery as people would have been hoping for. Would you say that's more due to macro considerations that people are more nervous about spending and businesses are more nervous about spending? Or do you see it as more of a capacity issue? And on capacity, could you just talk a little bit about how that's been expanding through the year. And again, are there any other reasons why you would be different from improvements in airline capacity? Are you seeing a bigger trend in terms of disintermediation or market share movements. If you could just outline a little bit what you see was contributing to that October number, that would be really helpful, please.

[Luis Camino, executive]

Let me start -- hi, Adam. Let me start trying to provide you how we see things overall. And then Till, you can explain the working days cancellation more of the details. It's quite difficult, as you can imagine, to really read in detail the numbers because you have -- I mean you have a number of effects, okay? And we don't expect recovery to be completely linear. So you always have and this has happened, I mean, even prepandemic, you have better months than others. But of course, we try to look into the details of the underlying evolution. That's why working days is always an issue. Cancellations, we [ can't ] talk about that. Do you have the mix of the recovery of [indiscernible] versus business, you have country mix. I mean, when we go through the details of all the figures, we see a lot of impacts and some countries doing much better, some countries doing worse, but you cannot extract completely conclusions from one specific number you have the supply disruptions that you know.

And of course, we understand the situation of the macroeconomic environment. So quite difficult to extract complete conclusions. But of course, we try to really see more [ Amadeus' ] specific data than we see. And again, Till can explain that. What we see, and I can share with you also in my conversations with airlines, is that the airlines are quite optimistic at this point, and the industry is optimistic. And this is mainly because we still have recovery. I mean the airline capacity is not at the 2019 levels. What we have seen in the capacity, capacity is fundamental for us because this is what drives the end volumes. We have seen some continuous recovery, but again, similar to the bookings, some months more flattish than others.

And when you see the projections, everybody is expecting to really increase capacity from now to the summer of next year, and there are a lot of external sources where we can see that. And again, when I talk to customers, I mean, they feel optimistic about capacity expansion and about hiring people. Still, there are some frictions impacting capacity and volumes. They start to normalize, but are not yet fixed, and there are some airlines running at lower schedules than originally hoped. There have been some cancellations, much less than in the past.

But when you see load factors are pretty high, first are still high as you -- we all know well. We also have the Asia that is opening and therefore, should drive further capacity because airlines are opening routes. So overall, the industry is not seen -- the main issue for the time being, of course, we recognize the near-term geo-macroeconomic environment risk. But overall, the data and the feeling and the projections are positive. I mean, we don't see a weakening demand, weakening demand. So there are a number of specific points that I mentioned that -- especially on the capacity projections that make us feel still optimistic. And also looking in all the airline results, you see what they project, and this is public information on how they see the future of the big carriers. That's more about the overall macro, again, without entering into all the details.

Till, if you would like to provide a bit more details, please?

[Till Streichert, executive]

Adam, and I'll give you a slightly longer answer to just cover the entire area of that question. Look, day-to-day metrics or excluding workday differences is a metric that we obviously follow very closely internally. And days have got in terms of booking behavior, obviously, a different profile. If you look at the week, usually at the beginning of the week, the first few days are stronger. So this is relevant when you consider day-to-day differences.

And usually between months or quarters, if you just compare it year-over-year, those differences are either not meaningful, or they are actually leveling each other off. However, given that we are comparing these days against 2019, where you've got basically 3 years and the leap year in, you have a shift in these workday comparisons, and this is why we are actually kind of talking about it.

Now if you think of October, to your question, what's stronger because we have been talking about an ex working day metric and also a gross booking, which is basically excluding the cancellation. In October, we are seeing as a stronger impact basically the working day effect, but there's still a little bit of higher cancellations as well included. But again, not on a level when we talked about July, for example, where it was very prominent and evident the supply-related issue, but it's still a little bit there.

[Adam Wood, analyst]

I appreciate the detail. It's very helpful.

