Amadeus IT Group SA

MAD:AMS

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to the Amadeus Full Year 2019 Results Presentation Webcast. [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, and welcome to our 2019 results presentation. Thank you very much for joining us today. As always, Ana, our CFO, is here as well, and she will walk you through the details of our financial performance. I will focus on our most recent developments. We start the presentation. Before we review our performance, let me do a brief recap on the year. In 2019, our business was impacted by the important slowdown we saw in the Indian aviation sector and the Indian GDS industry. Both industries had grown double digit in 2018, that is around 20% or 15%, respectively, growing now in 2019, to single digit, 4% and negative growth, minus 15%, respectively. In 2019, we also saw weaker global trade activity, political and geopolitical tensions, the 737 MAX grounding and a higher than usual number of airlines ceasing operations. It has resulted in global traffic growing 4.2%, which falls below the 5.5% average growth rate of the past 20 years. Within this context, as you have seen, Amadeus has delivered a strong set of results. Furthermore, we removed the 2 large quantifiable impacts caused by India and customer airlines that have filed for bankruptcy. Throughout the year, our TA air bookings grew 2.7% in 2018 compared to our reported flat growth. And our PB suspended by 8.5% compared to our reported 7.5% for the year. These 2 effects combined will have translated into 2 incremental points in revenue and EBITDA growth. Our outlook and expectations for the beginning of the year, discounted a stronger industry backdrop than what we have seen in 2019. We have more than delivered on our 2019 outlook due to higher-than-expected market share gains in distribution, pricing expansion in distribution, our growth in payments and the growth delivered by hospitality, which is a testament of our progress to date on our diversification strategy. We move on to our overview of the results. We ended the year with a positive evolution through the fourth quarter delivery in 2019, revenue EBITDA and adjusted profit growth of 12.8%, 10% and 13.4%, respectively. These results excludes nonrecurring TravelClick acquisition-related costs and PPA adjustments. The results were supported by the operating performance of distribution and IT Solutions segments, TravelClick's acquisition done on October 4, 2018, and positive foreign exchange effects. Our evolution took place in the context of a sound financial structure, we leveraged closing at 1.23x last 12 months EBITDA, supported by free cash flow generation of EUR 1,044 million, an 8.1% pretax increase relative to 2018. By segments in distribution, our travel agency air bookings increased, as I said before, by 2.7%, excluding India, or -- were broadly flat, including India. Despite a weak GDS industry throughout the year, our volume evolution was announced by steady market share gains in all regions, except for Asia Pac, driven by the situation in India. Our global competitive position expanded by 1 point in the year, excluding India. In 2019, distribution revenue grew 4.2%, resulting from volume, average revenue per booking expansion and double-digit growth in payment distribution. As I was saying before, in 2019, had we not had the situation in India through volumes, our revenue growth in distribution will have had 2.5 incremental percentage points of growth. In IT Solutions, revenue increased 26.2% in the year. This evolution resulted from a high single-digit growth in Airline IT Solutions, driven by 7.5% U.S. further growth impacted, as I mentioned, by airlines customer ceasing operations during the year, absent which, our PBs will have experienced 1 incremental percentage growth. The growth in Airline IT was complemented by continued expansion in our new businesses, delivering double-digit revenue growth, plus the consolidation of TravelClick further boosting our growth. A consistent and focused investment in technology over the past years has been key to our success. In 2019, R&D amounted to 17.3% of our revenue, and it was dedicated to supporting our mid- to long-term growth. Let's now look at our developments by segments in a bit more detail. On Slide 5, in Distribution, during the fourth quarter, we signed content agreements with 17 carriers, including easyJet and reached a total of 47% in the year -- 47, sorry. In January, we were pleased to announce a new distribution agreement with Air India. Through this new agreement, travel sellers connected to Amadeus in India have access to India's international content, travel sellers connected to Amadeus outside of India have access to Air India's full range of content. We see this new partnership a steppingstone to further broaden our relationship with the carrier. In February, we were also pleased to announce a partnership with Japan Airlines, where the airline will be integrating its NDC content in the Amadeus Travel Platform using Amadeus NDC Connect and will also be implemented Altéa NDC. Let me remind you that Altéa NDC allows airlines to consistently distribute and service new content of first NDC connectivity across their direct and indirect channel enhancing the retail capabilities. Amadeus NDC Connect is a solution specifically designed for Altéa Airlines to make their NDC content seamlessly available for travel agents and sellers worldwide and on our world global distribution system, the Amadeus Travel Platform, a platform which brings together content from any source. Additionally, our merchandising solution for the indirect channel continued to get interest from customers. And at the end of the year, we had 157 contracted airlines for Amadeus Ancillary Services and 101 for Amadeus Airline Fare Families. In terms of our performance and the industry context, in the year, the travel agency air bookings industry was broadly flat, relatively -- relative to 2018, excluding India, and declined 0.9%, including the market. In the last quarter, the industry declined 