Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2018-Q4

[Operator]

[Audio Gap]will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions] I am now pleased to hand over to you, Mr. Luis Maroto, President and CEO of Amadeus. Please, sir, go ahead.

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

Good afternoon, ladies and gentlemen. Welcome to our 2018 Full Year Results Presentation. Thank you very much for being with us today. As always, Ana is here as well, and we'll talk about the financial performance, and I will focus as usual on our most relevant recent developments. Let me start with Page 4. Amadeus maintained its long-term record of revenue and profitability growth in 2018, despite a slowdown in growth of global travel in the second half of the year. One of the strengths of our business is its resilience, diversity and global footprint. And so while we face some turbulence in Distribution, our IT solutions business grew strongly. Our diversification efforts, including the broadening of our hospitality offering through the acquisition of TravelClick, also supported our growth. Let me start with a review of our financial performance. This year as you know, we have had a number of elements impacting our results: From January, the changes in accounting close from the implementation of IFRS 16, remember we have restated 2017 figures for IFRS 9 and IFRS 15; the USD-euro exchange rate compared to the same period last year which has had a strong negative impact during the year; and the TravelClick consolidation effect, as we closed the TravelClick acquisition of October 4, 2018. With regards to TravelClick, we have got a positive impact from the inclusion of almost 3 months of TravelClick's results at group revenue level, partially reduced by a purchase price allocation impact that more than offset EBITDA and adjusted profit levels by the acquisition cost and related PPA impact. In order to facilitate the understanding of the evolution of the -- of our underlying business in 2018, we have excluded TravelClick's acquisition transaction costs and related PPA effects from this performance overview. Amadeus continue to work positively through the fourth quarter of 2018 delivering full year 2018 revenue growth of 6.6% or a high single-digit growth rate if we exclude ForEx. EBITDA growth of 9.7% or a high single-digit growth rate, if we exclude both the negative ForEx and positive IFRS 16 impacts with a broadly stable EBITDA margin excluding ForEx and IFRS. Adjusted profit grew 1% due to the onetime impact from changes to taxes in the U.S. and France. If we exclude the extraordinary positive deferred tax liability adjustment in 2017, adjusted profit grew 6% in 2018. Later, Ana will provide you with more details on Amadeus performance without the consolidation of TravelClick results. Now into our performance by segments. Our 2018 results were supported by the operating performances across Distribution and IT Solutions. In distribution in 2018, industry air bookings grew by 2.9% globally. With exception of the Western Europe where the industry declined, all region saw a positive evolution. Although, Asia-Pacific reported the fastest growth rate in 2018 followed by North America. The other regions Central, Eastern and Southern Europe, Middle East and Africa and Latin America also limited growth over the period. In the fourth quarter, we have seen accelerating trend in the GDS industry relative to quarter 3 delivering 1.1% growth in the fourth quarter, following 1.7% in the third quarter, and in the first half, 4.3%. This is mainly due to Asia Pacific, which had delivered strong growth in the first part of the year and accelerated in the second half. India, the legal GDS market in Asia, which have delivered double-digit growth in the first 9 months of the year, deliver a low single-digit growth in the last quarter due to the situation there -- with the financial situation of some airlines in the country and significant promotions by airlines in the last quarter of 2017 creating a high base of comparison. In turn, Latin America benefited from a more favorable macroeconomic environment in several countries particularly Brazil, recovered from its negative evolution in quarter 3 and reported a small expansion. The North America industry was the fastest-growing region in the fourth quarter. In parallel, we have seen a softening in air traffic growth, which based on IATA grew 5.9% in last quarter of 2018 from 6.7% September year-to-date. Traffic in 2018 grew 6.5% in the year compared to 8% in 2017 with a slowdown between the first half and the second half of 2018, as I mentioned. In terms of disintermediation, we have seen some disintermediation in Europe driven by airline strategies. However, outside of Europe, we have not appreciated any acceleration in disintermediation in the year. With regards to Amadeus booking performance, in the year, we expanded our market share in every region except Western Europe. We improved our competitive positioning, excluding Western Europe by 1.1% in the year. However, we have continued to lose share in Western Europe in line with the previous quarters in the midsize online travel agency segments. This has translated into a slight reduction of our global share in the year by 0.2 percentage points. In the fourth quarter, our market share was flat worldwide, although expanding by 1.4 percentage points outside of Western Europe. Looking into the financial of this period and excluding negative foreign exchange effects, distribution revenue grew at a mid-single-digit rate and distribution margin diluted in line with our expectations. In IT Solutions, revenue grew 13.1% including TravelClick and excluding transaction costs. Excluding TravelClick, transaction-related effects and negative foreign exchange impacts our other underlying growth was robust. Revenue grew at a low double-digit rate in 2018 with a broadly stable contribution margin. This evolution was driven by both steady growth in Airline IT Solutions and continued healthy expansion in our new businesses.Before moving on to our recent development in 2018, we remain highly focused on technology. Our investment in R&D amounted to 17.8% of our revenues. It was dedicated to support our mid- to long-term growth, support product evolution, portfolio expansion, customer implementation, system performance optimization and our continuous shift to next-generation technologies and cloud architecture. NDC will play an increasingly influential role in the industry, and we are proud of the growing network of partners in our NDC-X program. We are working with key airlines and travel sellers including American Airlines, Qantas, Travix, Carlson Wagonlit and American Express Global Business Travel. Finally, our free cash flow grew 7.8% in 2018, including TravelClick and excluding related transaction costs. And our leverage at December 31, 2018, stood that 1.47x last 12-month EBITDA. In Page 5 in distribution, during the fourth quarter, we signed 15 new contracts or renewals of continuing distribution agreements with airlines, amounting to 50 for the year. Among the carriers that signed the renewal agreements in the last quarter were Finnair and TAP. In India, Vistara renewed its multi-year distribution agreement and recently SpiceJet, another Indian airline, signed its first distribution agreement with Amadeus. We continue to see demand for our merchandising solutions for the indirect channel. At the close of December, we had 151 airlines contracted for Amadeus Ancillary Services and 81 for Amadeus Fare Families. We are pleased to announce in February, we have signed an agreement with Qantas, enabling the Qantas Channel from August 2019. The agreement assures that Amadeus travel sellers that sign up for -- to the Qantas Channel can continue to access airlines wide range, offers and blocks available for agents including future NDC content while enjoying the efficiencies and services capabilities of the Amadeus GDS system. Airline IT in the quarter, Cyprus Airways contracted and implemented the full Altéa Suite. Then in the fourth quarter, S7 Airlines completed the migration of the full Altéa Suite, while Volaris Costa Rica contracted and migrated to New Skies. We advance in our new business areas and particularly, in our hospitality strategy. During the fourth quarter, we continue to progress in the rollout of the guest reservation system with IHG, which has been completed successfully. InterContinental Hotel Groups more than 5,600 properties across 15 brands and more than 100 countries are now live. Going forward, there will be future updates to the platform bringing us feature of functionalities including attribute they sell in. In November, we announced that NH Group had joined TravelClick’s Demand360 program which gives hoteliers unique access to forward-looking demand data and allows hoteliers to develop optimal strategies for maximizing revenue. In February, we announced Billund Airport, Denmark's second largest airport, deployed Amadeus Altéa Department Control System and Amadeus Baggage Reconciliation System. These solutions will support the airport utilization journey and improve the passenger experience through process automation and self-service capability. If I may, I'm going to skip Page #6, where you have some additional color on numbers and our distribution volumes, as I have covered in my introduction. So if we move to Slide 7. In Airline IT, Amadeus passenger boarded grew by 6.6% in the fourth quarter and 11.9% in the full year 2018. This double-digit growth was driven by the impact from our 2017 and '18 implementations, including Southwest, Japan Airlines, Malaysia Airlines, Kuwait Airways, Boliviana de Aviación, SmartWings, Norwegian Air Argentina, Air Algerie, MIAT Mongolian Airlines on Altéa, as well as GoAir, Viva Air Perú, Andes Líneas Aéreas, JetSMART and flyadeal on New Skies. And the 2018 implementations, including S7, Maldivian Airlines, Cyprus Airways and Aeromar on Altéa and Volaris Costa Rica on New Skies as well as by 7.6% organic growth. Passenger boarded growth in 2018 was negatively impacting -- impacted by the ceasing of operations of Air Berlin and Monarch Airlines during the second half of 2017 and by the demigration of LATAM Airlines Brazil from our platform during the second quarter of 2018. Our new businesses continued to grow healthily. Hospitality IT continue to advance well, supported by customer implementations and organic growth. In Airport IT, we expanded our customer base by 30 new customers worldwide in 2018. In payments, our customer base also continued to expand. We have over 1,100 payment customers with contracted our services from our portfolio and the volume of payment on sanctions processed us by us delivered a double-digit growth rate in 2018. Ana?