[Operator]

The next question comes from Alex Irving from Bernstein.

[Alexander Irving, analyst]

3 from me, please. First on your Air IT contracts. So you talked about inflationary and price adjustments? Are those contractual? Or are they negotiated [indiscernible] increases from multiple sources? Second, on NDC. Can you please provide some color on how adoption is going with the TMC customers? What progress are you seeing here? And how do you expect your share of TMC bookings served through NDC to evolve in the next 12 to 18 months? And then finally, please, on ONE Order. So you understand airlines have been progressing work towards order management systems in recent months. Does that match your perception? And how is the interest of your airline customers in order management systems changed post pandemic?

[Luis Camino, executive]

Okay. Let me start with the last 2. When we talk about NDC, the penetration is still low. We are in the process of implementing airlines. I mean, it takes years, as you can imagine in all the new technologies or new industry evolutions to really be a significant share. I mean, you can see that from the previous area, such as [indiscernible], I mean, yes, to really be implemented in the whole industry. So it's taking time. But as we have mentioned, we are -- I mean, we keep signing contracts. We keep working with airlines and implementing them and be present for whatever happens in terms of implementation, but we will make it work, okay? And that's our goal. And therefore, investing and working with the carriers and with the travel agencies to really implement this new capability. So still, overall, volumes are low for the industry, but we expect at one point to really increase as a percentage of the total in the industry.

With regards to ONE Order, yes, we are fully behind that. I mean it's, again, a natural evolution of the IT platform. And therefore, we are having discussions with our current customers how our Altéa and also Navitaire platform can evolve to really allow for a better modular approach and a better way of dealing with their future.

Therefore, we think about NDC as an evolution on the merchandising front. We see [indiscernible] as an evolution of all the back end and all the way that the airlines are dealing with the order somehow that was mainly the P&L in the past, okay? The passenger [indiscernible] record and how this is going to evolve. So it's a natural evolution, again, will be medium term, but as we try to advance and support our customers, we are working with them in this logic of ONE Order, and we will make the investments to evolve our different platforms.

[Till Streichert, executive]

And on your first question, it was a little bit -- the transmission was interrupted. So let me just answer to what I understood your question was about in terms of Air IT price increases, whether they are commercial or contractual. So by and large, in Air IT, we've got as well a contractual mechanism to increase on an annual basis and that is following an index, which is ultimately as well linked to a global index in terms of workforce evolution, and it's got a certain weighting, obviously, representative of where our footprint is. So it is also by and large a contractual mechanism.

[Operator]

The next question comes from Sven Merkt from Barclays.

[Sven Merkt, analyst]

First, a question on cost. I know it's a bit early, but broadly speaking, at what kind of level do you expect OpEx to grow in next year as of now? And given that a number of macro shares are possible for next year, how much flexibility do you have within your cost base in case demand should weaken? And then the second question is on the shareholder remuneration. Can you comment if you intend to just reinstate a dividend or also consider buybacks? And how would you balance buybacks with the refinancing needs over the coming years? Are you planning to refinance most of your debt before it comes due or you consider also to repaying some of it given the rising interest environment?

[Till Streichert, executive]

Okay. Let me just start off with the cost question. Look, we will provide you when we speak next time in February with guidance as what we expect in 2023 to happen. So therefore, at this stage, I won't be very concrete or specific in relation to that. But of course, what you can assume in terms of the moving parts, in terms of our cost evolution is, we have invested this year as we explained to you, into several customer implementations. Of course, they come -- they either continue in 2023 or come to an end. And of course, we invested as well into new projects, and they also carry forward into 2023.

So you will going to have an element of that. And the second element I would call out is you, of course, need to factor in inflation and make an assumption in that regard because that's a fact of life, which you see, obviously, all around. But there, as I said before as well, we have the ability to also pass on a fair amount of inflation through our commercial agreements at top line level.