1.2%. All regions supported industry declines, except the North America and Central, Eastern and Southern Europe. Western Europe, industry deteriorated in the fourth quarter, impacted by macroeconomics effects, bankruptcies and strikes, particularly affecting markets such as United Kingdom, Germany, France and Italy. The industry in Asia Pac continued to report negative growth, impacted by a number of effects, including the India situation and the fires in Australia. Middle East and Africa and Latin America contracted in the quarter, facing adverse geopolitical tensions in several countries such as Lebanon, Yemen, Chile and Bolivia. With regards to our own performance, Amadeus air booking grew 1.3% and 2.7%, respectively, in the quarter and the full year period, excluding India, or declined by 1.5% in the fourth quarter and were flat in the year including the market. As you know, our Asia Pacific bookings were impacted by Air India's cancellation of our distribution agreement at the end of 2018 from -- by the succession of operations of Jet Airways in April 2019. In the year, we outperformed the industry evolution supported by market share gain across regions, except for Asia Pac. Excluding India, our competitive position expanded by 1 point in the full year and by 0.6 in the quarter. Amadeus bookings reported high growth in the year in Latin America, Central, Eastern and Southern Europe and most notably in North America. Bookings in Western Europe reported growth on the back of produce market share gain and despite the industry contraction. Bookings in Asia Pac and Middle East were impacted by the industry booking decline and sold our contraction. Then our bookings grew by 5.1% in the year with hotel and car rental bookings together delivering a double-digit growth rate. We move on to following page, IT Solutions or Airline IT. Firstly, as you may know, we are pleased that Air Canada completed its migration to the Altéa inventory and reservations modules and also implemented Amadeus Anytime Merchandising and Amadeus Customer Experience Management. Additionally, during the fourth quarter, our Airline IT customer base continued to expand. TAAG Angola signed for the full Altéa Suite and Amadeus Revenue Integrity. Norwegian signed for Amadeus Passenger Recovery. Korean Air contracted for some of our disruption-related solutions. Chinese carriers, Sichuan Airlines and Xiamen Airlines, both signed for additional functionality within our digital suite. Chinese and SriLankan Airlines contracted for Amadeus Group Manager. Russian carrier, S7 Airline, contracted and implemented Amadeus Loyalty. Fiji Airways contracted Amadeus Revenue Management, Revenue Accounting and Revenue Integrity amongst others. We renew and expanded our longstanding technology partnership with the Lufthansa Group. In addition to the renewed passenger service systems, the Lufthansa Group contracted an array of new services, including shopping solutions amongst others. In January 2020, Amadeus completed the acquisition of Sky Suite, the airline network planning software business of Optym. Optym and Amadeus have been partners for more than 3 years. The Amadeus Sky Suite will be further integrated into the Amadeus Airline platform, including software for network optimization and simulation, frequency and capacity planning, network planning and forecasting and a flight scheduling development platform. In the quarter, our passenger boarded grew by 8.9%, driving 7.5% growth in the full year. The full year growth resulted from organic PB growth of 6.4%, the positive impact from customer implementations, including S7 Airlines, Maldivian, Cyprus Airways and Aeromar in 2018 and Philippine Airlines, Bangkok Airways, Flybe, Air Canada and Air Europa in 2019. The negative impact from airline customers ceasing or suspending operations, as I was saying before, we had an unusually high number of airline bankruptcies in the year, including Germania, bmi Regional, both in February 2019; Avianca Brasil in May; Avianca Argentina in June; and Thomas Cook U.K., Aigle Azur, Adria Airways and XL Airways France, all in September 2019, and the demigration of LATAM Airlines Brazil from our platform during the second quarter of 2018. Excluding customer airlines ceasing or suspending operations during the year, Amadeus' PBs grew 10.5% in the fourth quarter or 8.5% in the full year period. Regarding Airport IT, Perth Airport, a customer of our Airport Common Use Service since 2015, signed for ICM's Hybrid Auto Bag Drop units and check-in kiosks, along with ICM's local platform to serve the kiosks. Perth Airport will also implement Amadeus Passenger Verification. We'll continue to grow our footprint in the U.S., Nashville International Airport, Daytona Beach and Fort Lauderdale contracted for our solutions. For a recap on hospitality, we move to the following page. We continue to grow our customer base to deliver solid growth. The chain, Coast Hotels, contracted TravelClick's iHotelier and business intelligence solutions, which will be implemented across its most -- almost 40 properties. Welk Resorts Group opted for Single Media Agency for 3 of its properties. London-based hotels and Giles London also contracted the same solution. World Trade Center, Boston & Seaport Hotel and the Australian chain Crown Hotels and its 7 properties renewed their contract and upgraded to the most advanced version of our Amadeus Sales & Event Management solution. In terms of our performance in 2019, our revenues in Hospitality expanded at a double-digit growth rate, more precisely in the mid-teens. And this double-digit growth is delivered, excluding TravelClick and by TravelClick stand-alone. This solid performance resulted from double-digit growth at each of our Hospitality business lines, reservations, property and guest management solutions, sales and catering and service optimization solutions, media and distribution and business intelligence. Today, we serve over 49,000 unique properties globally across more than 170 countries. I will now turn over to Ana for the details of our financial performance.

