Amadeus IT Group, S.A. (AMS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Amadeus Full Year and Fourth Quarter 2022 Presentation Webcast. The management of Amadeus will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions] I am now pleased to hand over to you, Mr. Luis Maroto, President and CEO of Amadeus. Please, sir, go ahead.

Good afternoon. Welcome to our 2022 fourth quarter results presentation. Thank you for joining us today. I'm joined by Till, I will start with an overview of our most important developments in the quarter until we elaborate the key financial aspects. Start to Slide 4, please, for an overview of our performance in the period. The fourth quarter global traffic continued to recover relative to '19. The last month of the year, according to IATA, global traffic reached 77% of December '19 traffic, the best global monthly performance we have put in these times. The pace of traffic recovery in the fourth quarter came at a slower pace than in the previous quarter. Nonetheless, we continue to see strong improvements in international traffic with the highest progress from Asia Pacific international traffic. In the full year, the traffic reached almost 70% of '19 with international traffic still at 60% and domestic traffic close to 80%. Demonstrated a lot of progress has been made, but also a good amount of recovery is still to materialize. Net traffic evolution we saw in the fourth quarter drove Amadeus group revenue performance, which reached 87% of the fourth quarter of '19 revenue, slightly higher than prior quarter. This revenue progress supported our EBITDA performance in the quarter, which reached 83% of our EBITDA in '19, 3 points better than prior quarter. Additionally, adjusted profit reached 66% of '19. And finally, we have free cash flow generation in the fourth quarter of EUR 177 million, which allowed us to continue to deliver. At December 31, our leverage stood at 1.4x plus 12 month EBITDA. As we advanced last quarter, Amadeus presuming shareholder remuneration in '23. Please note that our Board has determined that a gross dividend proposal of EUR 0.74 per share, pertaining to our '22 financial results and representing 50% of reported profit will be submitted for approval to our general shareholder assembly in June '23. Finally, in the fourth quarter, Amadeus remained highly focused on its R&D activity to support the implementation of projects of new customers and to advance key strategic areas. As you know, we are investing in evolving hospitality platform, expanding our [ variety of ] offering capabilities, continue to invest in NDC that we are advancing in our shift to the cloud among other important strategies. Please turn to Slide 5. As we may review this quarter evolution by segment. Starting with Air distribution. In the quarter, we signed 16 renewals of new distribution agreements, including with Ryanair. We signed a total of 65 in the year '22. We continue to advance with our NDC strategy. We renewed our agreement with Aeroméxico. Our Aeroméxico NDC-sourced content will be available on the Amadeus Travel Platform in the second half of '23. On to Travel agency side, we expanded our partnership with Fareportal to include the integration of NDC offers. We have further grown our presence in the leading global travel management company space. We have renewed and expanded our partnership with American Express Global Business Travel and with BCD. We also incorporating Amadeus industry leading in this content and end-to-end workflow capabilities. To review our bookings evolution in the quarter, our performance reached 71.7% of 2019. This was a part with quarter 3, a evolution in quarter 4 was impacted by higher negative workday effects, particularly in October and December and also by a higher cancellation ratio in December. Our gross daily booking performance continued to strengthen in quarter 4 over quarter 3, improving by 2.9 percentage points versus the previous quarter. Our booking evolution was the result of the industry's evolution enhance our market share gains, which are enhancing our performance despite the negative region mix for Amadeus. In the quarter, APAC reported the highest volume performance improvement versus '19 relative to quarter 3. We saw strong improvements in many markets in Asia, including Japan, South Korea, Hong Kong and Taiwan. In the quarter, NORAM continued to be our best-performing region. Finally, to share what we have seen more recently in terms of volume performance, both in January and the first weeks of February '23 compared to '19, our bookings performance has continued to improve and progress continues to be made. Please turn to Slide 6 to review Air IT solutions. We're pleased to announce a new partnership with Finnair to transport airline retailing with an next-generation airline retail offering, bringing personalization and real-time insights through the adoption of Offers and Orders. In addition, in relation to the undisclosed customer announcements, we made in quarter 2, 2020, please note that this is All Nippon Airways domestic business migrating to Altéa. As you may recall, ANA international migrated to Altéa in '15. All Nippon Airways will be the commission its in-house PSS system. And I will also implement new digital pricing and payment Amadeus capabilities. We have the variety of selling wins in the quarter, including with TAP Air Portugal, Air Europa, and Iraqi Airways. In Airport IT, we continue to expand our reach through new agreements with British Airways, Qatar Airways and with airports in North America and Asia Pac. Moving to our volume performance in the fourth quarter, passenger boarded reached 84.4% of '19 levels, up 0.9 percentage points over the previous quarter. Our progress was slower due to the migration of Russian carriers from our platform during the fourth quarter in '22. Excluding inorganic impacts in the quarter, organic passengers boarded evolution improved by 2.4 percentage points versus quarter 3, higher than the reported PB evolution. By region, Asia Pac and Middle East were the regions with the highest volume performance improvement in the quarter. NORAM continued to be our best performing region reporting 9.4% PB growth versus '19. Again, to shed some color on what evolution we are seeing most recently with our passengers boarded into January and first of February. As you can see, we continue to see good improvements in our performance. To recap on the implementation front, as you may recall, we implemented Air India in quarter 2 of last year, which carried over 20 million PBs pre-COVID. We are working at present to migrate ITA Airways, Allegiant, Hawaiian, Etihad, All Nippon Airways and Bamboo Airways. This contracted customers together carrying an estimated 110 million PBs annually in our recovered scenario. Of this, we reasonably expect 70 million run rate PBs to be implemented by the end of this year. And as I was saying earlier, please remember, Russian carrier has migrated from our platform last quarter due to the current geopolitical situation and lay together current circa 35 million PBs pre-COVID. Please turn to Slide 7 for an update on our Hospitality segment. In the fourth quarter, Hospitality & Other Solutions revenue was 3.6% higher than revenue in the fourth quarter of '19, setting a 4-point improvement from prior quarter. Hospitality, which generate the majority of the revenues in this segment reported enhance performance across its revenue lines supported by new customer implementations. We also saw continued interest from customers contracting from solutions across our Hospitality portfolio during the quarter, including Van der Valk Hotels, Fontainebleau Las Vegas and Sonesta International Hotel Corporation. Finally, with regards to our payment business, we were pleased to announce in November of last year that Amadeus had applied for eMoney license to the Bank of Spain. Amadeus existing payment business became outpaced a wholly-owned subsidiary of Amadeus. With this, I will now pass on to Till for further details on our financial performance in the quarter.

