Amadeus IT Group SA

MAD:AMS

Earnings Call Analysis

Robust Growth and Solid Financial Performance

The company's robust performance in the first nine months of 2023 featured a 23.2% revenue growth bolstered by Air Distribution, Air IT Solutions, and Hospitality & Other Solutions, with significant implementations like Etihad Airways and ITA Airways. EBITDA leaped by 33.8%, expanding the margin to 39%. Adjusted profit impressively grew by 67.6%, while the commitment to R&D rose by 14.8%. Free cash flow generation was strong at EUR 940.5 million, a 49.8% increase, enabling a leverage reduction to 1.1x net debt to EBITDA, setting the stage for potential shareholder remuneration. Fixed cost growth is anticipated to be 10%-14%.

Steady Financial Performance Amidst Challenging Conditions

Amadeus has remained unwavering in their financial performance in the third quarter, despite global uncertainties. The company's group revenue saw an appreciable increase by 23%, EBITDA experienced even stronger growth at 34%, and a remarkable 68% expansion in adjusted profit. Notably, free cash flow surged by 50% compared to the previous year. These gains allowed net financial debt to be comfortably maintained at 1.1x the last 12-month EBITDA, incorporating a sound financial buffer at EUR 2.1 billion.

Commitment to Shareholder Returns and Upcoming Share Repurchase Program

Demonstrating their commitment to shareholder value, Amadeus resumed interim dividend distributions earlier in the year and successfully completed a share buyback program in September. The company expresses confidence in announcing a new share repurchase program, aiming to acquire up to 5.8 million shares, which is equivalent to 1.95% of the Amadeus share capital. This represents a significant investment, earmarking up to EUR 625 million for the initiative.

Revenue Growth and Financial Outlook

Amadeus experienced a 23.2% upturn in revenue across different segments, highlighted by a 25.9% rise in Air Distribution revenues and a 22% increase in Air IT Solutions revenues. The latter's growth, despite a 6% drop in revenue per boarded passenger, was propelled by passenger volumes and pricing adjustments. Hospitality & Other Solutions also flourished with a 17.8% revenue hike, driven by strong performance and expanded volumes from customer implementations. The company is poised to hit the higher end of their cash flow prospects for the year, reinforcing the robustness of their financial trajectory.

Strategic Growth through Mergers and Acquisitions

Amadeus emphasizes mergers and acquisitions (M&A) as integral to their strategy for driving continuous growth. The company expresses clear intentions to leverage M&A to tap into new opportunities and fortify market positions.

Cloud Transition and Operational Cost Insights

As Amadeus progresses with the cloud transition, the company admits the concurrent costs on the profit and loss statement, which have put some pressure on EBITDA. The cloud transition, expected to span between three to five years, introduces migration costs that are already baked into the projected cost growth range of 10% to 14% for the year. This demonstrates Amadeus's strategic investments into modernizing its infrastructure while managing cost implications.

Navigating the Nuances of the New Distribution Capability

Amadeus is adapting to industry-wide changes, such as the New Distribution Capability (NDC). The company is engaged in integrating various NDC versions and has already enabled the capability for 20 to 30 airlines out of the 70 certified by IATA. While acknowledging the complexity and transitional nature of the shift, Amadeus remains optimistic about their ability to offer competitive services in this evolving landscape.

Looking Ahead: Guidance for the Upcoming Year

While the outlook for 2024 will be detailed in February, Amadeus shares a cautiously optimistic perspective based on continued airline capacity expansion and potential resolution of supply bottlenecks by 2024. The airline industry's overall optimism, coupled with recovery trends, suggests positive signals, although the extent of growth may be lesser in comparison to the current year's recovery trajectory. Amadeus will closely monitor the situation, factoring in geopolitical and macroeconomic elements before releasing official guidance.

Earnings Call Transcript 2023-Q3

[Operator]

Welcome to the Amadeus Q3, 2023 Presentation Webcast. The management of Amadeus will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions] I'm now pleased to hand you over to Mr. Luis Maroto, President and CEO of Amadeus. Please go ahead, sir. Thank you.

[Luis Camino, executive]

Good afternoon. Welcome to our third quarter results presentation. Thank you for joining us today. I'm joined by Till. As usual, I will start with an overview of our most important developments, and Till will elaborate on the key financial details.

Please turn to Slide 4 to start with an overview of our results. For the first 9 months of '23, Amadeus continue to deliver steady financial performance. Group revenue increased by 23%, EBITDA grew 34% and adjusted profit expanded by 68%, supporting a 50% increase in free cash flow generation compared to prior year. Our strong free cash flow generation resulted in net financial debt amounting to EUR 2.1 billion at September 30, representing 1.1x last 12-month EBITDA.

As you know, shareholder remuneration is important for us and resume our interim dividend earlier in the year as well as announcing our share buyback program completed in September. We are pleased to announce our new share repurchase program to acquire a maximum of 5.8 million of Amadeus shares equivalent to 1.95% of our Amadeus share capital, representing a maximum investment of EUR 625 million.

In terms of our views for the near term, although we are monitoring the macroeconomic and geopolitical situation very closely based on the trading conditions we are seeing today, I would like to confirm our outlook for '23. I will add in terms of free cash flow, in '23, we will deliver in the year the high end of the range we have for the year.