[Ana de Pro Gonzalo, Chief Financial Officer]

Thank you, Luis. Hello, everyone. Please turn to Page 9. I am now going to walk you through the details of our evolution, excluding, as Luis has mentioned before, the TravelClick nonrecurring acquisition effects. These are, firstly, acquisition-related costs amounting to EUR 9.4 million and EUR 19.5 million in 2019 and 2018, respectively, as well as secondly, the PPA effects that reduced revenue and EBITDA in 2019 by EUR 7.8 million and EUR 3.6 million, respectively, and in 2018 by EUR 8.2 million and EUR 7.7 million, respectively. If you want more detail, you have them in Section 3.1 of the 2019 Management Review. In 2019, group revenue grew by 12.8% in the year, supported by the positive performances in Distribution and IT Solutions as well as the consolidation of TravelClick. Revenue was also impacted by positive ForEx effect. I would like to emphasize on what Luis said before, after the situation in India, an airline customer bankruptcies in 2019, our group revenue growth would have been enhanced by almost 2% points of growth through higher bookings and PB growth. Distribution revenue grew by 4.2%, resulting from booking volume growth and expansive average revenue per booking, driven by a positive booking mix impact from higher weights of both global air bookings and hotel bookings over our total bookings and customer renegotiations, plus a positive evolution of payment distribution, which deliver a high double-digit growth rate in the year. Revenue in IT Solutions increased by 26.2% as a result of a high single-digit Airline IT revenue growth, the double-digit growth delivered by our new businesses, excluding TravelClick and the TravelClick consolidation. IT transactional revenue grew by 9.1%, resulting from higher PB volumes and an expansive average in recurring revenue, supported by upselling, including solutions such as revenue management, disruption management and merchandising, amongst others. And despite the negative impact from the higher way of low-cost and hybrid carriers in our customer base. Airline services and Hospitality IT revenue grew by 87.3% or at a double-digit rate, excluding TravelClick, on the back of higher revenue from airline services and double-digit growth delivered by Hospitality IT. To review our contributions by segment on Page 10, as you can see, we have experienced contribution growth in absolute terms both in Distribution, which is growing 1.8% and IT Solutions, with an increase of 16.7%. ForEx effects had a positive impact on our segment contributions and negative impact on net indirect cost. In Distribution, we have experienced margin dilution, which mainly resulted from a unitary incentive cost expansion, consequence of the competitive pressure and a strong growth delivered by payment distribution, a lower-margin business. In IT Solutions, margin dilution was impacted by the TravelClick consolidation, a lower capitalization ratio due to the project mix and the strong new business unit expansion, faster than the Airline IT. As we have discussed in the past, new business units have a lower margin as of today. Finally, net indirect costs increased by 6.6%, driven by increased resources in our corporate functions to support business expansion, the addition of TravelClick, indirect costs and negative foreign exchange effects. To share some color on our fixed cost, personnel and other OpEx together increased by 12.2%, highly impacted by the consolidation of TravelClick. Our workforce increased by 11% or 4%, excluding TravelClick. As you know, a large part of this is R&D, as we continue to invest significantly in our programs. Please turn now to Page 11. In 2019, our EBITDA grew 10% at EUR 2.2 billion, driven by the positive performances of Distribution and IT Solutions, the TravelClick consolidation and positive ForEx effects, partially offset by an increase in the net indirect cost. India and airline customers impacted our EBITDA growth this year. If we were to exclude these effects, our EBITDA growth would have been almost 2 percentage points higher in 2019. EBITDA margin in 2019 was 1 percentage point lower than in the previous year, impacted by the consolidation of TravelClick, a lower group capitalization ratio and double-digit growth from our payments distribution business, a lower margin activity. Excluding these effects, EBITDA margin was broadly stable. Overall, we had a lower capitalization ratio in 2019, 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 P&L expense and 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 even over the years, determining a higher or lower level of CapEx and operating expenses in any given quarter or year. In addition, the natural evolution of projects may imply also changes in the level of capitalization and therefore, in the expense recognition. Below the EBITDA line, D&A increased by 15.8%, driven by a 14.6% increase in ordinary depreciation and amortization, resulting from previously capitalized R&D costs, which has started to be amortized during the period and also by the TravelClick consolidation impact. Impairment losses amounted to EUR 29 million and were mostly related to the specific developments and implementation efforts carried out for customers that have either canceled contracts, suspended overseas operations and secondly, investments related to new solutions or technology, that did not or will not deliver the expected benefits. In 2019, the net financial expense increase to EUR 59 million or 8.9%, mainly due to a higher amount of gross debt outstanding, driven by the TravelClick acquisition. In 2019, our income tax expense amounted to EUR 322 million, 7.1% lower than in the previous year. This income tax rate for the -- the income tax rate for the 2019 year was 21.9%, a decrease versus the 25.2% reported in 2018. This decrease was mostly driven by recent changes in tax regulation, mainly in France, resulting in an increase in past deductions associated with our R&D. The combination of growth in operating results and in financial expense, together with a lower tax expense resulted in a 13.4% increase in our adjusted profit for the year 2019. Adjusted earnings per share was EUR 2.95, 13.3% higher than in 2018. Turning to Page 12. In 2019, our investment in R&D increased by 10.1%, up to EUR 965 million, impacted by the TravelClick consolidation effect. R&D investment represented 17.3% of our total revenues. Our R&D spend, as you know, is centered in the 3 main categories: product development, which accounts for 50% of R&D investment and which, in 2019, continued to be basically for Amadeus Suite for airlines such as Amadeus Altéa Suite, which includes enhancing shopping, retailing and merchandising tools as well as revenue management solutions; the Amadeus Aeromar Suite, which includes passenger service systems and payment solutions, amongst others; as well as the Amadeus Digital Experience Suite, including digital, commercial strategy. We also invested in our portfolio for travel agencies, meta search engines and corporations, including efforts linked to our cloud-based new generation selling platform and in our Hospitality platform, amongst others, as well as expanding the resources devoted to all of our newer business areas. The second category is customer implementations, which account for approximately 30% of our total R&D investment. During 2019, we continue with our implementation words related to PSS, including Air Canada and our upselling activity as well as customers of our Hospitality, Airport IT and Payment businesses as well as travel sellers and corporations. And the third category is internal technological projects, which amount to almost 20% of the total R&D investment and focuses on system performance optimization, cloud-based architecture and application of new technologies as well as internal digitalization and transformational projects to better integrate newly acquired businesses and enhance our performance. CapEx is very linked to our R&D investment. Typically, 75% to 80% of our CapEx is capitalized R&D. And as you know, we only capitalize when there is significant visibility as to future value generation. Other than capitalized R&D, 10% to 15% of our CapEx generally relates to tangible assets, made in relation to our data center in Erding. And finally, we also invest in contractual relationships. In 2019, CapEx increased by 2.5%, up to EUR 736 million, which represents 13.2% of the revenue. The growth in CapEx was driven by the increase in capitalized R&D investment, TravelClick consolidation effect and higher signing bonuses paid, which are lumpy by nature. In turn, CapEx in property, plant and equipment declined in the year relatively to 2018. In 2019, we generated free cash flow of EUR 1.045 billion, 5.7% higher than in 2018, impacted by an increase in tax rate in the first quarter of 2019. Pretax free cash flow grew 8.1% as a result of EBITDA growth, a contained CapEx growth, working capital outflows and higher interest. The change in working capital deteriorated by EUR 72 million versus the previous year, excluding TravelClick's nonrecurring acquisition-related effects, driven by a number of effects. Being the most important ones, payments amounting to EUR 34 million that starts from January 2020 to December 2019 due to the scheduled changes in our accounting and payment systems during January 2020 in several countries, which interrupted the payment flows for a period of time during the January mode in order to prevent those, advanced payments related to customer renegotiations and timing differences in some payments and collections, partly related to VAT reimbursement. Our net debt amounted to EUR 2.7 billion at the end of December, with the leverage amounting, as Luis has mentioned earlier, to 1.23x net debt EBITDA. And with this, I'm passing now the word on to Luis.

