Amadeus IT Group SA

MAD:AMS

Earnings Call Analysis

Amadeus Boasts Strong Financial Growth

In 2023, Amadeus had a significant financial year, with revenue, EBITDA, and adjusted profit growing by 21%, 30%, and 60% respectively, and generating a free cash flow of EUR 1.150 billion. Their strong performance is set against continued investments in the company's future, closing the year with a net debt of EUR 2.1 billion. Looking forward to 2024, Amadeus forecasts double-digit revenue growth, between 11% and 14.4%, with expectations of maintaining a stable EBITDA margin and a robust cash flow.

Solid Growth and Expansion

Amadeus, in the year 2023, experienced notable financial health, evidenced by a 21% growth in revenue, a 30% increase in EBITDA, and a striking 60% surge in adjusted profit. This robust performance underpinned a substantial free cash flow generation, amounting to EUR 1.150 billion.

Financial Robustness and Acquisition

A testament to Amadeus's solid financial standing is its year-end net debt of EUR 2.1 billion, merely equivalent to its 12-month EBITDA, showing strong solvency. Building on this foundation, dividend payments were resumed, and share repurchase programs exceeding EUR 1 billion were announced. Additionally, the strategic acquisition of Vision-Box in January 2024, a leading provider in biometrics, was a bold move reflecting the company's M&A vigor and slightly adjusting its leverage to 1.16 times pro forma.

Future Growth Trajectory

Moving forward, Amadeus is intent on strengthening its existing businesses, enhancing customer growth solutions, and expanding its market reach to address the holistic needs of travelers. This future-focused strategy is grounded in a pursuit of burgeoning opportunities along with the travel experience continuum.

Optimistic Revenue and Cash Flow Projections for 2024

Forecasts for 2024 are optimistic with projected double-digit revenue growth, estimated between 11% and 14.4%. The company also anticipates maintaining a stable EBITDA margin while continuing to generate robust free cash flow. These predictions reinforce the company's strategy of diversified investment for expediting growth opportunities.

Strengthening Distribution Networks

Amadeus has successfully secured 60 distribution agreements throughout the year, which mark a significant commitment to expanding their distribution network and solidifying their industry relationships.

Booking Growth Despite Challenges

Reflective of the burgeoning strength of the air travel industry, Amadeus secured a 14% increase in booking volumes over the previous year. However, the final quarter's booking growth was tempered to 7%, influenced by some regional turmoil and direct connect arrangements with large carriers. When adjusted for these specific effects, the estimated growth aligns closer to 13%. Moreover, the company’s distribution revenue grew by 17% in the quarter contrasting last year.

Vision-Box Acquisition: Enabling Seamless Travel Experiences

The acquisition of Vision-Box is poised to boost Amadeus’s offerings with cutting-edge biometric capabilities. Vision-Box's technological proficiencies will be integrated to present a complete seamless travel experience from booking to airport arrival, traversing all the way through border control and boarding processes.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to Amadeus Full Year 2023 Presentation Webcast. The management of Amadeus will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions]

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

[Luis Camino, executive]

Hello, everyone. Welcome to our 2023 results presentation. Thank you for joining us today. I'm joined by Till. As usual, I will start with an overview of our most important developments and Till will orate on the key financial details.

We'll start on the Slide 4. Let me start with our financial recap of the year. 2023 has been a solid financial year for Amadeus. We have experienced strong growth, expanding profitability and high cash flow generation. We continue to see a steady financial evolution through the fourth quarter. In 2023, revenue, EBITDA and adjusted profit grew by 21%, 30% and 60%, respectively, supporting free cash flow generation of EUR 1.150 billion. This strong financial performance has taken place in a context where we continue to invest for the future across many fronts.

We ended the year in a robust financial position. Net debt stood at EUR 2.1 billion at December 31, representing one time, that is 12-month EBITDA. Our financial health has allowed us to not only resume payment of our dividend, but also to announce self-reporting programs amounting in aggregate to over EUR 1 billion.

Additionally, as you know, M&A was part of our strategy. We're pleased to announce in January '24, our Airport IT acquisition of Vision-Box, the leader in biometrics for airports, airlines and border control customers. Pro forma for this acquisition, our leverage is 1.16x. Amadeus from its foundation has been a story of expansion and diversification. We are on a constant journey to expand our reach in travel. We believe we can make a positive impact through technology and more touch points along the traveler journey.

We aim to continue to strengthen our existing businesses with the solutions and services, which help our customers grow. And our focus is also on fulfilling traveler needs across the full trip experience. This means expanding our visible markets, and we see a wealth of opportunities as we advance in our journey. Given our central position of the health of travel, we are uniquely placed to pursue these incremental opportunities across time, be through our internal efforts and also external acquisitions or partnerships.

We have a few important announcements today, and I would like to review a few key strategic levers. In Hospitality, we are pleased to announce that we are close to starting the implementation of a new ACRS customer. We have been working with this and disclose customer and its implementation is expected to start in the first half of this year. A customer is a middle-sized sophisticated chain. We cannot be more specific at this point. We'll continue to update you as we progress along the key milestones.

[indiscernible] IT 2023 has been a highly productive year. We have successfully completed migrations of multiple airlines, including Etihad, ITA, Hawaiian, Allegiant and [indiscernible] Airways. As you know, we continue to work on All Nippon Airways and Vietnam Airlines migrations. We are very pleased to announce that American Airlines, one of the leading carriers in the world, have signed for Amadeus cloud-based revenue accounting system.