And this is with and without the positive India tax impact, Till will refer to later. The midterm, we remain optimistic about the growth opportunities that lay ahead for Amadeus. We continue to be highly focused on our investment plans. Industry initiatives such as NDC and offers and orders that are a great opportunity for us to bring value to our customers and to span our leadership.

We have unique expertise in travel, technology, and a much track record of delivery as well as ability and conviction to invest for the future. Let's review the key developments at each of our reported segments. Starting with air distribution. In the first quarter, we signed 11 new contracts or renewals of distribution agreements, taking the total to 47 for the first 9 months of the year.

We are pleased to announce that Air India has extended its partnership with Amadeus to now also include local domestic content for travel sellers at points of sale in India through Amadeus. In addition, Air India's NDC content will be integrated into the Amadeus Travel Platform with the content being made available to travel sellers in '24.

India is an important market for Amadeus, and we look forward to continuing our close collaboration with the national flag carrier, which recently adopted the full Amadeus Altéa Passenger Service System suite. We continue to progress with our NDC strategy. During the third quarter, we launched our distribution agreements with several additional carriers to include their NDC content and reaching our content offering and bringing travel sellers a more diverse and the personalized offers from these carriers on the Amadeus Travel Platform.

We have also continued to upsell distribution technology to a number of our travel agency and corporate customers. We are working with Microsoft and Accenture to develop generative AI power integrations for corporate channels such as digital, travel assistant to streamline tasks for corporate travelers within Cytric Easy. Our travel and expense management tool embedded in Microsoft Teams. The new travel assistant will leverage Microsoft technologies to assist corporate travelers with elements of their journey.

With regards to our volume evolution, over the past 9-month period, we have seen a progressive strengthening of global air traffic growth, including through the third quarter, although in this case, at a milder pace than in prior quarters of the year. Also in terms of global traffic mix, as in the past quarters, the weight of international traffic remains below historical levels.

In the first 9 months of the year, Amadeus' bookings grew by 16% relative to prior year. Asia Pac was our fastest-growing region, where our bookings expanded by 75%, followed by Western Europe, which grew by 16%. Over the period, North America and Western Europe were our largest regions.

In October, we have seen our bookings evolution being impacted by an increase in cancellation in several regions, namely Middle East, but also APAC and Western Europe likely leading to the Middle East geopolitical situation.

Generally, in the past, in these situations, cancellations concentrate upfront, but it is early to tell how the conflict may develop. In the past few days, we have seen our booking evolution coming closer to the levels prior to the geopolitical event.

Let's turn to Slide 6 now for a review of Air IT Solutions. In the third quarter, we disclosed that Vietnam Airlines carrying 25 million passengers annually is the name of the new Altéa PSS contract we announced last quarter. In this quarter, we successfully migrated Allegiant Air and Bamboo Airways to New Skies and Altéa, respectively, completing the list of last migrations we have planned for this year.

Also several airlines customers signed for additional solutions or implemented new solutions such as EVA Air, Thai Airways, Mauritania Air and Kuwait Airways. Following Finnair, our first customer for Amadeus Nevio, we were pleased to recently announce that Amadeus and Saudia will work together on Saudia's transition from the Amadeus Altéa PSS based on today's existing standards to Amadeus Nevio built around new offer and other principles. We're very pleased to recently introduce Amadeus Nevio in the marketplace. With this, we are leading the wave of the retailing transformation of the airline industry.

It is a traveler-centric retailing platform offering next-generation retailing capabilities to the airlines, including, but beyond Offers and Orders, marked by fully flexible future growth, cloud native solutions and the latest advances in AI. As we have discussed in the past, this is an industry evolution that will require years of focus and dedication, but we are very well positioned to drive this transformation and to support the industry's transition.

This industry evolution will further drive the penetration of NDC. We believe we have the most advanced NDC technology in the industry and that we will play a key role in scaling NDC adoption. Regarding Airport IT, we continue to expand our customer base with the signature of several new agreements that we continue to sign up selling agreements with players such as John Kennedy International Airport operator, Ontario International Airport, Salt Lake City International Airport and Aéroports de Paris, to name a few.

In relation to our volumes in the first 9 months of the year, Amadeus passengers order increased by 30% in the same period of '22, driven by continued progress in the travel industry and new customer implementations. We have net positive non-organic effects as a result of customer implementations. The main ones being Etihad, ITA, Hawaiian Airlines, Bamboo and Allegiant Air in '23 and Air India in '22, partly offset by airline customers ceasing or suspending operations or migrating from our platform, including the de-migration of Russian carriers in '22.

In the 9 months, Asia Pac was our best-performing region, delivering 68% growth and Western Europe was our last year's regional accounting quarter from Amadeus Passengers boarded. With respect to October, our PB evolution continue to improve over past quarter.

Please turn to Slide 7 for an update on our Hospitality segment. Our Hospitality and Other Solutions segment continued to advance well through the third quarter, supported by new customer implementations and volume expansion.

our revenues in this segment grew by 18% in the first 9 months of '23 relative to prior year. Both Hospitality will generates the majority of the revenues in this segment and Payments delivered a strong growth versus prior year. We also saw continued interest during the period from customers for our solutions across our portfolio.

For example, we extended our business intelligent solutions partnership with Hilton. Langham Hospitality Group added our digital media solution. Both Pan Pacific Hotel Groups and H-Hotels will implement our Amadeus' business intelligent solutions. Also, the Department of Culture and Tourism of Abu Dhabi signed for Amadeus' Media and Business Intelligent solutions for destinations.