In terms of shareholder remuneration, first of all, our intent is to resume with that or in the form of a dividend -- in the form of the dividend distribution -- that's just to answer in terms of how we would do that. And in the way going forward in terms of share buybacks, of course, as you know, in the past, Amadeus, we have done share buybacks as well when we were below our target leverage ratio. We are now very close to our target leverage ratio, and I expect this to be achieved relatively soon. So yes, share buybacks would also be an element of one of our options that we would have in the future.

[Operator]

The next question comes from Nooshin Nejati from Deutsche Bank. .

[Nooshin Nejati, analyst]

Nooshin Nejati from Deutsche Bank. Two questions for me, please. How should we think about your revenue per booking going forward? And how sustainable this increase as of 2019 is given that -- if you can give us a place between the FX impact and the price increase of some of your contracts? And if you can tell us if you're done with the price negotiations or there are still some in the pipeline? And then the other one is on the payment side. Your partnership with Uplift to offer Buy Now Pay Later. Can you tell us who bears the risk of other? Are you using your balance sheet to support this Buy Now Pay Later or it's all done by Uplift?

[Till Streichert, executive]

Okay. Let me make a start with the first question on revenue per PB. So we obviously reported in the quarter strong growth relative to 2019 of 12.6%. Within that, I think you need to think of a few items. One is, certainly, we are benefiting there. We've been talking about it from a positive foreign exchange rate effect. This is relating to our U.S. dollar-denominated revenue. The second item, which is obviously what we are benefiting from in terms of price increases, our annual inflation, new deals and renewals. And this is mostly also to your question, are you still negotiating that? Or is that largely done? We are basically at the last stage of that, and you can consider that the next exercise will be effective from the beginning of next year.

As a third element, I've commented on that as well. We are still at the moment, having a slight negative in terms of booking and customer mix in our numbers. So depending upon how booking mix were going to evolve going forward, I would expect that there's also a slight positive on the assumption that the mix between domestic travel and international travel, driving the booking classes that we have improved further. So these are the 3 main items.

[Luis Camino, executive]

Okay. With regards to your question about payments. I mean, look, as you know, we are [indiscernible] strategic for us. We are expanding our agreements, our partnerships and also developing internally. But if your question -- if I understood properly, because we couldn't here very well, is it all financial risk. No, we are not having any financial risk in our balance sheet with regards to our partnerships on that front.

[Operator]

And the next question comes from Charlie Brennan from Jefferies.

[Charles Brennan, analyst]

I was wondering if you could just add some color to the diverging recovery between bookings and PBs. I guess the customer wins and Air IT contribute to that. You flagged up Air India is coming on board. But you say you're working to migrate airlines, like [ ITA Air ] and Etihad. Have they contribute to volumes during the quarter? Or is that still to come? And is there anything else to call out in terms of that divergent recovery?

[Luis Camino, executive]

Look, let me start and Till, if you want to jump in. I mean, look, as we compare with '19 and due to the different things have happened, I mean, it becomes more difficult. The regional mix of the 2 businesses is not the same. Yes, you have market share on the one hand, with it, again, different regional mix, then you have migrations on the other hand, then you have the timing, of course, between booking and PBs. You have the growth of the different airlines. Of course, in some cases, as low-cost carriers have been growing faster. So it's normal that due to our footprint, we have a better performance on the PB front.

So look, there are a number of effects that make the 2 numbers a bit different in the way we operate the 2 businesses. And as years move on with the migrations that we are having, we also have, as you know, India, and we'll have further migrations. Again, of course, on the GDS, we try to really keep our market share gains, but the comparison becomes more difficult exactly when you deal with PBs versus bookings.

[Charles Brennan, analyst]

Are you able to give us any insight into how that's going to trend going forward? It seems to accelerate the divergence in Q3. Should we expect that to continue going forward? Or due to timing difference you're expecting them to come back together?