As you know, we also introduced Amadeus Nevio to the marketplace in '23. With Amadeus Nevio, we are leading the way for the retailing transformation of the airline industry. Amadeus Nevio is another centric retailing platform, offering next-generation retailing capabilities to the airlines, including beyond offers and orders, and is backed by fully flexible future growth, [indiscernible] solutions and the latest advances in AI. As we have discussed in the past, this is an industry evolution that will require years of focus and dedication, but we are very well positioned to drive this transformation and to support the industry's transition.

This industry evolution will further drive the penetration of NDC, and we believe we have the most advanced NDC technology in the industry and that we will play a key role in scaling NDC adoption.

This takes me to our Rail Distribution business. We continue to advance on our NDC strategy to also make NDC possible at scale through the GDS. Industry initiatives such as these are a great opportunity for us to bring incremental value to our customers and to expand our leadership. As the NDC content made available through our platform increases, we believe we will be capturing more and more NDC bookings in the future. Our goal is to become the undisputed NDC aggregator for airlines and travel agencies.

In this regard, we are making progress with the travel agencies and the large online [indiscernible] space. [indiscernible] sourcing NDC content from [indiscernible] platform soon. Fareportal and Etraveli group are another two examples of online travel agencies who have agreed to source NDC content form Amadeus.

Finally, we also continue to progress according to plan in the migration of our systems to the cloud in partnership with Microsoft. [indiscernible], we have ended '23 in a good position and are optimistic about '24 and beyond. In 2024, we expect our revenues to grow double digit, expanding at a growth rate ranging from between 11% and 14.4% with a stable EBITDA margin and solid free cash flow generation. We look to the future with confidence and we continue investing in a variety of growth opportunities. We will [indiscernible] details supporting our outlook for '24 [indiscernible].

Let's now review the key developments at each of our reported segments. Starting with our Distribution. During the fourth quarter, we signed 13 new contracts or renewals of distribution agreements, taking a total to 60 in the full year. So I was saying, we continue to advance on our NDC strategy. [indiscernible] will be able to access NDC source content from some of the world's leading airlines via Amadeus Travel Platform. We have also standard our partnership with Etraveli group, adding to our existing NDC partnership and with Navan. We saw continued expansion of our customer base for Cytric. Cytric is the only online booking and expense management tool embedded in Microsoft [ 365 ] and is now available in the Microsoft Azure Marketplace.

In regards to our volume evolution, in '23, Amadeus booking grew by 14% relative to prior year, supported by the air travel industry progressive strengthening. Please note, however, that the ways of domestic and national related traffic remain above historic levels, which favor the [indiscernible] market and the direct selling channels of airlines.

In quarter 4, our booking grew 7%. We have had a concentration of effects in quarter 4. We had the spike in cancellations related to the conflict in the Middle East in the month of October, which has a higher weight in the quarter. Cancelations spiked in many regions, most importantly in the Middle East and NORAM regions.

In addition, our bookings were impacted by the evolution of our local bookings in NORAM. In this country, booking channel through direct connects between one very large OTA and a very -- a few large carriers increase, and we have seen an impact on this relative to prior year. We estimate our booking growth in fourth quarter to be close to 13% if we do the impact on our bookings from these two effects. Direct connects may happen between big airlines and online travel agencies in large domestic consolidated markets. They are costly to build than to maintain, therefore, to be economically viable [indiscernible] large volumes. They typically affect local bookings where we generate low fees. The impact on our air distribution revenue growth from this direct connect in NORAM being in the last quarter was marginal and other distribution revenue grew by 17% the quarter versus last year.

If we move to Air IT Solutions. This quarter, we have a new PSS customer [indiscernible] the integrated tour operator and airline. It is deploying Amadeus Altea PSS as well as other solutions at Amadeus disruption management and revenue integrity solutions. As I mentioned, we are pleased to announce that American Airlines has signed for Amadeus cloud-based revenue accounting system. This will be our first stand-alone Amadeus revenue accounting deployment and our first major IT project with the U.S. carrier. Several other airline customers signed for additional solutions in the quarter or implemented new solutions, such as All Nippon Airways, Air Europa and Philippines Airlines.

Regarding Airport IT, in January '24, we were pleased to announce our agreement to acquire Vision-Box, a leader in biometrics for airports, airlines and border control customers. Vision-Box brings us new capabilities along biometrics, hardware and software [indiscernible] border control solutions to the Amadeus portfolio. Through this combined operating with Vision-Box, Amadeus will be able to deliver our full end-to-end seamless passenger experience from booking to arrival at the airport through border control and boarding.

In relation to our passengers border volumes in '23, Amadeus PBs increased by [ 27%, ] driven by air traffic and new customer implementations. We had a net positive effect for implementations as a result of customers' implementations, the main ones being Etihad, ITA, Hawaiian, Bamboo and Allegiant. And in India, in 2022, partially offset by airline customers ceasing or suspending operations on migrating from our platform, including the demigration of Russian carriers during '22. In 23, Asia Pacific was our best-performing region, delivering 55% growth in Western Europe and Asia PAC were our largest regions accounting it for -- after Amadeus PBs.

Please turn to Slide 7 for an update of our Hospitality segment. Hospitality and Other Solutions revenue grew by 14% in '23. Both Hospitality, which generates the majority of revenues in the segment and Payments delivered strong growth, supported by new customer implementations and volume expansion. In the fourth quarter, we had a less negative ForEx impact lower in reported revenue due to the high USD exposure we have in this segment. However, excluding ForEx, segment revenues grew 10% in this quarter.

Within Hospitality, we are advancing on our Amadeus Central Reservation System strategy. We expect to start implementing a new and disclosed ACRS customer in the first half of this year. The customer is a middle-sized sophisticated chain, and we cannot be more specific at this point.