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

[Till Streichert, executive]

Thank you, Luis. Hello, everyone. Please turn now to Slide 9. Before starting with a review of our financial evolution, let me remind you that as we did in our first half results presentation for purposes of comparability between 2023 and 2022, we are excluding nonrecurring elements impacting our performances on the P&L.

These are, firstly, in 2023, the impacts from changes in our tax provision, mainly due to the positive resolution of certain proceedings with the Indian tax authorities, which resulted in an increase in adjusted profit of EUR 22.6 million in the second quarter of 2023.

And secondly, in 2022, the government grant we received in the second quarter, which increased EBITDA by EUR 51.2 million and adjusted profit by EUR 38.9 million. Further details on these effects and the full reconciliation to the reported figures can be found in the January to September 2023 management review.

Now to review our revenue evolution. In the first 9 months of 2023, our group revenue grew 23.2% versus the same period of 2022, supported by strong revenue growth across our segments. In Air Distribution, revenue in the first 9 months of the year was 25.9% above 2022, primarily driven by the booking evolution Luis described and by revenue per booking, which was 8.8% higher than in 2022, fundamentally driven by a lower rate of local bookings in the first 3 quarters of 2023 compared to 2022 and pricing effects, including impacts from inflation and yearly price adjustments, renewals and new agreements.

With regards to Air IT Solutions, revenue in the first 9 months of the year was 22% higher than in 2022, driven by the PB volumes evolution, coupled with a 6% lower revenue per PB. The decrease in the revenue per PB in the period was primarily driven by a proportion of Air IT revenues not linked to passengers bordered, growing at the softer rate than the passengers boarded more than offsetting positive pricing impacts from the Altéa/Navitaire customer mix, inflationary or price adjustments and from upselling of incremental solutions.

To briefly recap on the implementation front, we have now implemented Etihad Airways, ITA Airways, Hawaiian Airlines, Allegiant Air and Bamboo Airways, completing the list of large migrations we had planned for 2023. Regarding Hospitality & Other Solutions, revenue in the first 9 months of the year was 17.8% above 2022, driven by strong performances of both Hospitality and Payments on the back of customer implementations and volume expansion.

Within Hospitality, Hospitality IT revenues increased, supported by our customer implementations and higher reservation volumes, mainly in Sales & Event Management, Service Optimization and Amadeus CRS. Media and Distribution revenues continued to grow healthily backed by an increase in media transactions and bookings. And Business Intelligence revenue expanded driven by customer implementations.

Within Payments, audits revenue lines reported strong growth rates, supported by higher payment transactions and customer implementations. In the third quarter, Hospitality & Other Solutions revenue increased by 8% versus prior year, impacted by a large foreign exchange effects. Let me remind you that 70% to 80% of the revenue in this segment is generated in U.S. dollar. Excluding FX, the segment's revenue grew by 15% in the quarter versus the third quarter of 2022, supported by an increase in transactions in customer implementations at both Hospitality and Payments.

Please now turn to Slide 10 for a review of our EBITDA evolution. In the first 9 months of 2023, our EBITDA was 33.8% higher than in 2022. EBITDA margin expanded by 3.1 percentage points to 39%. Our EBITDA performance resulted from the revenue evolution explained before, a higher cost of revenue and an increase in our combined personnel and other operating expenses cost lines.

Cost of revenue grew by 25.5% in the 9 months period versus 2022, resulting from volume expansion across our businesses and several factors impacting Air Distribution variable costs, including customer and country mixes. In the third quarter, cost of revenue growth over prior year was slower at 9.7%. This evolution was lowered by a larger positive FX impact and some effects that fluctuate quarter-on-quarter. For next quarter, with respect to the cost of revenue evolution, we expect a lower positive FX impact and do not benefit from these quarterly fluctuating effects.

Our P&L fixed cost in the first 9 months of 2023 compared to last year were 12% higher, excluding the government grant in the second quarter of 2022. This cost evolution resulted from increased resources, particularly in our development activities to support our R&D investment, coupled with the higher unitary cost resulting from our global salary increase, growth in nonpersonnel-related spends like travel and training, amongst others, driven by the business expansion relative to prior year and higher transaction processing and cloud costs caused by the volume expansion and the progressive migration of our solutions to the public cloud.

As a reminder, as we said, we expect our P&L fixed cost growth in 2023 to range between 10% to 14% over 2022, excluding the EUR 51.2 million government grant received in 2022 and fixed cost growth in half 2 to have a similar growth or similar growth pattern to what we've seen in half 1. To review the evolution below the EBITDA line briefly in the first 9 months of 2023 compared to 2022, D&A expense decreased slightly by 1.7% with a lower depreciation expense from a reduction in hardware investment, largely driven by our shift to the cloud, offsetting higher amortization expense from internally developed assets.

Net financial expense also declined in the period by 40.7%, driven by exchange gains and a reduction in other financial expenses. Interest expense was 4.9% below prior year as a result of a lower gross debt, partly offset by a higher cost of debt relative to last year. Income taxes increased by 60.7% in the 9 month period versus prior year, largely driven by higher taxable income. And finally, resulting from all these effects, adjusted profit grew 67.6% in the first 9 months of 2023 versus 2022.

