Amadeus IT Group, S.A.

Good afternoon, ladies and gentlemen. Welcome to our first half 2020 results presentation.

Thank you very much for being with us today. As always, Ana, our CFO, is here as well, and she will walk you through the details of our financial performance, and I will focus on our most relevant developments.

If I start on Slide 4. I would like to start today by making a few remarks on the market activity we have seen over the last few months and its impact on our segments.

April was the first full month of large-scale shutdowns across regions, and all regions recorded air traffic contractions close to minus 95% rates versus 2019, rates which mostly persisted through May, which closed at minus 91% growth compared to the prior year. At the end of May, we have started to see an increasing number of flights being scheduled again and an improvement in domestic air travel, particularly in China, but also in the U.S.

and, to a lesser extent, in Europe, which continued through June. In June, air traffic, per IATA, was minus 86.5% in the month compared to 2019.

Our bookings -- air bookings in April, May and beginning of June were negative, as cancellations exceeded gross bookings. Towards mid-June, we started to see positive Amadeus net air bookings, as the higher level of cancellations we saw in March, April and part of May started to slow down, and as gross bookings also started to improve in response to more air passenger seats being made available.

As of the last week of July, Amadeus net bookings remained positive daily, with the underlying GDS industry and Amadeus gross bookings, excluding cancellations, ranging between minus 75% to minus 80% daily versus 2019. However, over the second quarter, air bookings were negative.

They decreased by 113% relative to last year, driving negative Distribution revenues, which declined by 102% relative to prior year. If we were to exclude the impact from the heightened cancellations caused by COVID-19, our underlying Distribution revenue evolution in the second quarter would have been minus 82% compared to 2019.

In the first six months of the year, our air bookings and Distribution revenues decreased by 78.6% and 73%, respectively, relative to last year, or by 53% in revenues, excluding the COVID-19 cancellations effect. Amadeus Passengers Boarded performed in line with industry traffic throughout the quarter.

From late May, early June, we started to see improved growth daily, which have persisted through June and into July, where daily our PBs are growing around minus 80% compared to 2019. Over the second quarter, Amadeus Passengers Boarded declined by 93.9% versus the previous year, resulting in an evolution of minus 56% in the first six months of the year over the same period of '19.

Also in hospitality, our CRS transaction showed an improvement in June, supported by our exposure to the U.S. market and customer implementations in the second half of '19, which has persisted in the first weeks of July.

In the second quarter of 2020, our IT Solutions revenue growth was minus 55.8% compared to '19, and it outperformed passengers boarded growth, supported by airline services revenue performance and by revenues across our business portfolio not directly linked to airline traffic or not driven by transactions, particularly in the area of hospitality. In the first six months of the year, IT Solutions revenue had a minus 29.4% revenue evolution.

If we move on to the next slide to recap on our group performance. In the three months period from April to June, driven by the volume dynamic I have just described, Amadeus group revenue declined by 82% versus 2019 or by 71% if we exclude cancellation effects associated with COVID-19.

Our cost of revenue continue to flex with air travel agency bookings and our fixed cost reduction plan announced in March started to yield results. In the second quarter, our P&L fixed costs, composed of personnel and other operating expenses, declined by 9.6% versus the same quarter last year.

The P&L fixed cost reduction was hindered by an increase in bad debt associated with the COVID crisis. Excluding that bad debt, our P&L fixed cost decreased by 15.6% in the second quarter of the year compared to 2019.

As a result of the severe impact from COVID on our volumes in the second quarter, partially mitigated by a 50% total cost reduction relative to the second quarter in '19, we experienced a negative EBITDA evolution of minus 126.4%. Excluding the cancellations and bad debt effects linked to COVID, our EBITDA evolution was minus 109.4% in the quarter versus last year.

Capitalized expenditure, also part of our fixed cost reduction plan, declined by 33.7% in the quarter compared to prior year and supported a free cash flow result for the second quarter of minus €462 million. For the first six months of the year, our revenue declined by 54.7% relative to 2019 and -- or by 43%, excluding the cancellation effect.