For an update on Marriott ACRS implementation, Marriott [indiscernible] recently that it expects deployment of ACRS to [indiscernible] in the middle of '25, starting in the U.S. and Canada. Also on attribute, the selling technology with an ACRS is industry-leading technology that evolves business beyond traditional hotel room based selling and thus allows for a more -- much more personalized guest experience. We are pleased to share that IC, an ACRS customer reported that on average, when a guest purchases an attribute for their stay, hotels see additional revenue of $22 per night for that booking, with Luxury & Lifestyle brands seeing up to $41 of additional per night revenue for upsell bookings.

For a quick update on Outpayce and Amadeus [indiscernible] payment subsidiary, we expect that the eMoney license Outpayce supplied for -- in '22 -- will be granted in the first half of this year. Outpayce intends to offer prepaid virtual card issuing within its B2B wallet solution with travel agencies used to pay travel providers such as airlines and others.

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

[Till Streichert, executive]

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

These are in 2023. First, impacts from updates in tax risk assessments, fundamentally due to the positive resolution of proceedings with the Indian and pretax authorities, which combined resulted in an increase of EUR 42 million in the Air Distribution contribution and in EBITDA and EUR 73.6 million in adjusted profit. And second, a payment to a third-party distributor due to a change in our Distribution strategy, resulting in a reduction of EUR 10.9 million in the Distribution contribution in EBITDA and of EUR 8.2 million in adjusted profit. In 2022, a nonrefundable government grant, which reduced net indirect costs by EUR 51.2 million, resulting in an increase in EBITDA by the same amount and an increase in adjusted profit of EUR 38.9 million.

Further details on these effects and the full reconciliation to the reported figures can be found in the 2023 management review.

Now on Slide 10. To review our revenue evolution, in 2023, our group revenue grew 21.3% versus 2022, supported by strong revenue growth across our segments. In Air Distribution, revenue in the year was 23.6% above 2022, primarily driven by the booking evolution Luis described and by revenue per booking, which was 8.8% higher than in 2022, fundamentally driven by a lower weight of local bookings in 2023 compared to 2022 and pricing effects, including impacts from inflation and yearly price adjustments renewals and new agreements.

With regards to Air IT Solutions, revenue in the year was 21.6% higher than in 2022 driven by the PB volumes evolution, coupled with a 4.1% lower revenue per PB. The decrease in the revenue per PB in the year was primarily driven by a proportion of Air IT revenues not linked to PBs, growing strongly, albeit at a softer rate -- at the softer growth rate in PB's, more than offsetting positive pricing impact from inflationary or price adjustments and from upselling of incremental solutions as well as from the Altea New Skies customer mix.

Regarding Hospitality and Other Solutions. Revenue in 2023 was 14.2% above 2022, driven by strong performances of both Hospitality and Payments on the back of customer implementations and volume expansion. Within Hospitality, Hospitality IT revenues increase was mainly driven by sales and event management, service optimization and Amadeus CRS. Media and Distribution revenues continue to grow strongly backed by an increase in transactions and Business Intelligence revenue expanded, driven by customer implementation.

Within Payments, all its revenue lines recorded strong growth rates supported by higher payment transactions and customer implementations. In the fourth quarter, Hospitality and Other Solutions revenue increased by 5.2% versus prior year, impacted by a large foreign exchange effect. Let me remind you that 70% to 80% of the revenue in this segment is generated in U.S. dollar and excluding FX, the segment's revenue grew by 10% in the quarter versus the fourth quarter of 2022, supported by an increase in transactions and customer implementations at both Hospitality and Payments.

Please now turn to Slide 11 for a review of segment contribution and net indirect cost evolution. Air Distribution's contribution grew 27.6% in 2023 versus 2022 as a result of the revenue growth I've just described and by a 20.3% net operating cost increase, which resulted from higher variable costs, driven by the bookings evolution and other effects such as customer and country mix, and an increase in fixed costs largely caused by R&D investment expansion, mainly focused on NDC distribution technology, customer implementations and solutions for travel sellers and corporations. The contribution margin of the segment in 2023 was 46.6% and expansion of 1.5 percentage points from 2022.

With regards to Air IT Solutions, contribution in the year was 21.7% higher than in 2022, resulting from the revenue evolution I described before and an increase in net operating costs of 21.4%, which was fundamentally driven by the expansion of our R&D investment, focused on the enhancement of our portfolio for airlines and airports and customer implementations and our fast-growing services business as well as growth in nonpersonnel-related expenses to support the overall business expansion. Air IT Solutions contribution margin reached 71.7% in 2023.

Regarding Hospitality and Other Solutions, contribution in the year was 20.8% above 2022 as a result of the revenue growth described before and higher net operating costs by 11.2%, and growth in net operating costs resulted from higher variable costs, primarily driven by volume expansion at our Media Distribution and CRS Hospitality businesses as well as the strong performance of our Payments B2B Wallet Solution.

And furthermore, an increase in fixed costs fundamentally caused by expanded R&D investments dedicated to the evolution of our Hospitality and Payment solutions portfolio and customer implementations. Hospitality and Other Solutions contribution margin in 2023 rose by 1.8 percentage points versus 2022 to 33.5%.

And finally, net indirect costs were 11.7% higher than in 2022, mainly resulting from an increase in transaction processing and cloud costs as a result of volume expansion and our progressive shift to the public cloud and, to a lesser extent, the unitary personnel cost increase.

Please now turn to Slide 12 for a review of our EBITDA evolution. In 2023, our EBITDA was 29.8% higher than in 2022. EBITDA margin expanded by 2.5 percentage points to 37.9%. And our EBITDA performance resulted from: first, the revenue evolution explained before; second, a higher cost of revenue; and third, an increase in our combined personnel and other operating expenses cost lines. Cost of revenue grew by 24.1% in the year of 2022, resulting from volume expansion across our businesses and several factors impacting Air Distribution variable costs, including customer and country mixes.