[Ana De Pro Gonzalo, Chief Financial Officer]

Thank you, Luis. Hello everyone. This year is a bit the competitive because of the different set of numbers that we are providing. So to facilitate your understanding of our performance in 2018, we have laid out in the table in the slide, in different columns the Amadeus stand-alone performance, the TravelClick contribution to 2018 and the TravelClick transaction-related costs and FX. As Luis has just described, we closed the TravelClick acquisition on October 4, 2018. And therefore, the results were consolidated into Amadeus book from that date. As a consequence of this acquisition, we have incurred in some nonrecurring-related cost and some extraordinary effects have been accounted for. To start with the integration and acquisition-related cost amounting to EUR 19.5 million of which EUR 4.8 million were paid in the year. Secondly, the purchase price acquisition effects negatively impacting the group revenue by EUR 8.2 million and group EBITDA by EUR 7.7 million, with no impact on adjusted profit or free cash flow. And thirdly, TravelClick acquisition financing-related fees amounting to EUR 8.2 million, which were paid in 2018. There is interest expense and fee amortization related to this acquisition debt in the amount of EUR 4.1 million in 2018, which also impacted the group profit and for comparability purposes of Amadeus stand-alone in column A, it has been adjusted for it in column B. For full details on this acquisition effect, please see the section 3.2 of our management review. Therefore, the table displayed in the slide shows Amadeus group figures excluding TravelClick acquisition in the first column, and Amadeus group reported figures including TravelClick results and acquisition-related impacts in the last column. In the middle, we have in column B, the display of TravelClick's contribution to consolidated results and free cash flow excluding the nonrecurring impacts related to the acquisition. The next column C shows the consolidated results of Amadeus including TravelClick, but with not these nonrecurring acquisition- and financing-related effects. And lastly, on column D, we display the nonrecurring acquisition- and acquisition financing-related effects. So for days of comparability with 2017, the financial results displayed in the next slides, Slide #10, 11 and 12, which relate to revenue contribution margin, EBITDA and adjusted profit are presented excluding TravelClick and the financing-related interest expense and the nonrecurring cost and purchase price allocation derive the adjustments associated with TravelClick's acquisition. Please note, however, that we are not excluding these from the R&D, cash flow and debt figures displayed in Slides 13 and 14. Figures displayed in these slides are the group reported figures including TravelClick and its related effects. So now if we move to Page 10, we are going to debate on evolution of excluding TravelClick effects as I have just said. Revenue grew 4.7%, driven by the performances of our Distribution and IT Solutions segments, negatively impacted by the foreign exchange effects. Excluding foreign exchange effects, revenue increased at mid- to high single-digit growth rate. If you recall, in the first 9 months of 2018, revenue grew at mid- to high single-digit growth rate if foreign exchange effects were to be excluded. Supported by a 3.5% travel agency booking industry growth, the impact from our 2017 on their migrations, especially sales within Japan, driving passengers boarded growth of 13.8% and the strong performance of our new businesses. In the fourth quarter of the year, revenue grew at mid-single-digit growth when excluding ForEx. Growth was softer than in the first 9 months of the year, impacted by slower air booking industry growth, as Luis has just described and a slower PB growth rate, driven by a lower organic growth rate as well as the Southwest impact on our PB growth, which has a reversal. For segment, distribution revenue increased by 2.8% to EUR 3 billion in 2018, negatively impacted by the foreign exchange. If we are to exclude this, distribution revenue grew at mid-single-digit rate over the year. The revenue growth resulted from an increase in bookings of 1.7% and expansive revenue per booking supported by the positive booking mix, both from an increased weight of global bookings and a declining weight of nonair bookings, which have a lower average fee and also because of customer renegotiations. On the IT Solutions, revenue increased by 8%, up to close to EUR 2 billion in the year, negatively impacted by foreign exchange effect as well. If we are to exclude these, revenue grew at low double-digit rate, backed by the positive evolution of both Airline, IT and our new businesses. IT transactional revenue expanded 7.7%. The volume expansion coupled with allotted PSS average pricing as a consequence of the negative 4x and also the increasing way of low-cost and hybrid carriers' volumes. Excluding these effects, IT transactional revenue per passenger boarded expanded in the year, supported by the upselling activity and the positive contribution from Airport IT and payments. Nontransactional revenue increased by 6.4%, or that's double-digit growth rate if the ForEx is excluded, driven by the good performance of Hospitality IT, remember, excluding TravelClick. To review our contributions by segment, on Page 11, as you can see, we have experienced contribution growth in absolute terms both in Distribution, growing 2.3%, and in IT Solutions with an increase of 8.3%. ForEx has a negative impact on our segment contributions and a positive impact on net indirect cost. In distribution, we have experienced limited margin dilution, which resulted from our revenue increase coupled with an expansionary unitary distribution cost as a consequence of the competitive pressure and negative client and country mix as well as a net fixed cost decline impacted by a higher capitalization ratio and cost contention.Contribution margin was positively impacted by ForEx, excluding which it decreased versus 2017 in line with our expectations and in the same range as we have experienced over the past few years. In IT Solutions, the margin expansion was impacted by positive ForEx, excluding which the margin was broadly stable as a result of operating leverage in our Airline IT business and a continued expansion on the new activity. Like in the case of distribution, the IT Solutions margin was also positively impacted by a higher capitalization ratio. Finally, net indirect cost declined by 3.7% due to IFRS 16 adoption from January 2018. If we exclude these, net indirect cost grew 2.9%, driven by