Thank you, Luis. Hello, everyone. Please turn to Slide 9 to review our revenue performance during the period. In the fourth quarter of 2022, our group revenue was 12.9% below its level in Q4 2019, advancing slightly from prior quarter. In Air Distribution, revenue in the quarter was 21.8% below 2019, primarily driven by the bookings evolution Luis has described and by revenue per booking, which was 9.1% higher than 2019. The higher revenue per booking in the fourth quarter of 2022 versus 2019 was due to several effects, including various positive pricing impacts coming from a combination of inflation and yielding price adjustments, incremental deals, renewals and others and positive foreign exchange rate effects. And thirdly, these effects were partly offset by a still higher weight of local bookings than in 2019 produced by the mix of domestic and international traffic that we still have today. For the full year 2022, Air Distribution revenue per booking grew by 6.8% compared to 2019, impacted by the same effects I just described for the quarter. With regards to Air IT Solutions, revenue in the quarter was 6.9% below 2019, driven by the PB volumes evolution, coupled with a 10.2% higher revenue per PB relative to 2019. The increase in the revenue per PB in the quarter versus 2019 was fundamentally driven by firstly, positive pricing impacts, which were partially offset by mix effects. Secondly, by a proportion of Air IT revenues not linked to PBs, reporting stronger growth rates in NCDs and thirdly, by positive foreign exchange rate effects. In the full year, revenue per PB increased by 11.4% supported by, firstly, revenues not linked to PBs outperforming PBs. Secondly, positive pricing impacts, partially offset by mix effects. And thirdly, again, a positive foreign exchange rate impact. Regarding Hospitality & Other Solutions, revenue in the fourth quarter was 3.6% above 2019, now on positive growth versus 2019. At Hospitality, the quarter-on-quarter performance improvement versus 2019 was seen across its revenue lines, and revenue growth in the quarter was also supported by positive FX effects. Within Hospitality, in Hospitality IT, several areas reported enhanced growth rates, including, among others, sales and event management, service optimization and Amadeus CRS revenue supported by new customer implementations. Media & Distribution revenues continue to advance backed by stronger growth rates in media transactions and Business Intelligence also progressed, driven by new customer implementations. In the full year, Hospitality & Other Solutions revenue was 4.2% below 2019, impacted by the effects of the pandemic, but with quarter-on-quarter performance improvement versus 2019 through the year. Please now turn to Slide 10 for a review of our EBITDA evolution versus 2019. In the fourth quarter of 2022, our EBITDA amounted to EUR 398 million, 17.3% lower than in 2019 and 3.2 percentage points ahead of prior quarter's performance. The EBITDA performance versus 2019 resulted from, firstly, the revenue evolution explained before. Secondly, lower cost of revenue than in 2019 by 18.5% linked to our booking volumes evolution at our Hospitality business and thirdly, a 4.9% decrease in our combined personnel and other operating expenses cost line compared to 2019. In the full year 2022, EBITDA amounted to EUR 1.64 billion, 26.5% below 2019. If we exclude the EUR 51 million nonrefundable government grant received in the second quarter of the year, EBITDA amounted to EUR 1.589 billion, 28.8% below 2019, resulting from the revenue evolution described. The cost of revenue decline impacted by lower volumes, and a 5.8% reduction in our combined personnel and other operating expenses cost line relative to 2019. Now to zoom into our fixed cost evolution, we will focus on the change relative to 2021. Please remember, we completed our cost optimization program in 2021 and thus, there are no more associated implementation costs in the P&L in 2022. But we continue to remove these from the 2021 P&L for comparison purposes with 2022. Our P&L fixed costs in the fourth quarter of 2022 compared to the same quarter last year was 17.5% higher, excluding negative foreign exchange rate effects, our P&L fixed costs grew by 14.3% in the quarter. This cost evolution resulted from an increase in firstly, R&D investment, as Luis described. And secondly, non-R&D spend like travel and training among others, driven by the business expansion relative to prior year, all impacted by higher inflation than the previous year. For the full year, removing the positive effect from the government grant in Q2, our P&L fixed costs, were 16.2% higher or 11.8% if we exclude negative FX effects. The evolution resulted from, firstly, via R&D investment and secondly, growth in other cost lines, driven by business expansion, again, impacted by higher inflation levels than in prior years. Taken together, P&L fixed cost and CapEx in 2022, excluding the positive effect of the government grant in Q2, we had 13.7% ex-FX growth within the 10% to 14% ex-FX fixed cost growth range expectation we had for the year. As commented before and during last year, we are on the higher side of this range, largely due to effects linked to higher inflation and energy costs which were difficult to foresee back in February 2022 when we provided the cost range. To review the evolution below the EBITDA line briefly, in the fourth quarter of 2022 compared to 2021. D&A expense was broadly stable with higher amortization expense from internally developed assets, offset by lower depreciation expense from a reduction in hardware investment, largely driven by our shift to cloud. Net financial expense decreased driven by an increase in financial income and exchange gains. Interest expense was 11.4% higher caused by a higher average cost of debt relative to last year despite a lower gross base. Our income tax rate in Q4 2022 was 21.4% comparatively in 2019, the tax rate was considerably lower driven by regulatory changes as described at the time. This income tax rate increased, slows down adjusted profit growth, absent which performance in Q4 versus 2019 improved relative to Q3. In the full year, adjusted profit amounted to EUR 742 million, 41.2% below its level in 2019 or 44.3% below 2019 if we exclude the government grant in Q2. Please turn to Page 11 to review our cash flow evolution. I will start with CapEx. In the fourth quarter of 2022, our CapEx increased by EUR 17 million or 11.5% compared to the same quarter in 2021 and by 23.1% in the year 2022, driven by higher capitalized R&D investment. R&D investment grew by 23.5% in the quarter versus 2021 and by 29.2% in the year, in line with our expectations to support, firstly, customer implementations; secondly, our hospitality platform, and thirdly, enhancing our Airline IT solutions offerings and the fourth point, our NDC-related solutions and capabilities, and fifth, our partnership with Microsoft, including the migration to Cloud. With regards to free cash flow, excluding cost saving program implementation costs paid, we generated EUR 179 million in the fourth quarter. Our free cash flow generation in the fourth quarter of 2022 equaled 81% of free cash flow in the fourth quarter of 2019, and this evolution is fundamentally explained by our EBITDA evolution. Free cash flow generation in Q4 was slower than in Q3, primarily due to the quarterly seasonality of volumes, which generates quarterly EBITDA seasonality and also seasonality of cash tax payments. For the full year 2022, we generated EUR 834 million of free cash flow, excluding cost saving program implementation costs paid which in turn amounts to EUR 783 million, excluding the government grant received in Q2. To recap on 2022 from a financial perspective, we are pleased Amadeus has reported positive profit for the full year now. We have a free cash flow generation quickly approaching pre-COVID levels. We are pleased to report that Amadeus is back again within its target leverage range of 1 to 1.5x net debt to EBITDA, and we are resuming ordinary shareholder remuneration this year. And with this, we have now finished the presentation on our 2022 results, and I'll pass back to Luis for our views for 2023. Please turn to Slide 13.