Please turn now to Page 11 to review our R&D investment and CapEx. R&D investment grew 14.8% in the first 9 months of 2023 versus 2022 and was focused on, firstly, the evolution of our portfolio for airlines, including Amadeus Nevio; secondly, of our Hospitality platform; and thirdly, enhancing as well our solutions for travel sellers and corporations, delivering a full end-to-end integration of our content via NDC connectivity; and fourthly, our partnership with Microsoft, including our migration to cloud, and of course, we spoke in consulting services provided to our customers and customer implementations.

In the first 9 months of 2023, our CapEx increased by EUR 60.2 million or 15% compared to the same period in 2022, mainly driven by higher capitalized R&D investments and represented 11.3% of revenue.

Please turn to Slide 12 for a review of our free cash flow generation and leverage. With regards to free cash flow, we generated EUR 940.5 million in the first 9 months of the year, 49.8% higher than prior year, driven by the increase in EBITDA by an improving change in working capital and higher CapEx and taxes.

Please note that in the second quarter of 2023, we collected EUR 42.8 million from the Indian tax authorities linked to the positive resolution of the proceedings I mentioned before. Excluding this collection, we generated EUR 897.7 million free cash flow in the first 9 months of the year. And relative to prior year and excluding the government grant and cost-saving program implementation costs paid in 2022 as well as the connection of this Indian tax of the -- from the Indian tax authorities, our free cash flow was 48.6% higher than in 2022. Net debt amounted to EUR 2.121 billion at the end of September, with leverage amounting to 1.1x net debt to EBITDA.

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

[Operator]

[Operator Instructions] Our first question comes from the line of Sven Merkt with Barclays.

[Sven Merkt, analyst]

Firstly, can you please comment on the growth outlook in Hospitality? This has come now down to 15% growth on a constant FX basis. Is this in line with your expectations? And considering that you signed a number of larger deals over -- not, the last couple of quarters or years, should we expect a reacceleration of growth in that segment? Or will growth now stabilize in the low-double-digit to mid-teens from here?

And then the second question is just on capital allocation going forward. Is it fair to say that the M&A opportunities out there are a little bit more limited now and that you will most likely will allocate a higher proportion to buybacks going forward?

[Luis Camino, executive]

Well, thanks for the questions. I will start with Hospitality and Till, if you cover the capital allocation. So look Hospitality, as you know, was less impacted by COVID. So in terms of recovery, we have less recovery, but still we were enjoying for also the recovery and the strengthening of the industry. So yes, 15%, 16% was in line with our expectations.

And moving forward, we expect to really be healthy growing. As you know, this is one of the areas, where we expect growth in the future. But of course, we will not be talking about 30%, 40% that we have seen in some quarters in the past. So I would say this 15% is a figure in line with what we were expecting for this unit.

[Till Streichert, executive]

Look, in terms of capital allocation, obviously, we are looking at that at the time. And we always said M&A is a priority for us to continue to grow the business. And you can imagine, we are continuing to scan the market and look at opportunities. But of course, in the meantime, as we've also said before, when our leverage reaches the lower end of our target range 1 to 1.5x, we, of course, said that we would consider share buybacks, respectively, extraordinary shareholder remuneration. And obviously, these criteria, we've met earlier this year. But again, going forward, as I said, M&A is a priority to us to continue driving growth.

[Sven Merkt, analyst]

Okay. That's clear. Can I ask a follow-up question on the cloud transition? Can you just comment how this is progressing? And if you still believe that this project will be completed by the end of next year? And how much temporary costs are currently in the [ King Albert ] will drop away once the transition is completed?

[Luis Camino, executive]

I mean you gave a date that I believe we have not provided. What did you said at the end of next year. I mean, we said this is an ongoing project. It's moving according to our regional plans. We said this project that will last between 3 and 5 years. And therefore, we keep according to the original plan, is moving well. It's not going to happen from -- it's not a one-off in the sense that before the final day, we are not migrating. We keep migrating applications on an ongoing basis.

And therefore, we are already seeing cloud costs related to our migration, and the project will continue, but according to the original plan, okay? So no real news just the fact that as we have spoken to you, we'll have more costs on the P&L impacting more our EBITDA and less investment in our CapEx. This is something that has happened for the last years already.

[Till Streichert, executive]

And just adding to what Luis has started on the cost side, we obviously have got 2 components at the moment. We've got migration cost that we are incurring. And you can say this is a bit of double cost. We've got the capacity on demand, which is a variable cost of consumption of workloads that we are moving over into cloud.

It is true, we have not given you the exact breakdown of that. But what we didn't say and just as a reminder that in the cost growth for this year, these 2 elements together, the migration cost and also the beginning capacity on demand costs coming into our numbers, represent about 3 to 4 percentage points of the cost growth range of 10% to 14% that we set out for the year.

[Operator]

Our next question comes from the line of [ Loraine Monterio ] of Morgan Stanley.

[Unknown Analyst]

Three questions, please. Number one, on NDC. One of your peers recently said that the economics of NDC agreements look similar to the previous ones with the exception of Europe, as Europe has some of the highest booking fees in the world. Could you please comment on whether you are seeing the same thing?

Question two. So you said international traffic rate remains below historic levels. What do you think is preventing international air traffic volumes to come back? Is it purely due to capacity issues? And last question, please. Did you see a continued improvement in air bookings recovery in October?