the expansion in R&D investment devoted to the cross-area technology, increased resources in our corporate functions to support the business expansion and a higher capitalization ratio and positive foreign exchange effects. To share some color on our fixed cost, personnel and other OpEx together declined by 1.3% or increased moderately, if we exclude the IFRS 16 and foreign exchange effects. Our workforce increased by 7%. As you know, a large part of this is R&D, as we continue to invest significantly in our R&D programs. Overall, we had a higher capitalization rate here in 2018. A significant part of our fixed cost related to our in-house development are linked to activities which are subject to capitalization, which means a lower profit and loss expense and a higher CapEx in the period. Although it is neutral in terms of cash flow. The intensity of ongoing projects may vary during the year or over the years, determining a higher or lower level of CapEx and operating expenses in any given quarter of the year. In addition, the natural evolution of projects may imply changes in the level capitalization and therefore, in the expense recognition. Our EBITDA in 2018 grew 8.5% to EUR 2 billion, impacted by negative ForEx effects. EBITDA growth resulted from the positive performances of Distribution and IT Solutions and the reduction in net indirect cost as a consequence of the adoption of IFRS 16 in 2018 as I have just explained. If we exclude the ForEx and IFRS impact, EBITDA grew at mid- to high single-digit growth rate and the margin was broadly stable relative to last year. Below the EBITDA line, D&A increased by 11.5%. In particular, ordinary D&A was 20% higher than last year impacted by the IFRS 16 adoption. If we exclude it, ordinary D&A grew by 9.6% due to previously capitalized R&D costs, which started to be amortized during the period. Net financial expenses declined by 10.3% or 19%, if you exclude the IFRS 16 impact, mainly as a result of reduction of EUR 4.9 million in exchange losses versus 2017. Interest expense declined versus the previous year by 12.2%, if we exclude the IFRS 16 impact as a result of both lower average cost of debt and lower average gross debt. This is excluding TravelClick acquisition financing impacts. In 2018, our income taxes increased by 30.9%. The income tax rate for 2018 was 25.2%, higher than the 20.7% rate reported over the full year 2017, which was impacted by a number of nonrecurring effects including adjustments to the deferred tax liabilities in France and in the U.S., due to lower corporate tax rates starting in 2018. If we exclude these deferred tax liability adjustments, income taxes grew by EUR 27.5 million or 8.7% in 2018 versus 2017. The combination of growth in operating results, like the growth in D&A and taxes and the lower financial expenses, resulted in a 0.3% decrease in adjusted profit and a 1.4% adjusted EPS growth for the year. If we exclude the nonrecurring effect from the deferred tax liability adjustments in 2017, the adjusted profit would have grown 4.7% in 2018. If we turn to Page 13 to take a look at our investments, you can see that in R&D, we have increased by 17.8% up to EUR 877 million in 2018, which represents 17.8% of our revenues. Our R&D expense, as you know, is centered in 3 main categories. The largest is product evolution and portfolio expansion, which includes new businesses and represent almost 50% of our total R&D investment. During 2018, we continue to invest in solutions for merchandising and personalization among others and expanding the resources devoted to our new businesses. We also progressed on the development of our platform to combine content from different sources such as from existing technology, NDC and content from aggregators and other sources. The second category is customer implementations, which accounts for approximately 20% of our total R&D investment. And the third one is internal technological projects, which amount to almost 30% of total R&D investments. And focuses on system performance optimization and the continuing enhancement of our overall infrastructure on processes as well as cloud-based architecture and the application of new technologies. CapEx is very linked to our R&D investment. 70% to 75% of our CapEx is capitalized R&D. And as you know, we capitalize when there is significant visibility as to future value generation. Other than capitalized R&D, 15% to 20% of our CapEx generally relates to tangible assets, mainly in relation to our data center in Erding. And finally, we also invest in contractual relationships and payments to travel agencies in the form of financing bonuses, which may be capitalized under certain circumstances. In 2018, our CapEx increased by 17.3%, up to EUR 718 million, which represent 14.6% of our revenues. The growth in CapEx was driven by the increase in capitalized R&D investment and to a lesser extent, higher signing bonuses paid and TravelClick's consolidation effect. And here, I would like to remind you that because of the application of IFRS, 15, our revenues this year have been at net of the collection we get from travel agencies and offsetting the cost. That's why this percentage, if you compare to our traditional 15%, it would have been 1 percentage higher. Free cash flow generation and leverage including TravelClick, we're going to take a look in Page 14, where you can see that we have generated EUR 976 million of free cash flow. This was impacted by TravelClick acquisition effects including the positive contribution to free cash flow, EUR 14.8 million and the negative nonrecurring costs, which have amount to EUR 12.9 million paid in 2018 as well as interest paid related to their financing of this acquisition, which amounted to EUR 0.2 million. Excluding acquisition-related and nonrecurring cost and financing effects, the free cash flow amounted to EUR 989 million in 2018, a 7.8% increase versus 2017. Free cash flow growth in the year was supported by our EBITDA growth and lower taxes paid, partially offset by higher CapEx and negative working capital impact. We had a reduction in working capital inflow of almost EUR 60 million, which come from the accounting effects from noncash operating items such as the recognition of previously deferred revenues and that's a provision and secondly, by the timing differences in some payments and collection, partially related to changes in the contract terms with our supplier. Net debt amounted to EUR 3,074,000,000 at the end of 2018, with leverage amounting to 1.47x EBITDA. The net debt and leverage increase versus 2017 was, of course, driven by the acquisition of TravelClick. And with this, I pass on to Luis.