As you have seen in '22, significant progress was made towards recovery. However, we are still at a point where we see degrees of uncertainty in the very immediate term making it difficult to narrowly forecast our evolution for '23. I'd like to discuss broadly how our P&L and cash flow generation may evolve in the year in a specific global traffic scenario. This being in mind, we still see moving parts that could influence the outcome. Regionally, this traffic scenario does not materialize, if not, this broad consideration may not be valid. In '23, as you might expect, our results will be largely dependent on the traffic. IATA currently forecast 21.1% global air traffic growth for '23 over '22. In this scenario, with global traffic growing 21.1%, we estimate our group revenues would grow in an approximate range of 20% to 22.5% over prior year. This growth will result from our segment evolutions. In Air Distribution, we see our revenue growth supported by continued share gains and an expansionary revenue per booking. In Air IT, our revenues will grow, driven by the PB evolution which will be supported by customer migrations from '22 and '23. As PBs grow, our revenue per PB will continue its strength of slowly declining. In Hospitality & Other solutions, our revenue will grow on the back of volume growth and new customer additions across our portfolio. With this level of revenue growth, we expect our EBITDA margin to continue to expand. Our P&L fixed costs will continue to grow in the year. However, this cost growth will be compensated by operating leverage from volume growth, allowing for margins to expand. In regards to free cash flow, we expect CapEx to continue to grow, although at a slower pace than last year, and cash taxes should increase over prior year as taxable income results continue to improve. That's going to be the evolution in specific traffic scenario of [indiscernible] with discuss effects should support cash flow generation in our range of EUR 1 billion to [indiscernible] in '23. I will now pass over to Till for additional color.