Our P&L fixed cost in 2023 compared to last year were 12.1% higher. This cost evolution resulted from increased resources, particularly in our development activity to support our R&D investment, coupled with higher unitary costs, resulting from our global salary increase, growth in non-personnel related spend like travel and training, amongst others, driven by the business expansion relative to prior year and higher transaction processing and cloud costs caused by the volume expansion and the progressive migration of our solutions to the public route.

Below the EBITDA line, G&A expense in 2023 was broadly in line with prior year, mainly resulting from a lower depreciation expense from a reduction in hardware investment, largely driven by our shift to the cloud, offsetting higher amortization expense from internally developed assets. The increase in EBITDA coupled with an in-line D&A expense drove operating income up by 51.7% in 2023 versus 2022, and operating income margin expanded in the year by 5.1 percentage points versus 2022.

Net financial expense declined in 2023 by 35.4% as a result of an increase in interest income, driven by higher interest rates, nonoperating FX gains and a reduction in interest expense by 7% as a consequence of lower gross debt relative to last year. Income taxes increased by 47.5% in the year versus prior year, largely driven by higher taxable income. And finally, resulting from all these effects, adjusted profit grew by 59.8% in 2023 versus 2022.

Please turn to Page 13 to review our R&D investment and CapEx. R&D investment grew by 12.9% in 2023 versus 2022 and focused on the evolution of our portfolio for airlines, including Amadeus Nevio, our Hospitality platform, also enhancing our solutions for travel sellers and corporations as well as for airports and our Payment Solutions portfolio, our partnership with Microsoft, including our migration to cloud, bespoke and consulting services provided to our customers and customer implementations.

In 2023, our CapEx increased by EUR 33.9 million or 6% compared to 2022, mainly driven by higher capitalized R&D investment and to a lesser extent, investments in our offices. CapEx in the year was reduced by a collection of research tax credits corresponding to the years 2020 and 2021 for an aggregated amount of EUR 21.4 million as well as our usual collection of research tax spreads from the previous year of EUR 21.3 million, and CapEx represents 11% of revenue in 2023.

Please turn to Slide 14 for a review of our free cash flow generation and leverage. With regards to free cash flow, we generated EUR 1.148 billion in 2023, 42.7% higher than prior year, resulting from the increase in EBITDA and improving change in working capital and higher CapEx and taxes. As I mentioned before, in 2023, we collected EUR 42.8 million of the Indian tax authorities linked to the positive resolution of proceedings and we also paid EUR 10.9 million to a third-party distributor. Excluding these two effects, we generated EUR 1.117 billion free cash flow in 2023. Net debt amounted to EUR 2.140 billion at the end of December with leverage amounting to 1.1x net debt-to-EBITDA.

And with this, we've now finished the presentation on our 2023 results, and I will pass back to Luis for our views for 2024.

[Luis Camino, executive]

Thanks, Till. As I was saying earlier, we are progressing well on our strategies across segments. I feel confident about our growth this year and in the years to come. I'm going to run you through our outlook for '24 deal [indiscernible] a few other matters.

Our outlook for the year includes the following. Our group revenue in '24 should grow within our range of 11% to 14.5% over '23. We are also aiming for a broadly stable EBITDA margin evolution in '24 compared to '23, including our overall cloud migration project costs and cloud transaction processing cost, our EBITDA margin will expand in '24 versus '23. Please also note that at the moment, we are sustained [indiscernible]. We continue to run our data center [indiscernible] while we are in parallel running the cloud migration project. In the future, we'll have simplification of costs on this front.

We expect our EBIT margin to expand in '24 as to our migration to the cloud, we've been investing less at our data center [indiscernible], and this has brought lower depreciation and amortization growth. Finally, with regards to free cash flow, in '24, we expect it to range between EUR 1.2 billion and EUR 1.25 billion in '24 on the back of growing EBITDA and increased CapEx. We believe we may have some positive nonrecurring effects on free cash flow also in '24, which will likely announce this performance linked to positive solution of tax proceedings. However, at this point, the timing and amounts are not certain.

I will now pass on to Till.

[Till Streichert, executive]

Thank you, Luis. First, to add color on the group revenue growth outlook we have provided you with, I'm going to share some generally expected dynamics at segment level for further illustration of how we may see things playing out. However, as you may understand by segment, it is a lot more difficult to be specific as we are still in an environment of changing mixes and moving parts, including business mixes within our segments, involving some degree of uncertainty.

In Air Distribution, we believe our revenues in 2024 could grow between high single digits to low double-digit pace backed by our bookings growth, supported by commercial wins and a growing revenue per booking. We expect unitary revenue to continue to expand, supporting by pricing effects, including inflation and other yearly adjustments, renewals and new distribution agreements. Year-to-date, up to mid-February, our bookings have had similar evolution to the fourth quarter of 2023. Please bear in mind, however, our bookings performance in March will be impacted by seasonality effect between Q1 and Q2, driven by a different timing of Easter versus last year and workday effect. We also expect a normalization in the booking growth evolution in the year compared to the 2023 evolution, which benefited from the recovery curve.

In terms of contribution in 2024, we expect the Air Distribution contribution margin to expand slightly versus prior year.

In Air IT Solutions, revenues should advance at a growth rate in the mid-teens, including our Vision-Box acquisition. In 2024, we will benefit from global air traffic growth and PB inorganic growth from customer implementations. We expect revenue per PB to expand driven primarily by pricing effects, i.e., inflationary price adjustment, upselling and higher airport IT and services revenues.