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

Okay. So let me give you -- I'll go through the outlook before we go to the Q&A. So this is the way we see our growth in 2018 -- '19. This excludes in the base and also in the growth rates, the nonrecurring acquisition-related effects that Ana just explained. We would have liked to give you a 3-year outlook as well. However, with the current uncertainty, especially on the economic front, geopolitical and macro factors, we are going to focus on 2019 and of course, very often provided you with how we view the company and see the company in the long term. But it was difficult to provide you with a specific numbers for the next 3 years. So we focus on 2019, and for this year, we expect revenue to grow at a low double-digit growth rate, and EBITDA on a high single-digit to low double-digit growth rate, with some of EBITDA margin dilution, which is coming from the consolidation of TravelClick that as you know has a lower margin business. With respect to this company, please take into account that the consolidated results in 2018 and are not fully representative of this full year performance. And as we said, when we announced this acquisition, TravelClick's revenue and EBITDA should grow at mid- to high single-digit and low double-digit rates respectively. I mean, mid- to high revenue and low double EBITDA. We expect to sustain our CapEx investment in the range of 12% to 15% of revenue, and we expect our cash generation to range between EUR 950 million and EUR 1,025 million for this year. In terms of our capital structure, we are committed to maintain our leverage ratio ranging between 1 and 1.5 net debt to EBITDA. And with regards to our shareholder remuneration goals, we also maintain a 50% ordinary dividend payout ratio. If we move and look into the segments, IATA's latest forecast points to a 6% air traffic increase in 2019 and this growth in passengers will drive our volume, growth, both in distribution and Airline IT. Please take into account, as you know well, that our global footprint is not exactly the same. From IATA's ours is more skewed towards Europe and not exposed to China. With regards to our Distribution business, we see this business growing revenues up mid-single-digit in the medium term in line with what we have seen in the last years. This is driven by underlying global air traffic growth supporting GDS industry growth, coupled with our ability to gain market share and our ability to deliver on technologies evolutions. In our base case for 2019, we expect disintermediation levels to remain more or less stable, any acceleration disintermediation to come from Western Europe and always depending on the evolution of corporate travel. We'll expect to announce our competitive position globally in 2019. Please also note some effects from market share losses in Western Europe in the past 12 months are starting to lapse, and we are currently improving already our market share in Western Europe. Our volumes will continue to grow with limited estimated Easter seasonality effects in quarter 1, they are negative in quarter 2 as in 2018, Easter was split between quarter 1 and quarter 2 and also due to other estimated weekdays effects. Revenue in this segments should grow in the year at a mid-single-digit rate, and we also expect to see some margin dilution driven by continued competitive pressure. We have also developed our worst-case scenario that hopefully will not happen based on our situation in India. As I mentioned at the beginning of my presentation, we have seen some turmoil in the country. Mainly, in aviation market is currently under pressure and some players are suffering financial difficulties from changes in -- with changes in management and ownership in some cases. This has led to different strategies and the impact on Amadeus from some of these strategies are still unknown. It is early to tell how things will develop in the following quarters. However, depending on how the situation evolves, we have developed our worst-case scenario that we wanted to share with you and in that scenario distribution revenues will be growing at low single digit but not impacting our group outlook for revenue and EBITDA. In IT Solutions, we expect revenue to increase at a double-digit growth rate. In Airline IT, PB volumes would increase driven by organic passenger growth and the addition of airlines to our PSS platform in 2018 and 2019. The volumes will also be impacted negatively from the demigration of LATAM Airlines Brazil in quarter 2 of 2018. And the ceasing of operations of Germania and FlyBMI. The net positive effect for migrations plus demigrations is plus 15 million PBs in 2019. We expect double-digit growth in revenue from new businesses as well as the TravelClick consolidation effect. Finally, in IT S, we expect margin dilution from a combination of effects including faster growth in new business relative to Airline IT and the TravelClick consolidation effect. With this, we have now finished our presentation, and we're ready to take any questions you may have.