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

Okay. So let me share with you our views on 2020. This year, as you can imagine, doing the outlook exercise is extremely difficult. It is too early to understand the direction of our severity of the coronavirus outbreak in China, know what its impact on global GDP and the traffic is going to be. In the next slide, we'll try to provide some color on the outbreak and onward. We believe, is a one-off impact. But let me take you through what we think our outlook would have been absent the coronavirus for you to understand the underlying business situation. It were to do our outlook exercise based on the pre-virus 4.1% IATA initial traffic growth projection for 2020, which was a scenario of continuation from 2019. We have expected Amadeus to deliver distribution revenue growing at a solid mid-single-digit rate based on an improvement from the disintermediation effect we saw from India in 2019, a positive industry effect in Japan from the gradual dissolution factors, plus continued Amadeus lower market share gains, enhancement in our new agreements with Air India and Japan Airlines. IT Solutions revenue growing in the high single-digit growth rate range, having TravelClick and AirAsia rise resulting from Airline IT organic volume growth of additional volume for the 2019 and 2020 new customer implementations as well as growth from upselling more solutions. Also double-digit revenue growth from our newer business areas. Excluding the impact in 2020 from customer airlines ceasing operations in 2019, we'll have expected IT Solutions revenue growth to be low double digit. Arriving at group revenue growth in the solid mid- to high single-digit growth range. In this scenario, we will expect a continued dilution of margins in distribution in the range of what we saw in 2019, driven by competitive dynamics and distribution payments growth and slightly dilutive margins in IT Solutions as a consequence of the expansion of margins in Airline IT and the faster growth of our newer business areas within IT Solutions. Together, a safety solutions first. Highest margins can grow faster than distribution, resulting in broadly stable margins at group EBITDA level. Now if we move to the next slide, as I was saying before, it is impossible to quantify what the coronavirus impact is going to be in 2020. Last year, with the India situation, we had a response that was easier to quantify. With the current situation, this is a broader situation, and it is a risk that goes beyond one country and the airline industry. As you know, China and the APAC region are very important to global GDP and travel. We do expect the coronavirus to have a negative impact on our traffic and the GDS industry during the duration of the health episode. The duration of this health situation will drive the size of the impact. However, we also expect this negative impact to be followed by a recovery and, therefore, to be a one-off episode. And us, what is most important, the health situation hopefully improves and soon. IATA released just last week, a revised new air traffic projections, impacted by the coronavirus effect based on the past, not necessarily perfect 2003 SARS precedent.It pointed to a minus 0.6 traffic contraction for 2020, the first global traffic contraction since SARS. Please remind that this forecast includes China. And for us, it should be more than linked as we are not exposed directly to China. Let's view what happened in 2003 with SARS. At the heat of the outbreak in May 2003, only passenger kilometers of Asia Pac, airlines were trending circa 35% lower than their precrisis levels. Overall, in 2003, the loss of confidence and fears of global spread impacted both business and ease of travel to, from and within the region, resulting in Asia Pac Airlines losing 8% of annual air [ tickets ]. The 2005 and 2013, Avian flu immerse episode had a much milder and short-lived impact and air travel grounded quickly as fears of global spread of virus eased. In the past, the airline industry has proven quite resilient to shocks, including pandemics, as the chart on the slide shows. Previous disease outbreaks have peaked after 1 to 3 months and recover preoutbreak levels in 6 to 7 months. With regards to the GDS industry, during the SARS outbreak in 2003, it affected the first quarter and the second quarter and in total, over 2003, the global GDS industry deteriorated its growth by 2 points in the year. As you can see in the chart, pre-SARS in 2002, the GDS industry had declined 4%. It was the after math of September 11, that was the Iraqi war, a financial crisis and other events. Into 2003 in quarter 1 and in quarter 2, the EDS industry growth deteriorated further by 6, 7 points to improve significantly in quarter 3 and in quarter 4 and to end the year at minus 6% GDS industry. Please note that in 2004, growth was strong with the GDS industry growing 5.5%, an important swing from the minus 4% in 2002 and the minus 6% in 2003. If we move to the next slide. Right now, we have mid-February volume data, which includes only 3 weeks of running coronavirus impact and it is distorted by the seasonality of the Chinese New Year. But it is probably too early to be used, but it seems to confirm broadly the deceleration IATA has announced. At the moment, over these past days, we are observing the underlying growth of the GDS industry to be trending between 10% and 15%, negative points below pre-virus levels. We are currently observing higher EDS industry declines, but this is impacted by the high number of cancellations we typically see at these earlier-stage of a health shock.Later, consistent with prior disruptions to travel, we expect to see a rebooking of deferred travel. With regards to air traffic, despite rates ups in current month IATA data, in February, we can say that we are observing between minus 7% and minus 10% blended traffic daily declines in organic passengers boarded by airlines using both our platforms, Altéa and New Skies.As I said, we do not have enough data points, and it is too early to tell how this will evolve or how long these trends are going to last. If the traffic were to end the year from the level currently forecasted by IATA of minus 0.6%, which we estimate that, for us, not being exposed directly to China, it results in a projection closer to plus 1% traffic growth rate in 2020. We will expect distribution revenue to not grow and remain broadly flat during the year. IT Solutions revenue also growing slower in the mid- to high single-digit growth range as we foresee airlines also facing a challenging environment to be less prone to upselling. However, we will expect less of an impact on our Hospitality business, which is more domestic North America focus, driving up group revenue growth in the low to mid-single range. In terms of margin, in this scenario, we will try to contain any result in EBITDA margin dilution with efforts to control costs tightly. This will be the evolution of the year. The distribution by quarter should be different with a more acute negative impact for the first half followed by air recovery, where we see a V-shape evolution within the year as we saw with SARS. In the first quarter, more competitively and based on what we are seeing today, we expect of our first quarter group revenues to decline at a low single digit pace. But this is, of course, depends on the evolution in March and whether the trend in March is different from what we are observing today. Our bookings on PBC that we have here today are better than the trends we are seeing today, and I mentioned the underlying figures given the pre-virus performance in January was good. And that in terms of PBs, we benefit from recent new customer migrations, such as Air Canada. We do not consider in this our outlook. But I am sharing with you a scenario-based on IATA and SARS, we don't yet know exactly how the outbreak will develop. We are monitoring the situation closely, and we'll be providing you with an update on how things evolve quarterly. From a cash flow perspective, we also expect an improvement in taxes and in working capital dynamics that combined to deliver free cash flow growth above EBITDA growth. In terms of CapEx, we cannot provide a specific rates at these states as we are protecting our long-term value-generating initiatives, mission-critical investments and are being more cautious with other efforts. And depending on the evolution of the outbreak, we will evolve our investment plan accordingly. In 2020, we aim to maintain a leverage ratio between 1 to 1.5x and an ordinary payout ratio of 50%. Beyond the current situation with the coronavirus outbreak and into the future, we are confident that our innovation efforts, the strength of our business and our diversification in these verticals position us well to continue to deliver growth, profitability and cash generation. Now to finish our presentation, I would like to confirm that we'll be implementing a new segment reporting a scheme starting in the first quarter of 2020. And sometime in advance to that, we'll be inviting you to our webcast to walk you through the details of this new segment reporting. The details of that will be published and circulated in due course. We have now finished the presentation and are ready to take any questions you may have.

[Operator]

[Operator Instructions] The first question comes from Julian Serafini from Jefferies.

[Julian Alexander Serafini, Equity Analyst]

So Luis, I want to ask a follow-up a little bit on the coronavirus issue. So I guess, the first question is, can you share on the Airline IT side, given that you have a lot of exposure, I think, with Navitaire to a lot of low-cost carriers, I think, especially in Asia, are you seeing a bigger decline in the Navitaire business than the Altéa carriers? I mean could you give us a bit of a sense of like which of the 2 product lines maybe seeing a bit of a bigger impact?

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

It is more regional than really taking Navitaire versus Altéa. And yes, Navitaire has an exposure in Asia. We are also having Navitaire portion in Asia with Altéa and definitely, the impact is bigger in Altéa, then when we talk about the low-cost carriers in North America, which is a market that is up to today, has been less impacted, and it has been higher. I mean in North America, the impact for the time being has been mild. And in Asia, of course, we had a big impact. So the mix effect has weighed more than the parts of Navitaire versus Altéa. Of course, you need to consider the underlying growth of both businesses and historically, the low-cost carriers have been growing faster. But when we compare the pre-virus levels and the impact of the coronavirus, you have different impacts per region. And of course, Asia has been the market up to today more impacted.