[Luis Camino, executive]

Okay. So NDC economics. I mean we have already mentioned in previous calls, we have a range of agreements. I will not explain region-by-region. I mean, look, in Europe, as you know, we had already some private channel agreements in the past. In other parts of the world, different models. So I wouldn't conclude that the fees are lower. I mean, it depends on each agreement that you may have. I'm not, of course, denying what others may have as an impact. But for us, as we said, our goal keeps being the same that NDC on a net basis because we're talking our net basis should be neutral, and hopefully, we'll be able to really get incremental fees as part of this NDC migration.

With regards to international traffic, looks a matter of mix. It's a matter of how the recovery was happening at the beginning. I mean, you see the previously, even the public one from IATA, domestic has recovered faster. You need to also understand that the first country to recover was the U.S., which is much more domestic. International has taken more time. Asia has been coming back. So this is helping in the international traffic. But still overall, I'm not talking about the GDS part, but overall domestic has been recovering faster.

Yes, it could be part of that. I mean there are a number of effects, lack of supply in some cases, but this is being fixed as we speak. Capacity that needs to be revealed for some of the international routes after the COVID situation. So there may be the country mix. So there are another [ overall tax ] that may impact this recovery. But hopefully, at one point, this should -- this will be back.

With regards to air bookings, I already mentioned. I mean, look, just to elaborate a bit more on the October or even the Israeli impact, I mean, our purely impact to Israeli is extremely, extremely low, okay? It's even below 1%, if we just talk about Israel. But when we talk about the overall impact, it's not just about Israel because therefore, will be very small. It's about the reaction in the rest of the countries with regards to whatever happens, okay, these events, they concern about potential to raise attacks or they concern about what is going to happen next.

So what we see, and this is not the first time we saw in the case of Ukraine or we have seen in previous terrorist situations, at the beginning, there is an firm cancellation, mainly much more international than domestic. So people are concerned about traveling outside of their home market. That's a natural reaction that this is what we have seen, especially high in the raise after the 7 of October. As I mentioned at the beginning, North America was very high in terms of cancellation, but it was across the board.

And after that, things has start to normalize, depending on the evolution of the events, of course. What we have seen is this progressive evolution, improvement on the cancellation rates and therefore, improvement in the net bookings. From now on, difficult to really assess what is the situation. If things become stable, hopefully, the situation will normalize. If things become complex, of course, the situation will be back.

[Operator]

Our next question comes from the line of Michael Briest of UBS.

[Michael Briest, analyst]

Two from me as well. Just on the GDS business. What proportion of your airline customers now are NDC-enabled? So theoretically, what percentage of bookings could go through NDC, if everything switched to that part? And then I think IATA said in the summer that NDC volumes reached 10% of sort of total. Can you sort of comment on that in relation to your own volume?

And then the second question is on Nevio and the Saudi contract. Is this the start of a multiyear migration of all of your Altéa customers do you think to the new platform? And can you maybe sort of talk about the challenges of the migration for the Saudi and others potentially afterwards? And what the economics would look like? Is this going to lead to a higher revenue per passenger in a theory?

[Luis Camino, executive]

Okay. Let me start with the last one. I mean, look, this will take years. This is a transition as any evolution that happens in the industry. Of course, the airlines will expect that this evolution will allow them to relate retail better and provide a better solution to the traveler and therefore, being able, in theory, to get incremental revenues as a result of that on top of a better service to the travelers.

So of course, our goal will be to really provide better technology, provide better service, support the airline industry. And at the end, yes, it's as always, of negotiation. But in the medium term, expect to really get incremental revenues for Amadeus, if we are able to provide all the solutions that will be required for the future because we are talking about offer and order, about data capabilities, about payment, deliveries, servicing, I mean, it's a range of functionalities.

But if you were to provide an end-to-end solution will be required. So when you talk about how this will play out in terms of migration, it depends on the airline goals. It depends on the airline needs. Probably, I mean, in years from now, the majority of the airlines will move into that logic because it will allow them to really optimize better the service provider to the traveler. But still, I mean, it's a bit earlier to really thought a conclusion about what will be the final economics as we are talking to customers and we have announced a couple of customers to move into this journey with different streams, some different deliveries on other states gate approach.

You were also talking about volumes of NDC. In the years to come, yes, there will be definitely an increase. We are growing, but still the volumes are small. As we mentioned before, these are growing in our case, but still from a low base, and therefore, as a percentage of the total volumes are smaller, as you know. But we expect in 2024 to be increasing that.

I mean, as you know, this is a journey in my view, and this is a journey. It will take time. What we are providing in our view is a solution that is solid, is sophisticated. It integrates the different versions of NDC. There are many standard versions outside used by the airlines. So we are going through an integration in the meantime.

But yes, there will be some movements of volume, some people connecting here and there. We really feel that, in the medium term, our solution is good, is solid. And this is not so easy to really, my personal view, as you have the integration, as I mentioned, of many versions, you have the impact versus NDC, you have disruptions that may happen. You have a number of transactions that increase quite a lot with NDC versus any client because of the possibilities of doing different ways we were managing the pricing in the fact.