[Operator]

[Operator Instructions] The first question comes David Togut from Evercore.

[David Mark Togut, Senior Managing Director]

Two questions, please. First, could you address the competitive impact on Amadeus of Sabre's acquisition of Farelogix? And then second, you called out 15 million PBs coming on to your system in 2019. Are any of those new PBs coming from either Philippines, Pakistani or Bangkok airlines from Sabre?

[Ana De Pro Gonzalo, Chief Financial Officer]

On the passengers boarded, yes, you have the migrations of those airlines. So Philippines, Bangkok, which are meant to be happening in 2019, along the year.

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

I mean, in terms of the Farelogix, I mean, it proves what we have been saying during many years, the importance of having merchandising capabilities for all the players in the industry and also investing on NDC capabilities, too. So okay, for me, it's not to judge the Sabre strategy. Of course, in our case, we decided to really do big investments, and we have been briefing you on that. Sabre may have been done also organically, and they have decided to acquire Farelogix, which is a player on this space. So there is nothing new. We were expecting Sabre, of course, to make the right investments on this field. And in this case, they have decided to acquire Farelogix. So competition, as we have had with them, will happen in the space again, as we expected. So that's everything I can say. I mean, it's for them to really argue about the strategic reasons. For us, there is nothing new compared to what we were having before, okay.

[Operator]

The next question comes from John King from Merrill Lynch.

[John Peter King, Research Analyst]

I've also got 2. First one for Luis. Maybe could you update us on the hospitality side and particularly on the PMS property management tool? So we haven't heard a lot, I don't think, in the last few quarters around that. So how far is the technological integration going with the PMS and the reservation tool in hospitality? And any updates there? And then for Ana, on the free cash flow side, relatively sluggish growth, I guess, implied in the guidance and also in 2018 after some of the accounting impacts, not huge growth, which is unusual for you. Can you give us a bit more context around how you'd expect that to trend over the next year or 2 and whether some of the increase in CapEx will normalize as we go forward?

[Ana De Pro Gonzalo, Chief Financial Officer]

Okay. Let me start with the free cash flow, and later, Luis can talk on the hospitality evolution. On the free cash flow in 2019, we have given you this time a wider range, which is based on the duality, if you want. It's a little bit more binary. It's not for to guide you to the midrange. It's a little bit more binary, depending on how the situation of the Indian market that Luis has explained pans out. So if we are to move to what we have considered worst-case scenario, then, of course, our free cash flow would be skewed towards the lower part of the range. If things improve during the year, then we should be moving more towards the upper range. Then we also have a little bit of different timing on payments and collection on taxes, which we expect to negatively impact our free cash flow generation in 2019 across different geographies and different markets related to tax payments, which we have -- we believe that this year 2019, we're going to have a larger amount of outflows, impacts, payments compared to what we have in previous years. And then as we have also explained on the CapEx on revenue, although we are in the upper part, I still want to make this reminder that this is equivalent to 1 percentage point lower than what it would have been previous to the changes of the IFRS 15. So the equivalent, we always had 12% to 15%, but we are now 14-plus percentage, which is equivalent to what would have been a 13%, okay? So we are right in the middle of the previous range. And we will have this because we are investing on this progressive of the investment in technology, the customer implementations plus the development of new products. So we're continuing this, and that's included in our guidance for the free cash flow. And then we have the movements of the working capital, which, of course, is a small amount but at this level also have impact. So these are the main considerations that led us to give you a broader range. And in the midterm -- in the mid, longer term, of course, if you have a one-off situation which is sorted out, our free cash flow generation should continue to grow in line with the growth of the business as we had in the past. So I would say that it's more situation related to taxes and this specific worst-case scenario possibility in 2019 rather than a change in the trend.