[Julian Alexander Serafini, Equity Analyst]

Okay. And then on the same topic, I guess, just on the GDS business as well. I mean you talked about how much of the business is down, right? But I guess, can you share a little bit of details in terms of are you seeing a bit of a bigger, much more in domestic, regional or international? I mean I'm trying to get a sense of like which part of the GDS business is seeing more impact. I would expect to be international bookings above all else, but I'd be interested to get your take on that.

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

I mean, again, it's more regional, what we follow in terms of the details. So, I mean, we had a number of cancellations. Of course, when the stocks happen, and then -- so we have a cancellation rate that was higher, specifically with some specific days. I mean you can imagine, we follow the last 3 weeks. And then, yes, I mean, of course, it's more international. It's more related to Asia than the domestic traffic, I mean, as you could imagine. But again, it's based on the following figures that changed quite a lot. The reality is what it is. I mean some regions of the world are much more impacted than others. And Asia, not just China, but, of course, you can imagine, Japan, Korea, all these markets have been heavily impacted more on the bookings than on traffic for the time being. I mean there is always a delay between both, as I shared with you the figures. I mean it could be that the bookings, people are waiting, and then we'll be done or that the reality is that the traffic may decrease based on the bookings that we have. But what we have seen is the figures I mentioned to you, I mean, depending on the days and the cancellation and the regions. But the figures I mentioned before is what we have in our statistics for the last 3 weeks.

[Julian Alexander Serafini, Equity Analyst]

I appreciate that. It's a moving target in Turkey.

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

Yes. As you can imagine, it's not so easy. No.

[Operator]

The next question comes from Stacy Pollard from JP Morgan.

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

Just looking -- I'm sure you saw Sabre's results a couple of days ago, and they had called out some impact. I guess the relevant point was they were saying their impact to revenues was one number and the impact of the EBITDA was sort of 2x that. So I was really wondering, do you think that anything similar to -- would be the case for you? Or rather would you go to the opposite direction? Can you discuss what levers you can pull to kind of adjust and maintain your margins? And the second question that's sort of related to that, the CapEx guide for 2020. I know you usually say 12% to 15%, I didn't hear if you'd provided that. It sounds like you're holding off committing for 2020. Maybe that's due to -- you want to use that as a cost lever to pull in the event of coronavirus. So just wondering if there was something there or if it was more underlying?

[Ana de Pro Gonzalo, Chief Financial Officer]

Okay. So let me try to give some color. Basically, we have an impact on revenues due to the decline of the bookings and the passengers boarded which translate into a direct decline on the EBITDA, unless you do something on the cost front. We have 2 kinds of costs, variable costs, basically related to the incentives and distribution fees we have with the GDS business, which will reduce accordingly to the reduce of volumes. And then you have the part of fixed costs which tend to be more fixed. There, you have certain flexibility, as you know, that's why we provide normally our personnel expenses, together with some other operating income because we have variable kind of workforce that we can ramp up and ramp down and that we will be also cautious with any other cost line. That's what Luis was referring to, when we were saying that we will have tight control of our cost over this year. But at the same time, we are also protecting the investments that we have, which will bring growth in the mid and long term. And therefore, we will be monitoring how the evolution of the outbreak is in the following months. And we will try to match both things at the same time. And that's why we are saying we will try to offset in the -- as much as possible, the impact of the revenue loss within our cost, but we cannot give you our CapEx guidance on revenues because, first, we don't know what the evolution of the revenues will be. We have given you a hypothetical case based on the SARS evolution, which is what IATA has provided, but that's not -- it's more difficult for us to give you this year the revenue line, and therefore, also the CapEx, which will be also variable depending on how the outbreaks evolve. So we have an uncertainty. The dynamics is, we will be looking very carefully at our spend this year. We will be trying to protect the initiatives which will bring growth in the mid- and long term. And according to the evolution, we will monitor the situation, and we will be coming back to you on a quarterly basis to tell you how we are saying things. Now in terms of seasonality, you need to take into account that the impact or the measures of containing costs will have a delay from when you start because it's fixed cost, and it takes the time to reduce those kind of costs. So normally, you have a broader, as we said, more acute impact of the outbreak in the first quarter, first half of the year. And then if the situation improves, you will see an even better rebound in the second part of the year because, in theory, this V-shape is to happen, you will have the double benefit of the revenue recovery and the cost measures having a larger impact. But all of this is today, as you can imagine, a mathematical model that will depend on the reality of the evolution of the industry and the outbreak in general.

[Operator]

The next question comes from John King from Bank of America.

[John Peter King, Research Analyst]

Two questions, actually. So on the -- in the Distribution business, obviously, I think both of your main competitors are looking at accelerating the revamp of their technology. I just wonder how -- I know I realize that's fairly recent developments in some cases. But I just wonder whether you think that's -- how that's going to play out in 2020 for you in terms of market share? Is that an opportunity or a risk? Has there been any feedback from any of your travel agencies or airlines around that and what it means? And then the second one was on the acquisition of the Sky Suite portfolio. I realized it looks like that's fairly small, but maybe just talk a little bit about what that gives you. And you're entering there into the operations part of the market. Is that a full suite? Are there more acquisitions or development you managed to do to round that out? And yes, maybe what's the plans for integration with the Altéa core on the Sky Suite acquisition?

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

I mean, look, market share is, there is not really anything new from our point of view. Of course, yes, I mean, this is always an ongoing battle with our competitors. We invest the best way we can in our technology, and they will the do same. And the only thing we can do is try to really provide a good service, having good solutions and keep growing on the market share. This year is going to be a bit more -- I wouldn't say more difficult for us, not for anyone, is the fact that in the current situation until things clarify, it's always the discussions with the customers are a bit different because everybody is more concerned about the volumes, the traffic, the situation done probably about the midterm future, okay? It's more that impact I see currently, but hopefully, this will be fixed, that the fact of the dynamics with our competitors that are not new. For the last 20 years, we have been fighting with different technologies, and we try to be ahead as much as we can. And of course, they will try to be ahead of us if they can, and we are trying to invest in new things. And we mentioned about the investments in NDC in trying to aggregate the content to be ahead, but I'm sure they will try to do the same as they have always done. So I don't see any specific change as far as we know. But of course, with all the respect to our competitors. In terms of the Sky Suite, yes, you are right. I mean we have been working with this company to really provide to our customers a solution on the network planning. It is completely right. We are entering into the operational area. We believe it's an area of interest for us. This is an step we have taken to say we are going to go further than that, in my view, is early stages. Of course, we try to see into opportunities, growth, needs of the carriers, when we talk about the strategy of airlines. And In this case, we have been working with this company for a long time. The solution they have, in our view, is very good, a modern state of the art. And yes, we will try to integrate with Altéa despite the fact, as we mentioned, that due to the situation that we have been working together. We know the company that has been already integration joint work and we were even acting for some time and selling dissolutions for some years already. So we will continue doing so in controlling our technology that is behind that.