EBITDA experienced a negative evolution of 83.6%, impacted by COVID-associated cancellation and bad debt, excluding which, our underlying EBITDA performance for the period was minus 65% in the first half of the year versus the same period, supported by the progress in our fixed cost-reduction plan. In the first six months of the year, we experienced an adjusted profit loss of €89.2 million, which had an evolution, excluding cancellation and bad debt, of minus 89% compared to last year.

Free cash flow amounted to minus €172 million, with leverage closing at 2.07 times last 12-month EBITDA. As you can see, we have endured the toughest trading quarter in our history.

We can say that we have seen an improvement in the quarter and in July, but it is still early to tell whether we have a trend or not. As you know, we focused early on, on securing liquidity and implementing measures to protect our cash flow.

We are confident we have enough liquidity to sustain a severe scenario with air traffic at minus 80% or traffic of -- 2019 traffic throughout 2020 and 2021 and even beyond. Among our measures to respond to the crisis.

On March 23, we announced €300 million cost efficiency plan to reduce fixed costs. And these followed actions we have taken from late February to immediately limit discretionary spending and cash outs.

We have now further developed this plan with the aim to further strengthen Amadeus' capabilities for the future, which also entails efficiency gains. I will discuss this shortly.

Let me first review our liquidity in the following page. We continue progressing on the liquidity front in quarter two.

As you may know, in May, we issued bonds amounting to €1 billion, both enhancing our liquidity and pushing out our debt maturities, €500 million to '24 and another €500 million to '27. Following this issuance, Amadeus canceled only half or €500 million of its undrawn €1 billion bridge to bond loan executed on March 25, 2020.

Therefore, at present, liquidity available to Amadeus amounts to €4.1 billion, and it is composed of cash of €2.4 billion, resulting from the capital increase and convertible into shares bond issues we did in April and May; a €1 billion undrawn revolving facility; €500 million undrawn bridge to bond loan; and an undrawn covenant-free new European Investment Bank loan of €200 million signed on June 29. This will allow us to cover our financial maturities over '20 and '21, which fundamentally amount to €1 billion in bond maturities, €500 million in October 2020 and €500 million in November '21; €80 million of an older EIB loan, whose covenants have now been waived until September '21; and commercial paper of €513 million outstanding as of June 30.

However, we have been capable of refinancing a significant part of our commercial paper maturities during second quarter, and now our commercial paper is eligible for European Central Bank purchases under the Pandemic Emergency Purchase plan. On the following slide, as I mentioned before, Amadeus developed and initiated in March '20 a comprehensive plan to reduce our base of cost in €300 million to protect the company in respond to the COVID-19 impact.

We are now complementing this plan with additional actions that will take place in the second half of this year and that involves a reduction in workforce across a number of jurisdictions. Additionally, we have also set several programs to improve the way we operate, the way we serve our customers and to foster innovation.

The combined workforce reduction and operational programs will result in a fixed cost and CapEx reduction by approximately €250 million in 2021 relative to 2019. These savings are incremental to the €300 million cost savings plan announced in March 2020.

Therefore, we expect to deliver a fixed cost reduction, both including OpEx and CapEx, in 2021 versus our cost base in '19 of approximately €550 million, part of which will also benefit 2020. We'll incur implementation costs related to the workforce reduction and the operational programs' implementation roughly €200 million to be incurred in -- throughout 2020 and 2021.

Our €300 million fixed cost reduction plan announced in March are part of a set of measures to respond to the initial impacts of COVID. This plan involved actions which had relatively short time frames to implementation and practically no implementation cost attached, such as reducing our contractor base and cost of third parties, implementing hiring freeze, limitation to travel and other discretionary corporate spend.

And you can see the effects of this plan are well underway, with P&L fixed costs, excluding bad debt, down 15.6% in the quarter relative to last year, and CapEx also down 33.7% in the quarter. As long as volumes continue to be highly depressed relative to 2019, this reduction in fixed costs pertaining to this €300 million savings plan will be maintained.

But if volumes start to recover, some of the cost lines affected by this saving plan may show an incremental growth trend above the one seen in the past as we may need to retake some activities such as travel or training, for instance, offset by the additional savings to be obtained from the programs in announcement plan in the years beyond 2021, as some of them will take a longer implementation period. The announcement plan we announced today will make our business stronger for the future.