Let me offer some clarity on our inorganic PB evolution in 2024. Our PB evolution will be enhanced by the contribution to our PBs from the customers' migration from 2023 and in 2024. As a reminder, in 2023, we migrated several airlines [indiscernible] Etihad Airways, ITA Airways, Hawaiian Airlines, Bamboo Airways, and Allegiant Air. Depending on traffic and final migration dates, we should expect roughly an incremental 35 million to 45 million PBs from these 2023 and 2024 migrations in 2024.

In terms of contribution, we expect the Air IT Solutions contribution margin to dilute versus prior year due to the Vision-Box acquisition.

For the [indiscernible] segment, we are projecting our revenues to grow in the mid-teens range, supported by ongoing volume growth and new customer additions and contribution margin to expand relative to [indiscernible].

Finally, a few comments in relation to our stated expected EBITDA margin evolution in 2024, we have excluded the nonrecurring effects that I mentioned before from the 2023 cost base related to updates and tax risk assessments linked to the positive resolution of tax proceedings and the payment to a third-party distributor.

In terms of our fixed cost growth in 2024, as we told you last year, we are aiming for our fixed cost to grow less this year than last year, excluding the Vision-Box acquisition. Our cloud migration is progressing well. Please bear in mind that given the shift of CapEx to OpEx from our shift to the cloud and that we are at the point in the project where we are sustaining both our own infrastructure and the project cost to migrate, our cost growth remains a bit higher than normal circumstances. We believe our migration to the cloud and cloud transaction processing costs will account for approximately four points of the fixed cost growth we will have in 2024. Additionally, we are also still bearing the higher salary inflation than in the past.

And finally, we are investing in many fronts for the future with discipline to advance amongst others on our ACRS strategy in Hospitality to drive the airline retailing transformation for Nevio, and of course, we remain very focused on NDC where we expect to drive volumes in the future.

In terms of our fixed cost growth evolution in the next few years, we should see fixed cost growth and moderation in 2025 and 2026 as we approach completion of our cloud project.

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

[Operator]

Thank you. Ladies and gentlemen, the Q&A session starts now. [Operator Instructions] Our first question comes from the line of Michael Briest from UBS.

[Michael Briest, analyst]

Just digging into the North American distribution comments you made. Were the direct connect effects new in Q4, and that's why you called them out? Or have they progressed to a point where you felt you should? Do you see any similar instances elsewhere in the world? Or do you expect to within your guidance for this year see any increased impact from that? Or is it sort of as it is today?

And then just on the EUR 12 million payment. Can you maybe say at least which dividend that was relevant to? And maybe anything else you can say about what this third-party distributor was doing for you and why it changed? And then finally, just I appreciate on the Hotel, you can't give a name, but maybe some sense of size on what a midsized hotel chain represents?

[Luis Camino, executive]

Let me start with the last one, Michael, thanks for your questions. I mean unfortunately, we cannot disclose the name, but we will be very pleased to do so. But due to the fact that we are going ahead with implementation very shortly, we will provide you with further details, I mean, soon, but we cannot talk in detail about that because the customer has not allowed us to really talk about that at this point. We have been working with this customer for some time, but now we are reaching the point of implementation.

With regards to the first point, I mean, as you know, we have evolved quite positively in North America when we talk about direct connects. These direct connects may happen and has happened in the past. Do you know my opinion about that? I'm not at all a fan of that. I believe that's cost and complexity, difficult to maintain, but this may happen. And again, look, it has happened in the past. We have just mentioned that because it has some impact in the fourth quarter, okay? Because one big online travel agency decided to connect to some carriers, and this is why we have mentioned at this point. And again, as I mentioned to you about direct connects, I think it makes a lot of sense for [indiscernible] sales. And of course, pushing for selling in their own direct channels.

But in terms of direct connects, as you know, I mean, it's complex. You need to maintain that via [indiscernible] or via NDC. It doesn't matter. You will need to really aggregate the different connectivities. And this is our role as a distributor, as a GDS, we also aggregate non-air content, different methods, so really incorporating that.

And we also try to manage the transaction volumes that indirect connects needs to go directly to the inventory of the airline and of course, increasing costs related to that because the EDSs are the ones that try to really manage with their technology and optimize all these flows. So in my view, yes, this may happen from time to time, this has an impact. Usually, again, it's in very concentrated market and with big online travel agencies. That's the way I see it.

And in terms of impact, as I mentioned, due to the fact it's very local in the U.S., the impact has been small in terms of finance sales, but it has had an impact in terms of volumes. And this is why we have mentioned specifically in the last quarter results.

And then with regards to distribution. You were mentioning to me in other parts of the world about these direct connect? Yes. No, not just complementing about the other parts of the world. I mean, again, look, these things may happen as far as you have a very large market, very domestic and with very concentrated airlines and very concentrated travel agency, this may happen. I don't think in general, will, but look, it has happened in the past. We have [indiscernible], where there has been some direct connects have enrolled. Again, it's the [indiscernible] relationship with the agencies and with airlines to convince them, and this is what we have been doing that [indiscernible] or with NDC, we should be the preferred channel because it generates a lot of efficiencies to the industry, and this is why we keep signing deals on all sites.

[indiscernible] in the outlook, yes. All this [indiscernible] in the outlook, yes.

[Michael Briest, analyst]

So no deterioration.

[Luis Camino, executive]

No [ improvement ] Sorry. No, [indiscernible] in the outlook we have provided you. Yes. I mean, we are taking into account these direct connects of the last quarter and of course, our assumptions for next year in terms of volumes, in terms of our increasing customer wins, signatures. All that is part of the outlook we have provided to you. [indiscernible]

[Michael Briest, analyst]

[indiscernible] getting worse or better?