Thank you, Luis. First, let me give you some color on our P&L fixed cost evolution expectations for 2023. In this traffic scenario and with the information we have today, we expect P&L fixed costs to grow, driven primarily by our R&D efforts focused on delivering on our customer implementations, and to continue to invest in all our key strategic areas, and we also continue to expect high inflation. From these 2 effects, we expect P&L fixed costs to grow in a range between 7% to 10% in the full year over our 2022 P&L fixed costs, excluding the government grant received in 2022. Additionally, this year, we are going to start to have cloud R&D and processing costs weighing in a bit more on the P&L side. I will elaborate on this shortly. And therefore, including this effect as well, our P&L fixed cost growth in 2023 should range between 10% to 14% over 2022, excluding the government grant received in 2022. Please note, this cost growth in 2023 from a quarterly perspective will be higher in the first half of the year and slower in the second half. In relation to our migration to the cloud, we continue progressing well, and the project is well underway. As you may recall, in February 2021, we announced this project and that it would take us around 3 to 5 years to complete. As we said at that time, this process requires incremental R&D efforts and involves a small shift of CapEx to OpEx. The shift of CapEx to OpEx comes from lower tangible CapEx required for hardware and software investments at our own infrastructure in exchange for higher OpEx, cloud processing cost from the use of an external provider or public cloud. The long-term effect on our P&L from having making this shift will also be a small negative contribution to our EBITDA margin evolution with a positive contribution to our EBIT margin evolution. Furthermore, to complete the full view on this project comparatively to before, we will benefit from all the advantages Cloud brings, its modern tools and functionalities. In 2023, this is the first year, we will see higher cloud costs both R&D and cloud processing, weigh in more in our P&L as a sign we are advancing in the shift. We expect, therefore, a fixed cost increase in association to this project in 2023 and also in 2024 versus the prior year, both in this type of low to mid-single-digit growth range. We also expect P&L cost decline associated to this project when we complete our cloud migration into 2025 or 2026. Moving on to other topics. With regards to our segment margins in the IATA traffic scenario, we see the contribution margin at Air Distribution and Air IT solutions expanding, benefiting from operating leverage as volumes grow. We see the contribution margin in 2023 at Hospitality & Other Solutions diluting slightly, resulting primarily from business mix evolutions we expect in 2023 as well as strong business expansion in payments. The cloud-related costs increase I was referring to before will come through in the indirect cost capture in the segment reporting. As a final point, to offer some clarity on inorganic PB evolution into 2023, please remember that Russian carriers have de-migrated from our platform, and these contribute approximately 25 million PB in 2022. On the positive side, we have, firstly, 2022 Air India migration, lapping in Q2 2023, plus secondly, all the migrations taking place in 2023 that Luis has already mentioned, depending on traffic and final migration dates, we should expect roughly an incremental 45 million to 55 million PB from these 2022 and 2023 migrations in 2023. And with that, back to Luis now for final remarks.

So 2022 has been a strong year for Amadeus. We have seen substantial volume recovery. And from a business perspective, we have had solid commercial success. We remain very focused on the future and capturing the growth opportunity ahead and we, therefore, remain disciplined in our investment programs. We are optimistic about the year and beyond about continued progress in the travel industry recovery. At this point, particularly regarding international traffic and the Asia Pac region and about how our financial performance will continue to advance with volume recovery, generating stronger margins and free cash flow generation. Thank you. With this, we have finished the presentation, and are ready to take any questions you may have.