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

With regards to Premier Inn and PMS, John, I mean, look, as you know, we are mainly working on delivering for Premier Inn. Our PMS is evolving. We are pleased with that, of course. We feel that what we have is good enough for that kind of properties, not yet for the high end. So mainly, the focus has been in delivering to Premier Inn because we have a contract with them and in parallel, of course, trying to really get additional customers. Again, quite ready. Our functionality for some segments of the market will require some additional evolution if we want to address the high-end piece of the industry. But I mean, so far so good. The integration is happening. We are also trying to see the overall, and this has been debated now, how and when and if we need to integrate the different pieces we have between the PMS, CRS, TravelClick, a new market in terms of architecture. So the whole hospitality business is evolving as planned. We are very pleased with the performance of the different pieces. But of course, it takes some time, especially when we are talking about the organic growth of the business, or not so much the businesses that are more mature. In the area of sales and catering, the implementation and the sales are going quite well overall. At the same time, when we talk about all the new pieces of software that we have developed, it is taking time until we get the functionality ready and becomes -- or is converted from a project to a product. But we are in the process, and I strongly believe the potential is there. So again, going back to your question, PMS is part of our offer. It's an important part of our portfolio. We have a good solution already for pieces of the market, and we'll continue evolving in the coming quarters to really have something that can be really competing in the different segments.

[Operator]

The next question comes from Alastair Nolan from Morgan Stanley.

[Alastair P. Nolan, Research Associate]

Two questions for me, please, both on the guidance. First on the Distribution side. You've called out the potential impact from the Indian carriers. And Luis, I think you mentioned the potential change in strategy amongst those carriers. Is this maybe competitive in the sense there's a chance the carriers are going to move to competitors? Or maybe you could just discuss that in a little more detail. And then also on the margin front, you've called out competitive pressure. I was kind of, of the view that the move towards private channel was actually going to be more margin accretive, maybe less on top line, more on EBITDA or on contribution. Is there -- has there been a change there? And then just finally on TravelClick. Could you maybe give us a better idea of the expected impact from TravelClick for 2019? I guess just to get a better gauge on the underlying performance expected for the IT Solutions business.

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

Okay. Let me start by giving a bit more color about India without entering too many details. I mean, you have there full-service carriers, low-cost carriers, I mean, all kind of situation. If you follow the financial results of this company, and this is not new, I mean, if you see the history of the market, there has been a big fight to get volumes more than to get profits because the market is a healthy market. Of course, when you see the situation, and I mentioned before in the last quarter, it was pretty weak because of -- I mean, this is public, some airlines were landing some planes. There were some financial difficulties. So what is very difficult to predict is, okay, what may happen in the future. We have just also announced an agreement with SpiceJet. But it's still to be seen, the impact in the volumes. Who is going to be the winners, if all the airlines will survive or not? Of course, we talk to all the players. In some cases, this is having -- should have a positive impact to us. In some cases, it should be negative. So it's difficult to predict. And what we have done is different scenarios for what may happen. I mean, of course, this is an important market. And in the medium term, we are keen of continuing being the key player there. But if you see history, I mean, there was some years when we have the bankruptcy of Kingfisher, the merge between Air India and Indian air at that moment -- or Indian Airline. There were many, many changes. And I feel -- and this is also happening as we speak at this point with the news on the press about Tata group acquiring some percentages of airlines, some other players also being part of changes in the so-called lean, changes in the management and therefore potential changes in the strategy, which may impact us, of course, from an industry point of view if at the end it goes more to the low-cost carriers. At the same time, some airlines have announced they want to become more international. So that is today. Of course, we do our own analysis based on the history, but more difficult to predict. And of course, this is why we said look, hopefully the impact is in the range of our base case. And some markets are down and some markets are up, which is normal in every year. We have these kind of situations in the world. Of course, we feel that this is going to be very specific. And the negatives are much more than the positives. Then, of course, this will have an impact. And this is why we wanted to be transparent and alert you about this potential outcome at the end, which today is more on a scenario we don't know. I mean, again, as we speak, we are working with different players. So that's why we have provided you with this information.

[Ana De Pro Gonzalo, Chief Financial Officer]

In terms of the competitive pressure, it's true that the private channels have had a positive impact on our margin on revenues. But as that annualizes, what we are basically saying is that the trend of competitive pressure on incentive, we expect it to continue to happen. And the IAG private channel looked fine in 2017. Air France was fine at the beginning of 2018. And therefore, in 2019, we don't have the positive improvement of the private channel. And then what you have is the normal trend of competitive dynamics, which is what we are projecting. And then in regards to TravelClick, the revenues should be growing at mid- to high single-digit and EBITDA in low double-digit rates, respectively. We provided with some color of the numbers on 2017 at the time of the acquisition, and that's what we have in the projections, of course, taking into account that in 2018, we have only included almost 3 months and not a full year. But if you want to do your calculations on TravelClick on an isolated base on the base of 2017, you can extrapolate this kind of growth both on the revenues and on the EBITDA.

[Alastair P. Nolan, Research Associate]

So it -- sorry, it was mid- to high single-digit on the revenue and high-to-low...

[Ana De Pro Gonzalo, Chief Financial Officer]

You have -- if you want to go more into details, on the section 3.2, I think it is, of our management review, you have some more color there.

[Operator]

The next question comes from Neil Glynn from Crédit Suisse.

[Neil Glynn]

If I could ask 3 quick ones, please. The first one, just looking towards 2019 and trying to understand your distribution guidance. Just interested in your take on whether global air bookings continue to rise as a proportion of your total volume within the Distribution business. Second question on hotels. In the context of a greater level of macro uncertainty, does that higher level of macro uncertainty help or hurt your chances of finding another deal soon as hospitality companies weigh up their options as to whether to spend or not to improve revenues? And the third question, similar to the second, in the context of a more certain environment. Is this an opportunity for you to -- I know you all -- you have a long track record of spending on R&D. But is this an opportunity for you to ramp that up further to differentiate yourself further from competitors and rise above a more challenged macro? Or is it more just business as usual whatever the macro brings in terms of R&D?