So all that needs to be taken into account. And I think as the industry evolves, this will become a reality, and therefore, we feel optimistic about our capability to provide service. We keep signing contracts with the airlines that we have been announcing to you. I mean I don't know exactly the percentage, but we have overall 30 airlines, not today enable NDC on the EDS. We are implementing in many markets. So this is the way we are today about it, okay? It's between 20 and 30 airlines out of 70 alpines that have been certified by IATA. So moving in the right direction. But as I said, this is a journey. I don't know, if you have...

[Michael Briest, analyst]

Sorry, Luis, which is about 10% that IATA referenced is NDC volumes in June. Is that something that is consistent with your data flows? Or would you say they're going through other channels, direct connects or other...

[Luis Camino, executive]

I mean, look, again what is NDC, everybody is calling different. So I mean, I have read many, many figures coming from airlines some of them are really based on NDC. Some others are based on some direct connects that are not completely NDC-enabled.

I mean, look, I'm not here to really challenge whatever is given in terms of numbers. We don't have all the data of the airlines, as you know, because this is an industry figure. Some airlines are more advance than others. So I'm not able to really challenge this 10%, to be honest. I mean this is a figure provided by IATA should be right, but how they are computing these numbers, which are [indiscernible] included or not, that's always something to debate, okay.

[Operator]

Our next question comes from the line of Victor Cheng of Bank of America.

[Hin Fung Cheng, analyst]

Luis and Till, congrats on solid quarter. And a couple of questions from my side. Just going back on the bookings evolution, I think you gave us some good color on recovery and the impact in the Middle East. But can you maybe quantify a bit on the impact you talk about in other regions in North America and APAC, where you see a lot of cancellations? Are those like international flights not flying into Middle East or flying through Middle East? And I guess, in October numbers, has that deteriorated versus September? How should we quantify the impact?

And then second question on revenue per booking. I think one of your peers reported weaker bookings recovery, but higher revenue per booking. I believe maybe some of it was due to FX effects. But how should we think about revenue per booking going forward as the mix -- international mix tailwind is diminishing?

And then lastly, on the cost side, I think Q3 fixed cost was a bit on the lower end of your full year range guidance. Should we expect Q4 to trend similarly? Or has some of the costs been pushed into Q4, given obviously your full year range implies a very wide range for Q4?

[Luis Camino, executive]

Okay. Let me start with the volumes. I mean, no, it was not really flies to Israel. I mean we have seen that it was more general that people at one point can't sell international flights. That was the reality. So again, I think we were doing very well until the 7th, then these cancellations started to happen for a couple of weeks, but of course, much more pronounced in the figures we have the 3 or 4 days after the event. And then things have been recovering.

And as I mentioned, the beginning of November seems to be back to normal. But yes, in October, due to this fact, we have been below the figure of September. I mean it's not big in terms of impact, but it has got some points of impact this cancellation that are coming back to normality.

Are this in November going to catch up? Would be. Because people that have delayed their decisions or canceled flight, but this is what we need to see. Again, progressive improvement. But the latest data we have, which is the last days of November, are mainly going back to the situation before the 7th of October. But yes, in October, due to these cancellations, we have been below September.

[Till Streichert, executive]

On your second question in terms of just revenue booking. So yes, you're right, revenue per booking in the third quarter was a little softer relative to the previous quarter. And as you said, there was an FX effect, which has impacted that.

Slightly diminishing positive booking mix effect. But again, that was expected. And also, you've got an effect of some revenue lines that grew at a slightly softer rates than actually the bookings increase was. So then altogether. But again, we are still positive in terms of the revenue per booking evolution in line with what we expected going forward.

Look, it will going to come down, firstly, obviously, to booking mix, customer mix a bit. But of course, and also kind of surprising sight, as you know, we have the ability to also pass on certain amount of inflation, which is a driver on an annual basis. And of course, then the result of the deals that we are signing and the pricing effect of that.

In terms of fixed costs, yes, so third quarter, a little lower. But again, the fourth quarter and therefore, also the second half, I would expect comes out kind of similar or close to what we had in terms of growth for half 1, which was 12.7%. And really, the growth in the fourth quarter, I expect to come from resources that we've hired throughout the third quarter. Slightly more capacity on demand costs as we continue to ramp up. This is probably a theme that we're going to see quarter-on-quarter. But again, not material, a slight increase in nonlabor-related cost.

And I expect as well a little less of an FX impact. And all this together, I would think, on a full year basis, should bring us to the, yes, similar, to what we had in half 1, more or less. And also with that, fully inline within our full year range of the 10% to 14% that we said before.

[Operator]

Our next question comes from the line of Charles Brennan of Jefferies.

[Charles Brennan, analyst]

Great. I was wondering, if I could ask a forward-looking one. You've obviously given us some color on October and November. But I was wondering if you can give us any early thoughts on next year? It feels like most of the airline statements I've been reading, they've been cutting capacity growth for 2024.

Are you assuming that next year is less buoyant in terms of market recovery than this year? And similarly, can you say anything on the cost development into next year? It sounds like you've been hiring into Q4. Do we have to think about that cost annualizing into 2024? And is there anything you can say there?

[Luis Camino, executive]

Look, it's a little early. We will provide you guidance in February totally talk about '24. What I can share with you, which is more general is that, we are still -- look, you see the majority of the airlines still adding capacity, okay? There could be some adjustments in some of them. But for us, it's important, the capacity and the majority of the airlines are increasing capacity next year compared to this year, which is normal in the way they plan because you received the planes.