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

Congratulations on a strong end to the year. Can I just ask, first of all, a question on the gross profits, we've obviously been running at unusually high levels for a couple of years because of the mix of the business changing. It feels like in '22, with gross profit at 75.5% were more in line with where the run rate was prior to COVID. Are there any kind of big moving parts in '23 that would move that gross profit margin materially from where we saw it in '22? Or is that a good base to think about for this year? And then secondly, the benefits that you get from the project coming in a few years' time, obviously, you're looking to be a growth company, there's lots of R&D projects that you would be looking to work on. Should we expect that to be reinvested back in the business? Or do you think that can actually -- those benefits could flow through to the bottom line?

Look, on the -- okay, let me start off with you with the gross margin question first. Look, we have given obviously a fixed cost indication because there, we've got a very clear view. In terms of the evolution of the gross margin, as I said, I do expect overall that the Distribution business and also the Air IT business and contribution margin level will going to evolve positively. And the evolution of gross margin is depending upon business mix eventually and between the different segments and also within the Hospitality segment.

I mean just to add, Adam. I mean, as you said, depending on the business evolution and if we come back closer to the 2019 mix, of course, there would be a progressive movement, that was the same logic on the same margins as you are mentioning, okay? But it will depend again how things are recovering and what is the final business mix.

Second question on the benefit that we've got at the end of the cloud migration from, obviously, at the moment, we are carrying double cost. And once the migration is completed, this element will fall away. As we said before, obviously, and you made the point in terms of the opportunities, we've got to invest into our R&D and progress with further projects. As we said before, we would like to invest, reinvest those things into future growth.

The next question comes from Alex Irving from Bernstein.

Three for me, please. First of all, we've seen rising NDC penetration over the last couple of years, increasing disclosure from IATA around the penetration that is in the agency channel. Could you please tell us what your share of NDC bookings is today? And how do you expect that to evolve over the course of 2023. Second, staying on NDC. Clearly, we've seen one large U.S. carrier announced plans to withdraw 40% of its content from EDIFACT channels from April. What impact does that have on demand you're experiencing from agents in the North American region? And then finally, 1 on 1 order, clearly, we had the partnership with Finnair. Great to hear more about that. More broadly, have you detected a meaningful uptick in airlines exploring order management systems with you? And how do you expect your development investment in this space to evolve over the next 12 months, please?

Okay. Let me try to cover. I don't know if I understood the last question of Finnair, but I will try to cover probably related to our announcement of what we are doing with them. We look -- with regards to NDC overall, I mean it's a strategic priority for us. We have been investing -- we are in the process of implementing that. We have implemented already airlines and travel agencies, but this is a continuous process and progress. In 2022, it was a very small percentage of our bookings, a percentage of the total, we expect that to increase. Of course, it will depend on the adoption that we are working with our partners. It's difficult to give you a specific number. But of course, as we are -- as the starting point is low, we should see an improvement. But still, I would say, look, this is an ongoing project that will take years, and we'll work with our partners to be part of what is needed to really [indiscernible] NDC. So overall, pleased with the evolution, pleased with the performance, still very low volumes. And yes, we expect increase in '23, but still not to be a huge amount of volumes compared to our total. With regards to -- and this also in part what you mentioned about carriers, okay, whatever carriers that have different alternatives. We are working with them closely. And again, this is not new to really convince them or turn them our capabilities are better than any other alternative as we always do. And this is part of our discussions we have worldwide, including the U.S.. With regards to Finnair, it is an evolution of our current technology, okay, our current Altéa, which is moving more to what is called as a project order management, offer and order, some initiative led originally by IATA is an evolution of the capabilities that you have. Again, this is a long-term project that we have embarked and Finnair will be our first customer, but not the only one where we are doing together an evolution to really have a much better flows and technology moving for where it's more sophisticated. It will evolve our current way of dealing with things like ticketing, [indiscernible] these kind of things that happened in the industry for long, and it's that evolution that in my view, will take years. So happy with this. And again, Finnair has been the first one to really jump into this project, but we would expect more airlines to do so. And for us, it's positive. It's further sophistication of the technology as we always do, as we spoke about NDC and happy and ready to reinvest with our customers to support their growth and the evolution.

The next question comes from Sven Merkt from Barclays.

Maybe first on the fixed cost guidance for 2023. What drives here the high and the low end? I guess it's not necessarily correlated to the high and low end of the revenue guidance, but would you manage cost towards revenues? Or what else will drive the low or the high end of the cost guidance and then secondly, on the revenues per booking. This is expected to increase for 2023. But can you give us an update where you see this in the long term, considering the impact of pricing mix and especially NDC.