[Ana De Pro Gonzalo, Chief Financial Officer]

Okay. Let me start with the Distribution one and on the mix of bookings. We do have -- normally what we have is a decline on the rail bookings, which tend to be more direct because it's more local, national kind of business rather than more international. So we tend to grow in the rail on the international part, but we declined on the more domestic part of it. We are growing both in air and hospitality bookings quite nicely. That's the mix of bookings growth that we have both in 2018 and in the outlook for 2019.

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

If we talk about the -- if the uncertainty and the economic situation may be positive or negative for hospitality, I mean, it's very difficult to predict. On the one hand, yes, you're right. I mean, companies in this environment, okay, will be better off working with a third party and reduce that risk and their own internal investment. At the same time, every time that there is a contract and a migration, of course, you need to have an upfront investment, which is not just on our side but on the customer's side. But overall, I mean, we feel that there is quite a lot of demand of technology in this industry. We have ongoing conversations with many customers. And I don't believe that the current situation is changing that mood at all, or at least we don't have the impression that the hospitality industry is putting some -- or holding the discussions because of the uncertainty. On the contrary, I believe that, of course, at this stage, everybody's thinking about long term and trying to take the right decisions. Of course, if the economy becomes very difficult, yes, some of the projects may be put on hold or could be delayed. But this is not yet the case. So we are having conversations, as I said. And at one point, of course, the hospitality industry hopefully may decide that what we are bringing to the market justifies for them to really work with us. The last question was more about the uncertainty. We are going to invest more in R&D. I mean, look, we try as much as possible, again, coming back to my previous comment, to really think long term in our investments. Many of the investments we are doing in this business are for the long term, especially when we talk about technological projects. Of course, we always try to differentiate ourselves and keep the investment in bringing innovation and bringing ideas to the market. So there is no idea to really accelerate at this point or decelerate. Of course, depending on how the macro environment evolves, the company will need to really address the situation and be responsible about the financials. But we try to really do the right investments, thinking about the long term, of course, considering whatever may happen in short term. But it's not the idea. We will increase or accelerate what we have been doing in the last years but taking into account the number of migrations, of course, thinking about the technology of the future, in this case the cloud evolution, and thinking about the needs of our customer and the potential business. Of course, we are not going to invest if there is not clarity about how this is going to translate into business for our customers. So overall, our logic has -- is the same. There's not a change with our strategy of investment, and we will keep it depending on the economic environment, of course.

[Neil Glynn]

And if I could just follow up on your answer, okay, just within the air piece because I noticed in one of the earlier slides where you focused on global air bookings helping the mix. Would you expect global air bookings to outgrow the rest of the piece within the air side in 2019?

[Ana De Pro Gonzalo, Chief Financial Officer]

That's basically the trend that we have seen in recent years. So we don't have any reason to believe that, that trend should change in 2019, so yes.

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

I mean, in general, disintermediation is happening much more on the domestic, as you know. So it's more impacting the local, of course. The only difference is that the region mix always -- it's more difficult to know the country mix. So there are more -- some countries where the growth is more local. But overall as a trend, yes, I mean, it's much more resilient, the global bookings, than the local domestic traffic, definitely.

[Operator]

Your next question comes from Stacy Pollard from JPMorgan.

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

Three questions from me. In Distribution, the average revenue per booking, you discussed recent trends. But can you quantify that? I think you usually give it for the full year. And then executions going forward, do you expect that to continue to increase? Second question, industry-wide GDS bookings growth decelerated to 1.1% in Q4. You mentioned practically across all regions. So what do you see for 2019? Can it recover some of the gap versus the overall air traffic volume growth? And kind of how do you see the macro risks factoring into that? I'm sorry, third question. Just a quick update on Airport IT, where you stand versus the potential both in terms of sort of tech modules available, customer potential and maybe the competitive environment. Has that changed at all?

[Ana De Pro Gonzalo, Chief Financial Officer]

Okay. Let me take the first one about the average revenue per booking. The mix of revenue per booking usually takes into account contract renewals that we may have, what we were just commenting with Neil previously, the mix between global versus local and the mix between air and non-air and then the upselling of technology and the mix of countries. So depending on the weight of where it's coming. So I think that when we take all of that into account for 2019, as most of the contract renewals annualize, you should expect a broadly stable booking fee or slightly inclining. And then the ForEx will have an impact, because in 2018 the ForEx has been quite different between the first half of the year and the second half of the year. So in general terms, stable to slightly upwards depending on how the ForEx imply.