[Operator]

The next question comes from Neil Steer from Redburn.

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

Luis, I just wanted to go back to some of your comments about the impact of coronavirus and so forth. Did you -- obviously, I asked it when they put out their numbers last week included China, did you suggest in your commentary that, excluding China, the new revised forecast actually suggest 1% growth to GDS to travel volumes this year?

[Ana de Pro Gonzalo, Chief Financial Officer]

No, we are doing an estimation because IATA, when they provide yearly traffic data, they give it by regions, and they have countries underneath. So when they say minus 0.6%, is worldwide traffic. So what we are saying is that, because we do not operate, as you know, nor with Altéa, nor on the GDS business, the mainline inside China, we estimate that we eliminate the domestic impact of the Chinese market, which, as Luis was mentioning, of course, has been heavily impacted and drags down the total overall traffic because it's a very large market with a very sharp decline. So we've done own estimation, which is if we exclude this, the overall traffic, excluding domestic China, would be declining by -- will be increasing by 1 percentage point. And that's because these are more or less addressable market, that's what we have used in estimation, following the pattern of the SARS in 2003 model, what it would be. Of course, we have done some assumptions because we don't know exactly how IATA estimated the domestic traffic in China, et cetera. So the 1 percentage point is our own Amadeus's internal estimations based on what we have seen in prior years of the weight of the domestic market on the overall IATA figures for a yearly basis, et cetera. And that's why, Neil, we are all the time saying, we are not able to give you an outlook. We don't know yet. It's too early, but we are trying to help you and understand the dynamics of how the model impact -- would impact our results.

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

Okay. And I understand, obviously, that you've then taken -- it's very hypothetical, but based upon the nature of the data that you've got, you seem to be suggesting that if the profile follows what I asked for a forecasting, you could end up the year with low to mid-single-digit overall revenue growth. But presumably, if you've done that modeling, you must have a sense as to what the -- how the leverage would work out or the deleverage, if you like, and what the impact on EBITDA margin would be, notwithstanding your ability to take some costs out?

[Ana de Pro Gonzalo, Chief Financial Officer]

And that's why -- one of the few things that we've said is we will have our leverage between 1 and 1.5x. And what we are trying to say is that, of course, everything will depend on the total evolution. Now what we are saying is -- yes, yes, on the EBITDA, yes, yes. On the EBITDA, it's more difficult to tell you exactly what the impact will be. It will depend on the size of the -- and the length of the impact of the outbreak. And then, as I was trying to explain previously to Stacy, we will do our tighter cost control in order to try to offset as much as possible, the negative impact on revenues. But at the same time, we are protecting investment. Of course, if this was to last longer and be more acute and be even worse, but then you can postpone things and you can monitor and you can have them. And you have always a delay between the implementation of the measure and the actual impact on the profit and loss account because part of it is fixed cost. So that's why we don't know, you will have a higher impact most likely on the EBITDA than on the revenue because we have a normal 40% EBITDA margin, and therefore, the -- what traditionally is operational leverage on the EBITDA line in cases of decline of revenues, you have the opposite, but we will try to offset that as much as we can with a tight control of our cost.

[Operator]

The next question comes from Alex [indiscernible] from Morgan Stanley.

[Unknown Analyst]

Just a quick clarification, if you don't mind. Luis, I think you mentioned some of the kind of run rates of decline you're seeing in both GDS and IT Solutions, thus far in terms of an impact from corona, could you just clarify them again? And then secondly, maybe if we just switch gears a little bit and we did see that Sabre 1, Accor recently, could you maybe comment on some of the kind of competitive dynamics you're seeing on the hotel side as well, please?

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

Okay. The figures I mentioned is that on the GDS underlying growth industry, we were talking. And again, we did some analysis because I mentioned also that we have some days with cancellation, the figures were moving between minus 10% and minus 15%. And in terms of PBs, again, industry growth because then you need to count with migrations and with the movements of PBs, then we were seeing around minus 7%. Again, I mean, even if we are providing these figures to be transparent with you, I mean, these figures are what we have seen in some days. Of course, we need to see how the situation works, okay?

[Ana de Pro Gonzalo, Chief Financial Officer]

It's very difficult to estimate the underlying real -- because you have the seasonality of the new year, you have the weekend. It's only January and mid-February, which there are a lot -- precisely in the Asia Pac region, there's a lot of activities related to the Chinese New Year. So we don't know exactly what we have tried to do to provide you these numbers is to try to distinguish between what is the year-on-year incremental bookings, minus the cancellations, trying to eliminate the impacts on a given day of the seasonality of the festivities and trying to extract an underlying number of the GDS industry. And this number, we believe, is around 10% to 15%. But we don't -- we can't give you an exact number. Of course, some days when there is more negative news, it trends more towards the minus 15%, when there is less or more positive news, et cetera, it tends more towards the minus 10%. And that's because -- and I think we have mentioned that, normally when there is a shock to the system, and this is -- it happens with health, but it also happens when there are earthquakes and whether there is any kind of impact shock to the people. People book, we book, cancel book, we book. So some of the new books may come from previously based cancellations and then you may have cancellations afterwards. So we don't know exactly. The other number that we are giving you is the organic traffic, which is a combined blend between what we see in our low-cost carrier's platform, New Sky, and on the Altea platform. And again, the regions, we see further declines in the Asia Pac region, we see a still strong growth in some of the low-cost carriers in the U.S. market, and the combined is that the organic traffic is trending between minus 7%, minus 10%.

[Unknown Analyst]

Understood.

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

Okay. Going back to the comments of Accor. I mean this is a big market. Each company, Sabre or [indiscernible] or whatever competitors try to really reach their own agreements. As you have seen from the announcement, I mean, Sabre and Accor are also developing a new PMS. As you know, we have already our own PMS. Look, they have their own agreements. We have our agreements. We are very optimistic about the strategy we follow. They have their own strategy with their customers. And that's it. So there is not much to mention. We talked to Accor. Accor is a great customer of us in many areas. So we manage functionalities of Accor in sales and catering and other parts, and they have taken the decision to work with Sabre for some of their modules and develop these PMS together. So again, we compete, we have different views in some areas, different technologies and different approaches to the market, and that's it. But I still believe the opportunities of this industry are huge and it proves in our current performance, which is very positive.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest]

A couple from me as well. Just in terms of the cost measures you're taking, have you actually started anything yet in terms of cutting back on travel yourselves or something on hiring, for instance? And just looking at your costs of sales, our -- people is about and depreciated is about 40% of cost. So I should think it's quite hard to flex that in the short term, should we be talking -- thinking of the sort of 50%, 60% drop through that Stacy alluded to earlier, at least in the early stages of any correction to demand? And then secondly, I think Sabre called out the market being down 3% for distribution in Q4 and your numbers, minus 1.2% for the market. Is there any way you can sort of square clear the circle there on the differences?