It's also stated that the majority of the projects that have happened in terms of supply should be finally fixed in 2024. So there are some data points to be still optimistic. I mean, if you see, again, the capacity projections still today for next year, plus talking to the airlines, I mean, the majority of them are really optimistic about whatever may happen next year, we should also have still some recovery, but probably less than we have seen because at one point, the recovery compared to 2029 is already happening in many parts of the business.

So putting all together, we are still optimistic for next year. However, saying that, I mean, we mentioned about the geopolitical situation. I'm not going to mention the current microeconomic environment, so difficult to really -- we are today preparing analyzing our projections for next year, and we'll provide you guidance at the end of February. But we are not pessimistic about the medium-term outlook for this industry, including next year with the caveats that I mentioned before.

[Operator]

Our next question comes from the line of Alex Irving of Bernstein.

[Alexander Irving, analyst]

Just two on Nevio and one on distribution. So first, how significant is the competition today in your assessment for order management systems? Do you basically have this market to yourself for now? Second is the commercial model for Nevio is still going to be a fee per passenger boarded? Or are you planning to use a different basis of charging? And if so, what is it?

And then third, on distribution. Your unit revenue looks to be stabilizing close to EUR 6 versus EUR 5 pre-pandemic. Our contract mix impacts the driver here. More specifically, how much of your bookings are being done through full content agreements? And how does that compare to pre-pandemic, please?

[Luis Camino, executive]

A bit early to really talk on Nevio in terms of business model. I mean in principle, yes, should be transaction model by all means based on -- I mean, it could be based on passengers, based on number of orders. We are still seeing how this may evolve from that front. So it's a bit early, okay? What we have is a couple of customers and trying to really evolve this model to see what is the best approach. But overall, we'll be transactional.

So in principle with the customers we have today, I mean, we are trying to really do in a way that is transparent, simple, they understand well, they can estimate their costs, but it's a little early to really talk about our concrete financial model.

In terms of being alone or not, I mean, we are never alone in any business we operate, okay? There will be players. There will be new companies. This is part of our game as it happens on the PSS, and it will happen with all the functionalities that we provide.

And our goal is to really do something that is innovative, is where the structure and can provide a good way to really move from some of the models we have today in Altéa to a logic of opening order. So there will be competition. Yes by all means there will be companies that will develop alternatives to what we have as we have today in other parts of the business, okay?

I mean, it's not just their part. But as you know, there are competition for our revenue management, there are competition for our loyalty products. There are companies that they will deal with digital capabilities, so we don't expect this to reduce. But of course, what we are trying to do is to be innovative to be ahead of the game and to provide a solution that can be proven, reliable, scalable and successful in the future.

[Till Streichert, executive]

In relation to the bookings’ evolution, let me just reiterate again what drives it the most is, of course, is the booking mix as a primary one. But of course, beyond that, of course, we've got customer mix effects. And again, the results from renewals that we've got also new deals that we do sign. And it's true, where we have certain changes in terms of just the contractual nature with our customers in terms of full content agreement or customers moving off that. That does have or didn't have in certain instances an impact also on pricing and revenue per booking.

But I would just subsume that under the category of customer mixes in the end impacting pricing. And then as a third category, as I said, you do have kind of the inflationary dynamics that are playing into it. And all of that together gives you in the end the drivers of the booking fee.

[Operator]

Our next question comes from the line of Toby Ogg of JPMorgan.

[Toby Ogg, analyst]

A couple from me. So firstly, just thinking about the evolution of the P&L fixed cost growth components, as we've talked about for 2023, we've got the 10% to 14% growth ex the grown within which you've got the cost growth of 7% to 10%, which is linked to things like R&D implementations and inflation. And then you've got the cost growth of 3% to 4% from cloud costs.

As we think about the evolution of these different costs into 2024, what are the elements, Till, we should expect to repeat? And what are the elements that are more specific to 2023? And are there any reasons to think that the magnitude of these different components could change?

And then secondly, just on Air IT. If we look at the Q3, you're now tracking at 100% of the 2019 level on the PB side. So as we're thinking about the different factors that we'll be featuring in the revenue per PB side into 2024, is it fair to assume that the headwind from the revenue per PB from volume recovery is now behind us? And what are the other factors we should be thinking about for revenue per PB beyond 2023?

[Till Streichert, executive]

Let me start with the last one first. So just in terms of Air IT dynamics, true, volumes we are now very close, and this is very pleasing, obviously. And therefore, also the elements that we've been talking for quite some time on to explain the decline in the revenue per passenger boarded. So the element of what's basically transactional and what's non-transactional is now obviously diminishing, respectively, are expected to disappear soon. And therefore, this, as you said, headwind, I expect to be behind us in the not-too-distant future, absolutely.

Just in terms of the dynamics that belong to it, of course, we have the platform mix. As you know, our Navitaire platform and the Altéa platform attract different fees. And so this is one element, which is always important to consider. And of course, beyond that, we continue to see the opportunity and also progress on that when it comes to upselling, which should support the evolution going forward. And of course, then we've got the general pricing dynamics that play into it, when we sign new deals and so on and so on.

So therefore, a bit early to say how things are going to play out in 2024, and we'll come back to that when we speak about kind of the guidance or the outlook for 2024 in February, but these are the components that you need to consider.

In terms of P&L fixed costs, again, same statement to start off with a bit early. We'll come back to that in February next year. But the components of the cost dynamics, we will going to have still migration costs in relation to cloud.