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

Okay. Let me try to talk a bit more about the GDS. I mean, as you know, the evolution of the GDS is the result of many different effects. One of them is traffic. And yes, traffic has decelerated, but it still is a strong -- I mean, 6% is the projection of IATA. But okay, it's less than what we have seen in 2017 and in 2018. So there has been clearly some deceleration, not dramatic, but yes, it impacts. The second one is disintermediation. So some disintermediation has happened during 2018, mainly, I would say, in Western Europe as a result of the charges of the airlines. If we exclude that, we have not seen impact of disintermediation. And for 2019, this should -- I mean, since the -- usually you have an impact when you start with the surcharges and then it stabilizes. Of course, we need to see how things evolve in the future and what are the actions that the airlines may take. But our assumption is that if something happens maybe in Western Europe, but the GDS industry will not see an acceleration of disintermediation. And then, of course, the third impact could be whatever happens in so many specific areas of the world. I mentioned Western Europe usually offset by the other parts of the world. And in this case, due to the size, we have mentioned the case of India, very difficult to predict. Part of the reason -- or the main reason really, I mean, there was some deceleration in the regions, but it was small. It was pretty much in line with traffic. The big difference we have seen was, as I mentioned in my report, in Asia, it was mainly in India market that has been growing extremely high, and it was even negative at the last part of the year. We don't expect that to be negative. We expect to recover, but how this is going to evolve from traffic first and GDS second point of view is a little bit more difficult to predict because, of course, if at the end the full-service carriers are not growing and the growth goes to pure low cost, all this mix may have an impact. But I mean, India is a very big and important market, and in the coming years, we expect that the growth will be there. And of course, this growth in our IT business is positive because we have the majority of the airlines on that part of the world -- on that country, many of the growth airlines are with us. But in terms of the GDS, the mix may have an impact, and this is why we have provided you with this specific situation. So I will say we expect -- yes, we may expect some recovery. If things go normal, the traffic stays in the 6%, the situation is like we have seen in 2018. Of course, one specific quarter or whatever happens in one specific country may have an impact, up or down. But overall, this is a business where we still believe in the medium term should grow, as we mentioned before, in the mid-single digit. This is what we have got in the last year. This is what we believe can be achieved with the factors that I previously mentioned. And 1 year could be a bit lower depending on the traffic. 1 year could be a little bit higher depending on traffic, disintermediation, corporate travel and the specific situation of the airline mix. It was a long answer to try to really give you some color, Stacy. And yes, I'm sorry, on the third one, is airport IT. I mean, look, the competitive environment has not changed. But we continue delivering to all our customers. I mean, still the business is growing very healthy. Of course, not the size that now we have for our hospitality business but growing well. The question we are having internally is the growth is very good but still is small is, okay, what can we do to really bring that business to something that is bigger than what it is today. And this is the debate. But with the current structure that we have, with the customers that we are signing, the business is growing very healthily and adding additional growth to the IT business. So no changes in the competitive environment. We have developed the majority of the functionalities that we have. So the main investments today are more on the implementation front with some of the customers that we have announced during many years. Some of them are already implemented. Some of them in the process. So, so far, so good. But again, after we have now a sizeable business in hospitality, we will need to debate how this business can also represent an important part of Amadeus future.

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

A quick follow-up. Are you suggesting M&A could be appropriate way to extend that?

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

M&A, I mean, look, we have always said that both organically and M&A, we will look into that. I believe that both could be needed. Especially, you don't want to wait 10 years in some of the areas, but in the airport space -- or in any other space, I mean, what is important is what is available if the price is reasonable and we can justify the value. So it's a matter of finding the right space. It's not that we -- what I said before, we are having something in the pipeline. It's not the reality. It's more strategically that we have been able to develop good functionalities for airports where -- but I mean, there may be other areas that doing some M&A or doing some investment could bring us to something which is more innovative because we all still know that in the area of the airport flow of the passenger, there are areas that can be improved. And therefore, if we can -- we are able to really optimize the relationship between airlines and airport, the flow of the passenger there and being part of the technologies and evolution that is happening, that's what we will need to be. So M&A, yes, by all means, could be a possibility and also some organic investment if this is part of how the opportunities we see.

[Operator]

The next question comes from Matija Gergolet from Goldman Sachs.

[Matija Gergolet, Equity Analyst]

Three questions from my side. Actually, I would like to get a bit more color on the Hotel IT pipeline. Basically, I think the largest -- sorry, the last large contract signed there was Premier Inn. So have you really seen anything really material in the last 12 months? But you have acquired now TravelClick. How do you view the pipeline for 2019? Or is it going to be more a year of integration and building up product? Or would you expect or should we expect to also see some material signings over the next 12 months? Second question would be -- actually, 2 for Ana. One is just on FX, just to clarify the impact on an EBITDA level for the full year. It seems to me, from what you're saying, mid-high is like a 2%, 3% negative impact from the FX. Can you just confirm if that's not broadly correct? And then lastly, on the passenger boarded guidance for this year. Just wanted to double-check that the increase, the inorganic increase, does not include Air Canada, which I think is only coming in 2020 with some 50 million passengers.

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

Okay. Let me start with hospitality. Through -- when we talk about the status on the PMS, we have communicated about IHG and Premier Inn. Of course, we continue the focus there. Hopefully, we will be able to announce customers. But as you know on IT, it's always quite binary. Until the moment that you have a contract signed, it's very difficult to talk. But what I can tell you is that we are debating this with customers as we speak. However, I mean, of course, in the past, we focused a lot on this part of the business. Now with TravelClick and a new market, I mean, the size of the business is pretty big overall. So it will not be enough. Of course, these big deals are important. But what is important is that on an ongoing basis, the business continues signing and providing growth because this will not be enough. If we announced just a deal, fine. It's always good to really have a positive pipeline and continuous contract. But in the other 2 areas, it's important. As we speak, we are continuously signing contracts. I mean, I was, before the call, talking to the responsibles of hospitality, around the performance of January. So this is continuously ongoing. What is true is that we need to find ways to provide you, and we are having an internal debate how to provide you, better information about the evolution of this business, which is not just based on these big deals or even big deals for CRS and PMS because in the area of sales and catering, we have signed quite relevant deals in terms of size for some big chains that we are not being so active in communicating to you. So my answer, final summary is yes, we expect to really sign contracts for the CRS, the high-end CRS and PMS in the coming months. And at the same time, we aim to continue driving the growth continuously on the areas, okay, that we have acquired on the business needs to grow, otherwise this double-digit growth that I explained before ultimately will not be real.

[Ana De Pro Gonzalo, Chief Financial Officer]

And in terms of the PBs, yes, you're right, kind of it's starting in 2020. So not included on the end of 2019. And ForEx, the impact on revenues is around the 2, 3 points that you rightly pointed out and a bit less in EBITDA but still significant.

[Operator]

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

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

So again, thank you very much for joining the call and for your interest in the company, and looking forward to talking to you in the first quarter results. Thanks a lot.