[Luis Camino, executive]

I mean, look, we have what we have today. It's not our assumption this will be worse on the contrary. I mean, what we are working with travel agencies is to really reincorporate some of that into our volumes in the future, but of course, things may change. I mean, look, it's a matter of how we are going to deal with that. It's a matter of how we are going to really get incremental volumes from customers that we have today. So look, again, difficult to really assess. It's not our assumption. This will be worse saying that, as I mentioned before, I mean, things always may happen between big travel agencies and big airlines at one point, but it's not our assumption. And everything has been included in our outlook.

Look, usually, as I mentioned to you, you have the mix effect, it's more local. So look, we're trying to really bring this volume, which is local, of course, part of our projections and our platform. But it -- this happens, it's always local as far as we are able to really increase in some parts, as in India, we are getting incremental local volume in other parts of the world will be more global. So you always have this mix between volumes and booking fee. And this is why in this case as the volumes were very local, we have seen a further increase on the average booking fee.

Again, we need to manage both. As you have more local volumes because when we talk about regional and global is much more clear. When we talk about local volumes, we always need to really balance between what you bring to the platform and the final booking fee. And again, this is why we provided you revenue guidance that we feel very confident about that and then the mix between the different elements of NDC uptake, local volume and other booking fee will need to be seen. But our assumption is that we'll be able to grow volumes and we'll be able to grow our average booking fee. That's our assumption for the guidance.

[Till Streichert, executive]

I'll just go to your second question of the Distribution payment. Look, it's been just a change in Distribution strategy and it was a payment to a self party distributor. We are not in a position to share further details on that. The purpose why we've highlighted here, that is a nonrecurring item as because it sell into the fourth quarter and would have otherwise distorted the numbers. This is why we highlighted it in that regard.

[Operator]

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

[Charles Brennan, analyst]

Yes. Just two for me, if I could, actually. Firstly, in terms of the seasonality for 2024, it sounds like both Distribution and Hospitality could end up being second half weighted. Are you confident that the growth in both H1 and H2 will fall in the scope of your full year guide? Or are there scenarios where H1 is below the full year guide?

And then secondly, in terms of the double running of costs, can you remind us how we should think about the unwind of that? I know you said that there should be some cost moderation in '25 and '26. But theoretically, we'll start to see amortization picking up, reflecting some of the capitalized costs. Are you confident that EBIT margins or EBIT will grow faster than revenues in '25 and '26?

[Till Streichert, executive]

Okay. Look, let me go on the second question first. So as we said before, we are at the moment in an environment where we are sustaining both the current data center operations, the cloud migration costs, so that's the project cost and of course, a pickup as well in capacity on demand as we are progressively moving traffic over and we've done a number of milestones achieved in that regard.

So once the project is being completed, of course, the project cost is unwinding because the project is delivered. And of course, at the same time, I expect that we benefit from the -- from falling away of the running cost of our own data center. So in that regard, clearly, we [indiscernible] cost growth in 2025 and 2026 shall be -- shall moderate, shall come down.

It's true in terms of -- to your more specific question in terms of amortization on the hardware versus intangible side. Of course, intangible investments are continuing to grow with our R&D investment. But I expect that to be offset by the lower depreciation side, at least in 2024 and into 2025. So therefore, we are confident to see EBIT margin expansion in 2024. And as I said before, the benefit of cloud, apart from all of the qualitative effects that we're offering as well on the customer side, ultimately differentiating us and feeding into revenue, I do expect than at EBIT level and EBIT margin level the benefit of the cloud migration will be visible.

[Luis Camino, executive]

We think, look, just thinking about the business itself, but I don't have the exact numbers about the complete seasonality of all the businesses per quarter. I mean, as you know, in Hospitality, we'll have the implementation of this new customer. Of course, it's not massive as part of the total amount, but there will be an impact as we move forward. Apart from that, there is nothing related to that.

Of course, you need to consider that last year, we had still some recovery during the year overall. But then what we provided you is mainly in the Distribution front, the biggest impact has to do between the first two quarters ecosystem, as you know, has a significant impact in working days. So it's more related to that, I would say that related to the fact that there is more weight in one part or the other, but we will look per business all that and if something is different, we will come back to you.

[Operator]

Our next question comes from the line of Adam Wood from Morgan Stanley.

[Adam Wood, analyst]

I've got two, please. Just first of all, on the Vision-Box deal and biometrics. Could you maybe just give us a little bit of [indiscernible] opportunity you see around this and kind of broadly around Airport IT. It feels that maybe it has lagged a little bit in the business versus Hospitality and certainly Airline IT. With that, you feel give you a better opportunity to start to accelerate that business and take share? Was it kind of a little bit of a missing piece? So just some background around that would be helpful.

And then secondly, just to follow up on the questions around Direct Connects. So just to clarify, the fact that we have bookings moving, but little revenue, that's more because it's home market bookings rather than it being low value U.S. bookings. And if that's correct, could you just help us where we've seen Direct Connect before? Have they intended to always remain on home market bookings and not expand? Has that been an experience in the past?

And then just finally, do you see any benefit on the PSS side or on merchandising where the two groups move to direct connects because they have to support more of the technology on that PSS side rather than being managed through the GDS system?