We will have slightly growing capacity on demand cost as we continue to upload into public cloud. And we would have, as you said before, on our, let's say, non-cloud related costs, similar dynamics from an inflationary point of view.

Also, of course, the annualization effect of the resources that we've hired this year. And all this together flows into our cost envelope for next year. But again, too early to speak about that. We'll come back to that in February and give you a fuller picture.

[Operator]

Our next question comes from the line of Nicolas David of ODDO BHF.

[Nicolas David, analyst]

I have two actually. The first one is regarding APAC. The region has recovered very strongly again in Q3, notably in terms of PBs. Now that we have seen this recovering, do you think that we are now in a more normative level of volume and going forward, the growth will be more driven by the structural growth of the market more than the recovery? Or do you think that there's still some potential for recovery, specifically this market?

And still regarding APAC. One of the -- maybe the only region, where your recovery in terms of PBs is not stronger than bookings compared to 2019. What should we read there? Is it linked to the market itself? Or it's more linked to your performance commercially speaking? And what should we see there in terms of evolution, notably regarding PB evolution? Do you have room to commercially speaking be more aggressive?

And my last question is on Air IT. Again, could you give us some color regarding the phasing of onboarding of Vietnam Airlines? And also, could you characterize what was going to use the level of nonorganic addition during Q3 this year? Was it a low level compared to historically or a nice level?

[Luis Camino, executive]

Okay. Let me start to see, if we got all the questions. I mean, starting with the last one, Vietnam, we have not disclosed the timing. In this case, we cannot, but you should assume something similar to what we have between 1 and 2 years, okay. But not -- we have not disclosed the specific dates for this airline yet. In terms of the APAC recovery, yes, the validity of the markets or many of them have recovered. We still feel that there would be a bit more recovery from some countries that have not recovered at the same level.

So still there have to be some upside from that. Yes, but at one point, we'll not be talking about recovery, but more of normalized situation, but some countries are still below levels. And the same I may mention, I mean, the traffic has recovered quite strongly worldwide. But as I mentioned before, business travel is well behind 2019 still today compared today. So our international is below domestic. So hopefully, unless this is a structural for the medium term. Hopefully, some of that may bring additional volumes.

You can call further recovery from COVID or just the normal evolution of the situation of the events. But these 3 effects that are below 2019, a little bit of Asia Pac in some countries. The business travel plus the international traffic will give additional recovery. But after that, yes, we are talking about normality in terms of volumes.

Another question -- I don't know if I cover -- mainly, I think I cover what you...

[Nicolas David, analyst]

You've covered most of it. I mean I had one to explain the difference between PBs and bookings evolution in APAC compared to the rest of the business you have. It's only region, where your Air IT is not stronger compared to '19 versus your booking business -- your distribution business. Is it something specific to you? Or is it because...

[Luis Camino, executive]

No, there's nothing special. No, matter of mix. I mean, as you know, there are always movements of that difference between PBs and bookings in the sense of advanced inventory and recovery. So usually, you have faster recovery in bookings than PBs at the beginning. So there is nothing really specific because in Asia Pac, I mean, our growth in terms of PB is strong. Overall, we have big customers there, as you know well, on the PB front. So nothing really specific to mention.

[Operator]

Our next question comes from the line of Fernando Abril-Martorell of Alantra Securities.

[Fernando Abril-Martorel, analyst]

I have three. First on CapEx. So growth has slowed down a lot in Q3. So I was wondering, what do you expect CapEx growth to be in Q4? Then second on working capital as well. Very strong working capital from Q3. I was wondering, again, what were the reasons behind this? And what do you expect in Q4? And last on CRS Marriott. I don't know, if you have any update on when do you expect revenues from Marriott starting to flow into your P&L?

[Luis Camino, executive]

Let me cover the last one, quickly. Look, we have not disclosed that. Again, unfortunately, this is -- I mean we have not spoken about specific migration dates. I mean, I repeat myself. That's the only thing I can disclose. But mainly the project is moving ahead. It's going according to our plans. It's doing well.

Of course, these are not projects without complexity additions buying principle. Again, the project is doing well. So it should -- yes, we will try to disclose you at the right moment, when you can expect that. But unfortunately, I cannot do that now. I mean it's not the customer and we cannot discuss things.

[Till Streichert, executive]

Look, let me just remind you on the CapEx side. I mean also in the third quarter, there was some positive FX effect, which I don't expect to repeat in the fourth quarter. So again, I mean, just if you consider what we said at the beginning of the year in terms of guidance, CapEx to grow slower than what we had in the year before. We are fully on track with that, and this is what I expect on a full year basis for CapEx.

Working capital, strong performance of cash flow in the third quarter. Again, here, we have been benefiting from just, I mean, if you look at it gross margin -- gross margin -- really a better gross margin in the end. We had a little better collection as well. But again, let me remind you as well, if you look, for example, at the cash tax line, it follows normal seasonality, and we should look at that kind of in relation to prior years as a good guidance. And then you can also kind of estimate what you would expect for the fourth quarter from that. Yes, that's what I can say for working capital reflecting in the cash flow in the third quarter and going forward.

[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.

[Luis Camino, executive]

Thank you very much, everyone, for attending the call. Looking forward to the next one, which is at the end of February, if I don't see some of you before. Thank you very much. Bye.