So in terms of the range of our fixed costs, it's not linked to the revenue scenario. It is obviously driven by factors. Again, as I mentioned, the R&D side that we are investing into equally the inflationary environment that we are in. We obviously have got a certain view on this. I've equally given you the element of what I expect from our cloud migration and the processing cost. So you've got certain elements that actually will move or are not set in stone as we enter the year right now. And therefore, also, if we've got certain opportunities to obviously invest and accelerate certain things, we felt comfortable of operating with that range, which is composed of R&D, the higher inflation and what we've now this time around, highlighted is the cloud migration and processing costs. And this comprises a range. In terms of revenue per booking, again, positive evolution that we've seen in the fourth quarter and for the full year. There is, again, in the fourth quarter and also the full year, a little bit of an FX impact. I've highlighted that, but we've got underlying positive pricing evolution, which is true. There's still a small negative in terms of the booking mix. And again, as we now look forward, of course, I expect that the underlying positive pricing evolution that we've seen in this year is there to stay. FX, we're going to do whatever it's going to do. Booking mix, I would hope, is recovering further as a positive. And therefore, overall, these are the key drivers that we're going to give you the answer to that. But I would be -- again, we've seen good evolution in this year. And I would also expect that those elements hold true for 2023.

The next question comes from Toby Ogg from JPMorgan.

A couple for me. So maybe just back on the margins. I just wanted to focus on the GDS contribution margin. Specifically, those came in at 45% so already sort of back to the 2019 levels. And obviously, we've had various developments since then, including cost savings, inflation and so on. So how should we think about the longer-term opportunity for contribution margin expansion in the GDS business? And then second question, just on the revenue guidance, you've obviously mentioned the IATA forecast of 21% there as the baseline assumption. How should we think about translating that into Amadeus's own air bookings recovery within that? Because clearly, IATA has various different factors in there like China and sort of low-cost carriers, which can also have an impact on the GDS growth.

I'll take the first question in terms of the evolution of the air distribution margin. We have highlighted before as well that we took advantage during our cost-saving program in 2020 and 2021 as our most mature business to streamline the cost structure in there. And this is where you can now see, together with the pricing evolution in the segment, that actually contribution margin is already reaching the 2019 levels. Now we've taken obviously a big part of that in the past due to the cost saving program already and created that operating leverage. So therefore, I would say, benefit largely taken and now it depends upon mix effects, again, pricing evolution and so on and so on. The revenue guidance in terms of IATA, you've got between IATA's RPK and our numbers, obviously, several factors that we've spoken about before. This is a difference in footprint in terms of China, China domestic. You've got also the different exposure in terms of low-cost carriers. And of course, you've got also an element of disintermediation, which we've had also in the years before. Again, we do see IATA figures and the IATA RPK figures as the best available indicator from an air traffic point of view, leading as well or as a primary driver also for our business segments. And this is why we have chosen this particular scenario and based our guidance on this.

The next question comes from Charles Brennan from Jefferies.

I've got a couple, if I can, actually. Firstly, can you just say a few words about the Hospitality segment, particularly what aspects of the business are dropping away in '23 that lead to the margin dilution? And then maybe can you just say something about the pipeline for new customers and then secondly, you've given us a fair amount of detail on the cost base for 2023. I'm just trying to get my head around what it means for 2024 as well. If we've got 3% or 4% of incremental cost growth coming through from the cloud project, does that mean that 2024 is another year of double-digit cost growth overall?

Let me take Hospitality first, yes. Look in Hospitality, as you know, we have many different products, many different lines, and I will take one example. I mean the bookings on our distribution, as you know, are part of our Hospitality business, hotel bookings. Hotel bookings are growing. But of course, apart from the natural growth, they also grow when the GDS is recovering and the traffic is also recovering. And therefore, we expect a strong growth of these bookings in 2023. These bookings are very good in terms of growth of revenues and in terms of margin but they have incentives associated with that as we have with our bookings, and therefore, the margin of the bookings is lower than in other lines of the business where you don't have incentives, okay? And this happens with part of our business when we do with media. So the mix expectation for next year overall in Hospitality, I mean, we expect a healthy growth again as we have got this year but some areas of the business are going to have faster recovery because they were more impacted in the pandemic than others or because of the business mix. And therefore, from our revenue growth, we feel very comfortable. But from a mixed growth, there is an impact of this mix that will have an impact on our margin. And again, it was mentioned in the call that we also report our payment business that has also a very strong growth. It's faster growing, and it's smaller in terms of the size but the fact that it's growing faster than Hospitality is also having a mix effect. So it's mainly a mix effect of the -- within the segment than really something else. I mean, it's not a deterioration of the margin because the business is growing very healthily in different lines. Of course, we have a strong pipeline. We have got a good year. I know we focus offering one specific part, which is the CRS where we announced the deal with Marriott and we keep focusing there to really have additional customers. But the growth that we have cut and the growth that we expect in the revenues is the result partially of the recovery as it was also impacted, but not so much of the rest of our businesses, but the rest is mainly adding additional customers, and we had a good year in terms of customer signatures of our different businesses. And therefore, this would come on top of the organic growth in 2023. And again, coming back to the CRS, yes, we talk to customers, we keep evolving, implementing the customers that we have. And again, with hopes that this will also generate revenues in the short and medium term. But overall, this is a business that has a good commercial traction in many areas that I described before.