And it will bring approximately an additional structural €250 million in fixed cost reduction in 2021. And this includes, among others, the following initiatives: the acceleration of our existing digitalization programs to have a more integrated sales to implementation to customer support experience; the simplification and the standardization of a number of processes across our businesses and corporate support areas.

Also, as we have in recent years made a number of acquisitions to secure new capabilities, we are accelerating the integration of these different solutions portfolio and commercial operations, which will deliver revenue synergies and improve our overall operational effectiveness. Additionally, we are speeding up our adoption of Agile, lean and SAFe methodologies to become nimbler, driving faster times to market and increasing productivity and quality, whilst also delivering higher customer engagement.

Finally, we have undertaken some internal reorganization steps, which we believe will enable us to work in a more aligned way with our customers and partners, to better focus on the growth opportunities within the new travel landscape and to enhance the decision-making process and everything related to technology as well as foster our innovation. So, to recap, we are expecting to see a total fixed cost reduction of approximately 550 million in 2021 relative to 2019 costs, which will accelerate our path to profitability.

Before we move on to the details of our financial performance, let me give you an overview of our business activity during the second quarter. And please turn to Slide 8.

Despite the tough operating environment over the past months, we have remained highly active with our customers and commercial activity continued. In Distribution, we signed 9 new contracts or renewals of distribution agreements with airlines, amounting to a total of 32 in the first half of the year.

We continue to make progress with our NDC program. American Airlines implemented Amadeus Ancillary Services via NDC.

Two other large airlines have connected to the Amadeus Travel Platform, one of them through our solution Altéa NDC and will start piloting our NDC technology for offering ancillary content through the travel agency channel. In Airline IT, a 40 million PB carrier and a small African carrier contracted for the Altéa PSS.

Also, TAAG Angola implemented the Altéa PSS. Korean Air renewed its Altéa contract during the second quarter and signed up for the Amadeus Digital Experience Suite.

Air Tahiti and Tarom implemented Altéa Departure Control and Tarom also implemented our Segment Revenue Management. Qantas successfully implemented Personalized Merchandising and Personalized Servicing as part of its implementation of Amadeus CM Customer Experience Management.

Ural Airlines implemented NDC and can now offer its fares and additional service through the channel of its choosing, providing a consistent experience to all customers, regardless of the channel. In hospitality, we've done a number of successful agreements, including, among others, the renewal of TravelClick's business intelligence technology with Aimbridge Hospitality Holdings across their more than 230 properties as well as Hyatt's Select Service Hotels across close to 500 properties.

Also, we signed a new deal with Grupo Posadas to implement our web services solutions across 33 of their properties. Our Airport IT customer base continued to expand, and we saw particular interest from customers regarding our touchless technology.

In July, we announced that Avinor, the firm operate in Norway's 44 state-owned airports contracted touchless check-in and bag drop technology from the ICM Amadeus portfolio for a number of its properties. Thanks to these technologies, passengers can check in, drop bags, pass through security and board the aircraft without interpersonal contact, thus allowing Avinor to adapt to the new social distancing processes and requirements.

Also in July, Queen Alia International Airport in Amman deployed our full suite of airport solutions, allowing the airport to deliver automated new passenger services by making check-in and other key functions mobile, so that they can be completed at any point within the terminal to avoid passenger congestion and again ensure social distancing. For Lauderdale-Hollywood International Airport, already a customer of our airport suite, also contracted for Amadeus Biometric Boarding.

I will now turn over to Ana.

Thank you, Luis. Hello, everyone.

Before I get into the details of our financial performance, let me explain what we have done this quarter to help you to better understand our evolution. COVID-19 has brought certain associated effects.

We have estimated an underlying performance view to exclude these effects on the P&L. These are mainly four effects: cancellations; bad debt; impairments; and the upfront financing transaction fees.

If we go to Slide number 10, as you can see, we have a table with our key P&L captions, where we display in the column A the reported figure evolution resulting from comparing Q2 and half 1 of 2020 with the same period in 2019. Additionally, we have a column C labeled Underlying Change, where we show the resulting evolution from excluding this COVID-19-associated effects that have impacted this quarter performance.