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

Let me start with the cost measures, okay, just to give you some color and then Ana covers the numbers. I mean, look, the answer is yes. Of course, when -- I mean, we try to manage the company as much responsible as we can. And when we see the revenues not coming or the bookings decrease, of course, we take measures immediately. It's not the same, as Ana was explaining, if the situation we consider is temporary, which is our assumption, and therefore, we take shorter measures, we delay some things, and then, of course, we keep things that, for us, are important for the future. So we are continuously reviewing that. Then if the situation lasts for long, we are talking about a different situation. So of course, we react quickly. We have taken already internally measures that will be adapted depending on the evolution, really. That's the reality of how we try to manage the situation. If the situation becomes very, very, very bad for whatever reason, then of course, we will take further measures. There is some time, of course, because when the machine is running in any company, you have offers to people, you have travel, you have all kinds of costs, and it takes a bit of time to really stop some of these expenses. Some of them are easier, some of them take a bit more time, some of them are related to projects that need to continue because we have commitments with customers. But there are some of the things where we can say, okay, we are going to delay this project to next year or we are going to delay the project until we have more clarity about how the revenues are coming. So it's quite active in all sense, but the answer is yes, we have already taken. Because, of course, since the end of the month, when these things started to appear, we started to see the impact on our volumes. And therefore, we started very quickly to take measures.

[Ana de Pro Gonzalo, Chief Financial Officer]

And then in terms of the variable cost and the cost of sales, of course, variable costs, as I was explaining previously, will reduce with volumes because they are transaction-based. So we pay incentives to travel agencies and distribution fees to our distributors in several markets, based on the number of bookings that happen in those markets. If those bookings do not come, our revenue decline because we don't get the booking fee, but we do not pay the incentive or distribution fee. Our variable costs will decline with volumes exactly in perfect line, perfect matching with the decline of the revenue. And then what you lose is margin, of course, because we do margin on our bookings, which is why we were explaining that our EBITDA logically has a larger impact than the revenue. But we are -- and then the difference between what Sabre reported in the industry and our own reporting of the industry, I think that we have explained several times that not all the way, we count the bookings, we have information, which comes from the travel agencies on the bookings and how we do, we can see the GDSs and then it depends how you take that information, it depends if you count the group bookings, it depends if you count the cancellations or not the cancellations, it also depends on which regions you are putting. It's very complicated data that we have to date, some people are including on those bookings, since which are booked with air, but it's not air. When we compound -- when we give our own number of bookings, if we don't charge for them, we don't count them. Some other people may count bookings they don't charge for it. So it's a proxy. I think that we have -- ever since the time of our IPO, we go back to the document of the IPO, there was a very long section on explaining how we do this because we know that it's not an absolute number. It's the same thing. Why? If you get the industry, and you put the market share, it does not always match mathematically to the total number of bookings because it's not so easy to come with the views on how the 3 GDSs report and how travel agencies report. So take it as a proxy. What we are saying is that the industry in the last quarter of the year was declining more than in the previous quarters of the year. And I think in that trend, we both agree that the fourth quarter of 2019, in general terms, was deteriorating on GDS industry compared to the previous 3 quarters of 2019.

[Michael Briest]

And just to squeeze in the last one. On the attribute-based functionality at ISG, have you -- can you give an update on where you are and when that project should be completed?

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

Yes. I mean we have continuous releases. So this is being implemented, and -- I mean, we are, as we speak, we continue improving the functionality. So it's been implemented completely. And for how long? I mean we will continuously working with ISG in a different way, of course. But -- okay, we will continue improving our platform, working with ISG to really make a reality of everything that needs to be done, but -- I mean, it's a continuous process of delivering functionalities related to that.

[Operator]

The next question comes from [indiscernible] from CaixaBank BPI.

[Unknown Analyst]

[indiscernible] from CaixaBank BPI. Two questions, if I may? The first one, can you provide a bit more color on the 10% to 15% decline in terms of bookings across regions. And whether in -- even if all in certain regions, you have seen acceleration or stabilization that you is required? Then in terms of -- just to confirm, in terms of -- I understand that you're containing some of your CapEx and OpEx to minimize the impact of the virus on traffic. Is there is it fair to assume that you have enough flexibility to be within the 1 to 1.5x net to EBITDA by year-end '20? And third question related to NDC. Some large airlines, namely Air Europa, reporting a certain and growing amount of traffic through NDC, which independently on the criteria that they use to qualify, according to them, is being channeled through other aggregators that's not incumbent GDS providers. It's true that you have been mentioned that is in transition exists, but as far as I understood, it has been affecting namely local bookings. Can you confirm that this is still your view on this front?

[Ana de Pro Gonzalo, Chief Financial Officer]

Okay. So let me try to -- first, we are beyond the time of our call. So -- and we can see on the screen, that there is still a couple of questions. So if you don't mind, we will end up the call at quarter past two, so whatever time takes into that time, we will take? And if not, as you know, the IRR team is at your disposition to later on, keep on taking as many calls of the -- as you required, and we will be providing as much information afterwards as needed, okay, to start that. Now in terms of color, I think that we have given you as much as we can disclose, more in the Asia Pac region on different days, depending the cancellations, and there's not much more that we can give you about that. We will - don't worry, we will quarterly keep on updating you, and we will see the evolution as we've seen that the outbreak is expanding in different countries. Maybe the evolution is worse or maybe people get used to it, and it improves. As we see it, we will be giving you more color on that. On the NDC, basically, what we have is agreements with different carriers, different travel agencies, and there are twofolded. So we have agreements with the carriers to provide them Altéa NDC technology, which is what enables them to do their NDC differentiated channels and to put the content wherever they want to put it. And then with the travel agencies, we have NDC Connect, which is the -- so that the travel agencies in a single front office, they can obtain the content no matter where it comes from, whether it comes from GDS, whether it comes from NDC and through all of the touch points in all of the selling point. So that's basically the 2 lines of investments that we have: the Altéa NDC for the airlines to operate their NDC strategy, and the NDC Connect both for airlines and travel agencies under distribution to do it. Of course, on the IT side, it's both for the direct and indirect channel. On the NDC Connect side of it, is for the travel agencies and with the airlines on the indirect channel. And with different airlines and with different travel agencies, we have different deals. And as you know, we do not comment on a specific agreement with specific customers.