[Luis Camino, executive]

Going back to the second question, yes to everything you said, Adam, I mean, look, in order to justify any direct connect, you need to have a big volume because this requires investment. This requires maintenance. This requires integration. So the only way you can do that is with mainly the local airlines, which are mainly producing phone bookings. And this is why we have not seen anything that is not related to the -- it could be in one specific market. I don't know what is going on in 190 countries, but [indiscernible] any volume is related to these home bookings and it's related to very domestic big airlines in general. You don't see that with international carriers. So it's related to, in this case, big -- a big airline and big travel agency [indiscernible] bookings.

And going back to what you mentioned, yes, there is additional work on the ITPs that, of course, when we manage the NDC layer on the IT and the NDC on the distribution front -- with other parts of our technology has a clear advantage of managing the flows and being more effective. And part of the Nevio evolution will support also the capability of the airlines to merchandise better and use more than DC connectivities to get incremental revenue.

With regards to the first question, yes, we believe there is an opportunity in airports. Airports has been doing well. It's part of our guidance, even excluding Vision-Box has been healthy. We feel Vision-Box is a very good company and a great opportunity in airports, but we also envision that biometrics can be used for other parts of our business. I mean it could be for airlines, it could be in hotels. So we feel biometrics is going to represent much more than just on the airport field. They have a strong relationship with authorities, we [indiscernible] control. So we are convinced that by combining in the airport space, we will de facto -- I mean, have an acceleration of our airport business. But in the medium term, we feel knowing the biometric space will give us incremental opportunities in other parts of our portfolio.

[Operator]

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

[Toby Ogg, analyst]

Just coming back again just on the Direct Connect stuff. There, you said that it's obviously been related to the home bookings. What gives you the confidence that this won't move -- this trend won't move into higher value and more complex bookings over time?

And then second question, just on the Air IT margin. So the guidance obviously here is for the Air IT margins to see some dilution, and you flagged an impact from the Vision-Box acquisition. What's the assumption around the underlying margin within the Air IT segment for 2024, so excluding Vision-Box? Would you expect margins to still expand on an underlying basis or are there additional headwinds in that segment that we should be thinking about with respect to the margins?

[Luis Camino, executive]

Okay. So let me come back again to Direct Connect. I mean, look, you know what is a Direct Connect. Imagine, again, it's individual monoairline connectivity, okay, that requires investment, upgrades and continuous maintenance. First, investment, then you have different versions of the way you connect to an airline. So it's not a standard. And then, of course, you need to integrate that into whatever you have, including Amadeus for the rest of the bookings. So it's not a seamless -- an easy process. And then you have a servicing piece, which is [indiscernible] how you are going to sell? Whatever happens with that booking in the flow?

Considering all that, I mean, we're not travel agency the size to [indiscernible], as I mentioned before, you need to really have volumes. I don't see travel agency as far as I know, I mean, trying to connect an international airline in an [indiscernible] market because the advantages that this will have in terms of connectivity and integration are not going to be there. Even I would say I don't see that in the phone bookings for when you produce low level because it does not justify all this complexity. I mean, it's complex to run. And this is why it has not been so easy for us not to do a simple direct connect, but even to integrate all the NDC versions to have all the servicing capabilities for TMC, so that is not simple, okay?

Saying that, look, I don't know how technology and evolution may happen in the years to come because always, you can have -- I don't know. Let's see how Gen AI plays in the game in 5 years from now, things may evolve in a way that nobody knows, so I kind of tell you, I'll have a crystal ball about how this may evolve, but with the information I have today, what I see today, I have very high level of confidence that this is what I mentioned before. And this is the proof, okay? We are not passing that up to today. And the reality is what I mentioned to you before, and I don't think it will happen in the regional or home away bookings. I don't think so. But again, that's my belief, and that's why I said with you.

[Till Streichert, executive]

Your second question on the underlying Air IT margin. Let me just remind you, obviously, we are targeting good growth in the mid-teens for next year from volume and also a little bit of pricing. And of course, within that, we've been talking before about the Airport business and also the Service business, which has been growing last year also quite well. So I don't have a kind of a perfect crystal ball in terms of how it will really play out in terms of the pace of the Airport business and the Service business where there is core of the IT business, which, again, we expect to grow quite well. But I would say, broadly, the underlying margin, I would expect to behave kind of flattish.

[Operator]

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

[Hin Fung Cheng, analyst]

Maybe three, if I may. First, on the Distribution, how should we think about bookings recovery mix going into this year? Is there any tailwind still coming from corporate and international? And then looking at Air India as well, obviously, what's the new opportunity there with the expansion of agreement with Air India?

And then secondly, can you give us some more color on fixed cost progression? You've talked about cloud costs slowing down. Do we expect flat growth in '25/'26 for cloud costs still? And I guess the other two components is wages and new initiatives. On wages and head count, what is your expectation this year versus inflation and I guess new initiatives, should we expect kind of similar growth versus prior years?

And then last question is on Marriott. Maybe can you -- obviously, you have not guided to time line previously and now you're mentioning [indiscernible] I guess that is probably a bit slower than the market is expecting. Can you give us some color on kind of the longer implementation time line compared to other implementations you have had?

[Luis Camino, executive]

Okay. With regards to Marriott, let me start with the last one. I don't think it's a long implementation, okay? It's a huge project. It's the biggest of the chain in the world. Again, I'm not saying only good intentions need to last same as Marriott, of course, we will accelerate in the future. But this is our second customer. Well, we are going to implement another customer before, as I mentioned to you previously. And it's a matter of -- it's not just a matter of us. It's also a matter of the agreement with the customer, how they deal with these big projects? But what I can tell you is that this is a quite massive project for Marriott that complements very well our offer. So we expect this to accelerate in the future for future customers.