In terms of 2024 and kind of the thinking in terms of cost, obviously, you will going to have inflation, and we expect obviously that inflation is going to go down. But overall, I would just say, we expect kind of cost growth to moderate.

The next question comes from Michael Briest from UBS.

Yes. Two for me as well. So Luis, on the PSS side, I don't think I saw a new customer mentioned in the press release today and I think only one last quarter. Apologies if that's not quite correct. But can you talk about the pipeline of new logos as opposed to sort of expanding your footprint in existing customers, particularly in the U.S., do you see any opportunities in 2023. And then Till, just on the cost side, I'm pleased to see the 10% to 14%, but a little surprised because if I think about last year, in the first half of '22, your headcount was -- average headcount was flat on '21 and you've added 8% your headcount through the course of the year. And as you mentioned, inflation really had in early to mid-2022. So a lot of companies see it as more of an issue this year. I'm just wondering, are you going to slow hiring this year, because I would have expected maybe inflation and headcount would mean cost increases will be higher or there's something else in the fixed cost, I'm not aware of.

Okay. Look, PSS. I don't know what we have announced the latest deals. Of course, we announced when we can or we have deals, Michael and look, we look forward to really keep signing not just getting upselling, but also signing new customers. I mean, I think we had an exceptionally good 2022 with a number of customers that we are now implementing. And hopefully, this will continue. And again, the U.S., of course, we would love to really have additional customers as we have got in the past. This is our focus. More than that is difficult to say. Of course, we are engaging with everyone. We are close to them. We work with some of the big customers in the U.S. for some pieces of our technology, not for the core PSS and we would like to convince them to work with us in the future. But again, as I always say, prospects are wanting and contracts as another thing, and we have relationship with many customers around the world until we are able to have something complete, it's very difficult to be specific here. But again, we are happy with the performance. We are pleased with the evolution of the business. And this business requires ongoing sales and contracts. Some years are more intense than others. Hopefully, we will keep going in 2023 as we have in '22.

Michael, on the cost side, the -- so we ramped up resources obviously throughout last year in order to support the customer implementations and the R&D focus points. It did ramp up more in the second half, which, again, as I said before, this is a driver also for 2023 cost because you've got to carry over of and the annualizing effect of those resources as we see. And this is literally kind of the answer to the headcount evolution. And then bringing it back, you've got those 3 elements. R&D investment, inflation across our cost base and the new element, which is now weighing in more visibly which is the cloud cost, which includes migration and processing costs.

Just to add one comment. I mean -- and you have seen in the margins of our businesses and our evolution for 2023. I mean, again, the majority of our increase in the fixed cost apart from the inflation and everything that will qualify, I mean is scenarios where we expect further growth. That's why I mean, of course, does not mean that we don't expect that in the distribution business. But I mean, the requirements of investments overall have been less and we have the strong operating leverage and in some areas that are newer or what we are investing or what we are marketing customers is what we are putting our R&D efforts. And this is why you see different margin evolution depending on the growth potential and around the speed of recovery.

The next question comes from Nooshin Nejati from Deutsche Bank.

Two for me, please. The revenue per PB had a big jump in Q4. Can you quantify the impact of pricing compared to other factors? How should we think of this impact going forward? And what would be the saving of any decline here? And you mentioned the 70 million PB run rate by end of 2023. Can you tell us how we should think about the phasing up this as well? And my last question, when I look at the Western Europe, I'm wondering what is your observation over there? Why do you think it's so behind other regions still. Do you see a fundamental change in behavior here or what are the main factors for it to be fall behind.

Let me start with the revenue per PB evolution. We obviously had a positive evolution, as you say, I've highlighted that there is a positive FX impact, which is a little less than it was actually in the third quarter. And underneath, we've got -- again, we've got mix effects, but we've got also there a very clear positive pricing evolution, which I've described from, again, in inflationary price increases, upselling, and the incremental deals that have been coming through in there. So these are the key components of the positive revenue per PB evolution. I didn't understand you had a run rate question on passengers boarded. Do you mind repeating that, please?

You mentioned the 70 million PB run rate by end of 2023, if I'm correct. I was just wondering how should we think about this?