[Luis Camino, executive]

I mean, look, as Till mentioned, I mean, we plan to provide you some guidance about the different ways we see 2023 with the full year results. And there, we will try to provide you color about these metrics, yes.

[Operator]

The next question comes from Guilherme Sampaio from Caixa BPI.

[Guilherme Sampaio, analyst]

3 if I may. The first one, could you provide some details on the special and the performance in terms of progression of North America seen in this quarter on the GDS side comparing to the remaining region. If I'm not mistaken, there was a 9 percentage point derating in the run rate of growth compared to Q2. Second question is whether you could confirm that the working days impact in October should be compensated in November and December? And the third one is if you could provide some color on how international versus domestic bookings are trending comparing to 2019?

[Till Streichert, executive]

I'll start with the second question. We had difficulties of understanding your first and the last one. So we may have to just come back to you and ask you to repeat. On the working day difference, in relation to the fourth quarter, look, we'll probably face a little bit of a tougher comparative in the -- with the fourth quarter as we approach it because of the working day impact that we are foreseeing at the moment, and you can see it in October, we've been giving you that number. So there's probably a little bit of festivity and seasonality playing out, which is hard to forecast. But I would just leave it with that. There's probably in the fourth quarter slightly harder comparative due to this working day difference if you consider the reported net bookings.

[Guilherme Sampaio, analyst]

Okay. So on the other 2, so in terms of progression on the GDS side, there was a special underperformance in North America comparing to the other regions, okay? So there was 9 percentage points derating in the growth compared to the -- what you reported in Q2. If you could provide some color on the reasons on this performance gap? And the third question is related to the international versus domestic bookings comparing to 2019, how these are trending?

[Luis Camino, executive]

Just on your third question, sorry, we've got difficult to understand you, apologies. Can you repeat your third question again?

[Guilherme Sampaio, analyst]

Yes. International versus domestic bookings comparing to 2019.

[Till Streichert, executive]

Domestic.

[Guilherme Sampaio, analyst]

How these are trending?

[Till Streichert, executive]

Got it. So on the third one, the trend actually is also there, continuing to strengthen, but we are, if you just think of local booking class and the regional and global booking class, we still have got a slight negative from a higher share of local bookings in the mix. So again, it's not big compared to 2019, but it's still there. And again, depending upon how the traffic evolution evolves, I would expect that this is a -- that this can turn into a positive going forward as international travel and therefore, regional and global booking class gain a bit more share or return back to 2019 normality.

[Luis Camino, executive]

The other question was about quarter 3 in the U.S., look, you have the evolution of the GDS and also the customer mix there. So still, we are doing very well. But of course, again, one specific quarter may be impacted by different evolution of our customers and the fact of the evolution of the GDS industry in this specific region, you were asking before.

[Operator]

[Operator Instructions] The next question comes from Victor Cheng from Bank of America.

[Hin Fung Cheng, analyst]

2 if I may. I guess, first of all, can you provide us an update on the Microsoft partnership? Have you started realizing any savings from lower computing costs? Or what other tangible benefits have you realized? And then secondly, just a follow-up on the distribution market shares. Can you provide us some more color maybe on the any gains or losses that you have made specifically for this quarter?

[Luis Camino, executive]

Let me start with market share. Again, we keep signing contracts. Overall, I mean, you know how we did with this business, okay, that -- we try to overall keep increasing our share worldwide. It does not mean we win everything. Of course, this will not be the case, and it's impossible to do that way. But on the net basis, it really keep increasing. Our commercial traction is strong. We will announce as we sign new contracts as we have done in the past, and we have announced some of them in the quarter and keep working and always try to really beat the situation of the industry. The prospects are positive and our commercial track record is strong worldwide, and this is why we mentioned in the majority of the regions has been positive and keep working on that. I mean, more than that is difficult to say. It's our objective to really keep that moving forward, and the commercial team is working in keeping this performance and the track record we have shown.