[Unknown Analyst]

Okay. Just a follow-up. It's not one customer, it's a lot of customers, IAGs and [indiscernible], there are other airlines in Europa to see in. There are channeling more than 10% of their indirect volumes through NDC in the end to reach over -- then to reach 20%, in certain cases, exceeds 20%, so I just wanted a bit more color on it.

[Ana de Pro Gonzalo, Chief Financial Officer]

Okay. The airlines distributes our content through different models and [indiscernible] factors. So basically, I guess, they're referring sometimes to aggregators, which they also have. And on their NDC part of the travel agency, is what we also have is some of these aggregates that we can also pull the content from them and provide it to the travel agencies as well. So that's why if you want to know the percentages of the airlines, so I think that's a question that you have to ask them how much through which of their different NDC connections they are doing with whom. We cannot give you the data of those that are doing things with us, which is what I was referring to the confidentiality of the customers. We do have connectivity with NDC, with carriers and with travel agencies, not all of them, but we are working with them. The most recent that we have announced is with Japan Airlines. And as we get agreement with different carriers, we will keep you posted on how we evolve.

[Operator]

The next question comes from Neil Glynn from Crédit Suisse.

[Neil Glynn]

I'll keep it quick. Just the first one, just in terms of the impact on travel agent incentives. Or indeed, I expect certainly a range of your travel agents, particularly in Asia may suffer some financial difficulties over the next period. If this lasts long enough, just interested in your approach to that, how helpful can you be? And what is your strategy when your door is knocked on potentially? Then the second question, more opportunistically. Again, I'm sure some airlines and hotels in Asia, in particular, may be licking their wounds in the aftermath of this situation. Can you use this period to make more progress with them to structurally improve their revenues to help recovery?

[Ana de Pro Gonzalo, Chief Financial Officer]

We -- to try to explain to you the situation, the airline industry and Amadeus, we have been working together, partnering together for the last 30 years with them, even more. And we, of course, it's not the first time that we have a shock. I think that probably one of the things that airlines and most probably appreciate at this stage is that we are one of the -- probably a few variable costs that they have. Therefore, if there are no transactions, they don't need to pay any fee, nor for the booking, nor for the passenger boarded. So we become a buyable cost. And therefore, as their volumes reduce, our transaction-based business also reduces. And that's why our revenues reduce. So we contribute directly to the -- helping them. Now what you are asking is, is the financial situation of the airlines later on is going to be later. Unfortunately, we've seen airlines ceasing operations in the past, hopefully, they can recover. They also have the fuel, which is also helping them because it's at lower terms, which is a very large fixed cost. They will have their own cost measures. Some of them have already announced. Some of them -- and we have been, as Luis was saying, partnering with airlines across the world for the last 30 years. Now if after this and after this shock, hotels or airlines want to keep on improving on their strategy to improve their business, that comes back to the same underlying business. That's precisely what we've been talking to them for the last time. And therefore, in the long term, we hope that we can continue to help the industry to enhance the way they manage their business. That's precisely what Amadeus is here for, to help the travel industry, to perform better and to serve our customers as much as I can. So I'm not -- I can't give you much color on that one.

[Neil Glynn]

But just to follow-up on the travel agent side, do you expect many of the travel agents you partner with to have issues that might impact your business? Or are you comfortable that the credit risk as such is manageable for you at this point?

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

I mean, look, yes, let me -- okay, even if it is just to -- just Ana take a bit of rest. I mean, look, this -- again, this is an ongoing business. We review carefully when we have deals with our customers, of course, from a financial point of view, usually, I mean, the risk is low. But yes, there may be some travel agencies that may have difficulties. And you have seen some examples in the past. And even in some cases, we decided not to pay signing bonuses for the risk that some selling agencies may bring. But of course, we expect that they will be able to really go through this time. And that's our assumption, but impossible to really say what may happen with the industry. This is a -- there has been always new travel agencies, travel agencies that disappear, travel agencies that go under difficulties. And in this case, could be the case, too, as you are pointing out, and we will follow that. We track that. We have our own risk management committees internally and much more than that, we cannot do and working with them, of course, to support them in this time. So I'm trying to support them when the recovery comes.

[Operator]

The next question comes from Alex Tout from Deutsche Bank.

[Alexander William Tout, Research Analyst]

Just a couple from me. So the Hospitality business, I believe, is mostly on a property basis rather than a PB-type model. So would you expect that to be less impacted from corona, all things being equal? I appreciate it's difficult to quantify numerically. But I mean, it presumably much less than the kind of one for one volumes to revenue impact that you see more on the distribution side. That's the first question. And secondly, are you expecting implicitly much lower than normal GDS disintermediation in FY '20 or disintermediation for you, at least on the GDS side? Because I think you said the -- if IATA forecast ex-China is circa 1%, you could expect circa flat in distribution revenue growth. I mean if you are expecting lower disintermediation, is that just the India and underweight China effects or is there anything else in there?

[Ana de Pro Gonzalo, Chief Financial Officer]

Okay. Let me try and see if I can answer the questions. The Hospitality business, the reason why we were saying that probably is less -- is going to be less impacted, which, again, we don't know. And in this case, we are relying on the experience of the TravelClick and the rest of the members of the team. What we see is that it's more U.S. domestic. And as for the time being, the U.S., we can see that also on the air, has been less impacted. And therefore, what we are trying to explain is that today -- as of today, we see less of an impact. In the future, we will have to see how this evolves. Now on business models, it's true that not all of it is based on transactions. They are especially for the lower end of the properties. Some of them are based on different business models. And therefore, you have a little bit more of resilience there. So that's a combination of both factors that have given us the point of telling you that, as of today, we do believe that the hospitality -- first, we are seeing less impact from what we've seen today and probably will be less impacted by this. Now on the GDS, we have not made much assumptions on this intermediation. We have not been changing because it's very difficult in this kind of situation to predict, and I think Luis has also mentioned the same thing on market share. So everybody today is trying to deal with the current situation. And then whether it's this intermediation, more or less, what is the strategy of the airlines, whether we are going to be able to convince more or less travel agencies to work with us? We will see throughout the year. We have not put anything into the model. We've taken the average disintermediation. We've taken the average traffic. And with that, we have done the mathematical exercise that we've shared with you. No more assumptions. There are already enough of assumptions in that model to start adding how much more market share, how much more days, how much more that. So we've taken the average trend of an average year, which may be wrong or right, and we will have to see as the days evolves.

[Operator]

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

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

Thank you very much for joining us and for your questions. It has been a bit longer than usual, but due the situation, we feel it was right. So thanks again, and we will keep talking to you in the coming months. Thanks.