So for 2023, you would be, in essence, needing to think of an additional 45 million to 55 million PB due to the implementations that are going to come in, in a phased way.

All right. And sorry, on the first question, I was just wondering how much of this pricing impact you're seeing going to -- like can you quantify the pricing impact on the revenue per PB and how we can carry into 2023? Like I'm wondering how we should think up any sort of decline going forward?

Look, it is -- let me put it like that. Within that price increase that we are seeing, it is a very important element, okay?

Right. Got it.

We didn't get -- I'm sorry, we are trying to understand the last question still. Yes. Yes, in reality, Western Europe, we have seen the recovery, I mean we see some impacts, especially in some countries. I would say everything that is around Russia. I mean, we see these countries have been an impact there. So yes, overall, Western Europe is not performing as other regions. So look, it is what it is. So more than that, I mean we cannot say we expect this to keep recovering. It is also true that in Western Europe, and you have seen from the figures, I mean, the low-cost carriers have had a very strong recovery compared to the full service carriers, I'm talking here about the GDS. And therefore, on the GDS front, it has had an impact of recovery, but hopefully, there will be a further recovery in that part of the world. So I would say that the impact so far, the fastest growth of low-cost carriers, not [indiscernible] worldwide, but very specifically in Western Europe, much more. And then the second impact, I think the world is having an impact more than in other parts of the world in areas around Russia. So we have seen some countries around that with worst performance of other companies.

The next question comes from Victor Cheng from Bank of America.

Congrats on the fourth quarter. Three if I may. And just going back, thinking about IATA 21% growth for this year, how should we think about that relative to not just distribution, but also in PBs evolution this year. I think, obviously, you have mentioned earlier because of mix in China as well, but can you give us a bit more context around that? And secondly, on the bookings performance year-to-date, clearly, it has improved massively versus Q4. Can you give us some color on what is driving it, is corporate driving recovery? And where do we see corporate levels versus leisure right now? And lastly, I understand NDC is still very low volumes. But can you help us understand your latest perspective on unit economics on NDC bookings both on top line and margins?

Yes. Okay. Let me start with some color and then Till, if you feel you can add more. I mean, look, the way we work, again, I mean, as you have seen historically with IATA, okay? We take into account in this case, China of course, because in -- this is having an impact. Without the impact of disintermediation, we plug our market share expectations for the year and without these are the main impacts. You are right to the booking estimation as you do. So more or less, we are doing our do. We will have a year. Of course, we have also the bottom up and the input from the commercial organization, and therefore, we reach [indiscernible] But it's not different from what we have done in the past. In the PB, it is a bit different because, of course, we have the list of PBs [indiscernible]. The mix is different. We take into account that plus the migration. So look, using IATA is always a good reference for us. Of course, things may evolve, and we will adapt to that. But this is mainly -- as we have done in the past, we are used to this reference and it has been a reliable one, of course, considering the mix impact that we have. When we talk about the evolution in January or February, look, January was -- we started with the year. Of course, difficult to read what is going on with holidays always, but we started weak, and then we have seen an improvement, and improvement has been across the board. Of course, the fact that the Asia is coming back, in some countries in Asia has got a strong performance. And there is a kind of moving back to moving back to more normality in terms of mix. So international traffic was also positive because at the beginning, as you know, was very much focused on the U.S. domestic was the first one, leisure versus business, overall has been coming back and recovering more towards the pre-pandemic in terms of leisure versus business and in terms of international versus domestic as more countries open and we have more growth. That has been the reality. Still saying that. As I mentioned before, low-cost carriers have benefited more. But again, we see also full-service carriers coming strongly in this part of the year. Still a bit early. That's why I mean, as we have seen a weak beginning of January, a strong second part than beginning of February, we have been careful and cautious how our counting may evolve because we have seen that in the last year with some months very strong, some of the months, weaker and we have been prudent about how this may evolve in the future, but it's true that we have seen a strong recovery in the month of February. And I don't know if...

I can just add to the corporate leisure. Again, the TMCs and corporate tax have actually behaved fairly stable and steady. Remember, during the second quarter last year already, we saw a proportionate recovery and uplift in the TMC segment. So yes, it was underpinning that there was good demand in the corporate -- in the TMCs or in the corporate travel as well.

And yes, I didn't cover NDC, Look, the economics, I mean, we are not disclosing that in our deals, but we don't expect, as we said, look, a negative impact for the economics of NDC at margin level at a gross level. I mean, you have a kind of contracts. There are different models that we are applying. And still, the volumes are small. So it should not have a relevant impact in any line of the P&L at least in 2023.

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

So thanks again for joining the call and looking forward to the first quarter and hopefully, 2023 keeps recovering, and we'll have another good year. Thanks a lot. Good Bye.