[Till Streichert, executive]

In terms of Microsoft partnership and starting off with our cloud migration program, look, things are on track, and we continue to work on this. In terms of benefits, as we've spoken before, there are clearly a number of benefits, including also certain unitary or cost benefits. But I'd just like to remind you that this is a multiyear migration and, of course, you would actually expect to see the benefits actually more towards the end of the migration because during the migration, you still carry to some extent, the cost of both in a way. That's the one comment.

And the second one is just as a reminder, obviously, and that is more on the side of the commercial front. On the commercial front, we have launched as a result of the co-innovation program and effort with Microsoft, something we are excited about, which is Cytric Easy. It is one of those products that integrates booking and expense management functionality into the team surface. And that's obviously something very attractive from a user point of view and equally from a reach that Microsoft can provide. So we are positive and very encouraged by that.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest, analyst]

Yes. Just on the cost, Till, I think if I do my calculation, it looks like in Q3, fixed costs were up 18% year-on-year. And just sticking with 10% to 14% for the year. What's going to cause that to drop down to 14% in Q4? And thinking about next year, you've obviously got 110 passengers to migrate or systems to migrate. You've got Marriott ramping up. Can you say a little bit qualitatively about CapEx next year, whether it could stay within that 10% to 14% corridor?

And then a question on GDS margins, good pricing power. Can you talk on the cost side because the volumes aren't increasing as much. So presumably, the incentive fees won't go up and you had a very good margin in H1. So should we expect a good margin for the year?

[Till Streichert, executive]

So let me just reiterate what I said before. And we are -- we reiterate our cost guidance of 10% to 14% for the full year. And that implies that you would see a deceleration in terms of P&L, fixed costs and CapEx growth versus the third quarter compared to 2021. And I'd equally like to say that I expect that we are more on the higher side of the 10% to 14%. I've said that before, and that is largely driven by things that happened throughout the year in relation to elevated inflation levels, energy cost and so on. But other than that, everything in terms of our cost management for this year is in check and in control, and we are pleased with that.

Look, in terms of going into 2023, as I said before, we're going to give you more clarity and guidance when we speak in February. And therefore, I would like to leave it to that. And then again, just to reiterate kind of the moving parts in it. You have to obviously consider the investments that we've done into projects that are multiyear projects, which started this year. And then you've got an inflationary component into next year as well as the main ones.

Our capitalization and R&D investment, you can see is high. So this is supporting, obviously, our project which -- from which we expect future growth, and I would leave it with that.

The GDS margin, second question. So yes, again, this is not a quarter to speak about margins. But directionally, the GDS business had benefited as well from greater cost savings during our cost-saving initiative in 2021 that also supported the margin in evolution in combination with the elevated pricing or the pricing and the price increases that we've got in there. So I would also expect that the margin evolution is solid that we see in the GDS business.

[Michael Briest, analyst]

And Luis, could I just ask quickly on -- you said it's still not back where it was. Could you give any sense of how much below 2019 levels -- capacity levels are today as an industry, maybe not just your customers?

[Luis Camino, executive]

Look, again, there are different sources about that. I think you can check that. If we look into [ OEG ], which provides some estimation, but they change every week. I think they are talking today and look they are talking on my memory about 12% below. But again, these changes every week, and there are some projections about the future. But again, there are different sources. You also can read what all the big carriers, the big guys in the U.S. or the big European airlines are giving this information. But on an industry level, I would say not yet at the 90% level, below that, not very far from that. And again, as I mentioned in my -- previously, I mean, there has been some huge increase in the first part of the year and then some months, but the trend has been positive with some months that have been more similar to the previous month and then some months where there has been an increase.

So the curve is positive with some ups and downs. And moving forward, the projections have to keep improving, especially as many airlines are opening new [ routes ], international being the biggest impact, the Asian routes that have been opened by many carriers.

[Operator]

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

[Luis Camino, executive]

So thank you very much again for joining the call for your questions and looking forward to the next call at the beginning of next year. Thank you.