The answer is yes. We have taken the time that we both parties consider [indiscernible] really have a positive and good and fixed migration as we [indiscernible], but sometimes [indiscernible]. I mean, you see with ANAs taken a number of years because of okay, the relationship between the two parties. So it depends on the customer. Saying that, I don't think it's more than we communicated. We did not communicate anything about that because we couldn't. It's true that Marriott has stated this date that we will, of course, try to be sure that we go as planned for that, [indiscernible] migration is going well. The relationship is very good, and it will be a big plus once we finish the migration despite the fact that in the middle, as I mentioned before, we are migrating a smaller chain before Marriott that will happen in '25.

Another question is about recovery. I mean, the answer is, yes. I mean, we don't expect, of course, the same level of recovery that we have seen during 2022 and 2023, and you see the expectations of airlines. And you see the IATA projections, but it's true that business travel has recovered a bit behind. There are parts of the world, the international traffic in Asia has came a bit behind. So we have a lot of pluses and minus for 2024. We have also mentioned that progressively, I mean, we will expect some normality. But yes, we still expect some recovery from a couple of points. And again, the mix, the fact that yes, low-cost carriers were growing much faster than full service carriers, but in some parts of the world and in some routes, probably, I mean, the full-service carriers will benefit on this international traffic. So we have taken into account all these pluses and minus to provide you with the guidance of 2024.

[Till Streichert, executive]

Just in terms of cost and the fixed cost progression. Let me remind you once again we always think about what we need to, in essence, invest into salary increases, then what we need to invest into new projects and driving additional growth in the future. And the third bucket is the cloud related cost at the moment. So now dealing with the cloud cost first. And to your question, do we target or do we see a flat cost growth in 2025 and 2026. I don't see that because our first two buckets, again, investment into the future, into further growth and also salary increases is something which we clearly acknowledge.

But let me also say, once we have completed the cloud migration, and we have reached a number of sizable milestones, which we have announced already like [indiscernible] migration completed or the CRS system fully migrated and also our internal systems are largely migrated. Of course, we will be in a lot stronger position also from a functionality point of view and what we are able to deliver. And let me also remind you that this migration is a very, very sizable migration taking place in Europe led by us. And therefore, I do expect cost moderation once this is over. But again, then we are back to what I would call a little bit more normal, taking the efficiency of the cloud migration, but of course, having our workforce evolution and also the investment into new growth projects.

[Luis Camino, executive]

Yes. And I forgot to mention to you the India matter. I mean again, India is a very, very important market for us. As you know, a big market growing very well. And of course, both on the IT, but also on the Distribution front, having the India content is already producing incremental volume. So we are pleased with the fact that now we have the domestic content of India already in our system. And again, this is a market where we will continuously pay [indiscernible] and the fact that we have a very big presence on our IT front because we have the majority of the airlines there, is giving us a plus both to work with them as a customer on the IT front and also incorporating content in our GDS platform.

So of course, Asia in general is a very important market of growth for us and India, in particular, is also part of that. So yes, we will expect to a large relationship within India and a large -- and increase the number of volumes that are coming from that market.

[Operator]

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

[Alexander Irving, analyst]

Three for me, please. First of all, coming back on the Air IT margins. So, Till, you mentioned earlier on that underlying you'd be looking at about stable margins year-on-year. Why is there not more operating leverage on the growth in passengers boarded and some pricing upside that you're expecting in this segment?

Second question is on Air Distribution. We've seen further moves towards NDC adoption in Europe and North America. What percentage of your air bookings are now executed using NDC technology? How has that changed in the last year? And where would you think that is likely to be a year from now?

And then third question is on Nevio. Given the PSS independent layer here, are you expecting that, that's going to provide a route into those airlines that do not currently use either Altea or Navitaire, and eventually upsell them to an Amadeus order management system or what response to Nevio you're getting from conversations with such airlines?

[Till Streichert, executive]

Let me first go on the IT margin. Just a quick answer to that. Let me remind you again, we've got see the surface business, which is growing, which is growing quite well. This is an important business for us because it entrenches us and deepens customer relationship, but the Service business comes at a lower margin.

And equally, the Airport business. You've seen that also throughout last year, we've made several announcements in relation to airport wins. This is equally a business which is at an earlier stage of its evolution and therefore profitability. And you can think of it providing a drag to the underlying kind of core Air IT business. So I do expect, of course, the embedded operating leverage in the segment, but I would just highlight those two factors leading to a, what I call, broadly stable margin.

[Luis Camino, executive]

I mean, we can't not disclose the exact numbers on NDC in our platform. However, this is increasing a lot. I mean, from a very low base, but on a [indiscernible] basis, I mean, we are evolving an increase [indiscernible]. So we expect as we are signing these with travel agencies and we have the contracts with airlines to really increase in 2024. So we expect a significant increase. Of course, a significant increase from low basis doesn't mean a lot [indiscernible]. But yes, I mean, the evolution has been very positive as we are also complementing all the use cases and integrating in the proper way. I mean, as we have mentioned, with one of the customers we have been in pilot mode, now we are moving into implementation mode. So we expect the volumes to keep increasing quite significantly in months to come.

With regards to Nevio, you are completely right. We feel Nevio is also an opportunity to be more modular and to be able to address some of the customers that are not today part of our platform. So it could be an incremental commercial asset that we use already in our discussion with new customers because, of course, they want to debate more about the future, how this -- the different use cases can be addressed by Nevio. So we see that as an opportunity to enlarge the number of customers into Navitaire or [indiscernible].

[Operator]

Thank you. This concludes our Q&A session for today's conference. I now give back the word to Mr. Luis Maroto for final remarks. Go ahead, please.

[Luis Camino, executive]

Thank you very much for attending the call and for your questions and we will talk again for the first quarter results of this year. Thanks a lot.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.