And in Column B, we have quantified these effects for you by caption. Let me walk you through each of them.

The largest one comes through the cancellation of bookings. Given the dislocation in travel, we have had a very high cancellation ratio to gross bookings in the quarter.

This means that the number of cancellations in the period has exceeded the number of gross bookings. As you know, a cancellation implies a negative revenue as we return the booking fees and also a negative cost as we have returned the incentives.

In Q2, this negative revenue and this negative cost of revenue were, in turn, offset by the respective cancellation provisions effect. Due to the increased cancellation levels across the travel industry, we have also increased the cancellation provision during the first quarter of the year to cover for cancellation risk in the second quarter.

Therefore, during the second quarter, we have applied the cancellation provision, which mitigated the negative revenue and the negative cost of revenues from the cancellations [actual] in the quarter. Together, combined, the negative revenue or negative cost of revenue from cancellations that have exceeded a normal situation of cancellation ratio, net of the respective cancellation provision in the period, had a negative impact of €156.1 million on revenues in the second quarter, and €329.2 million in the first half and a positive impact of €91.5 million on cost of revenues in the second quarter and €152.2 million in the first half of the year 2020.

We also saw an increase in the bad debt provision, negatively impacting the combined personnel and other operating expenses cost line, driven by the reassessment of the credit risk of some customers that became high-risk customers in accordance with our default definition; and secondly, the changes in the provision matrix, in the context of COVID-19. The bad debt provision increased by €34.9 million and €46.5 million in the second quarter and in the first half of 2020, respectively.

So excluding bad debt, the combined personnel and other operating expenses declined by 15.6% and 6.7%, respectively, in the second quarter and the first half of the year. Another effect has been an impairment charge amounting to €63.1 million in the second quarter.

I will explain this shortly, but the charge is related to some customers ceasing operation or canceling contracts as well as some assets not delivering the expected benefits over the same time frame as before have ended up in this impairment charge. If we exclude impairment charges from half 1 2020 and half 1 2019 results, D&A expense declined by 0.3% in the second quarter and increased by 5.7% in the first half of 2020.

And finally, upfront fees for the financing transactions undertaken in March, April and May 2020, which amounted to €26.3 million and have been paid, raised net financial expense caption by €2.2 million both in the second quarter and in the first half of 2020, respectively. So let's review now the revenue in the period.

Firstly, by segment. As Luis has just described, in the second quarter of the year, we had negative Distribution revenues resulting from negative bookings.

Our Distribution revenue declined by 102% in the second quarter of 2020 relative to the same period last year, driven by the impact on volumes. And that was partially mitigated by a number of effects.

Firstly, a positive revenue impact from the cancellation provisions, I mentioned. Secondly, an increase in revenues from solution supporting processes related to ticketing and cancellations.

And thirdly, other declining revenue lines, although declining at a softer pace than the bookings. If we exclude the combined effect from the higher-than-usual air booking cancellations relatively to the gross bookings and the cancellation provision, the underlying Distribution revenue declined by 82.4% in the second quarter compared to the second quarter of 2019 and by 52.9% in the first half of the year.

In IT Solutions, revenue in the second quarter of 2020 decreased by 55.8% versus the same period of 2019, driven by the low airline PB volumes. IT Solutions revenue outperformed passengers boarded growth supported by airline services revenue performance and by revenues not directly linked to airline traffic or not driven by transactions, particularly in the area of hospitality and Airport IT.

In the first 6 months of the year, IT solutions revenue decreased by 29.4% compared to the first half of the previous year. Our group revenue declined by 81.7% in the 3-month period from April to June 2020 versus 2019 or by 54.7% in the first half of the year 2020.

Excluding the COVID-19 cancellation-related effects, our group revenues decreased by 70.7% in the second quarter versus the same quarter of 2019, driving a reduction of 43.0% in the first half of the year relative to the first half of the previous year. In the second quarter of this year 2020, our EBITDA contracted by 126.4% relative to the same period of 2019, amounting to minus €155.4 million, driven by the 81.7% decline in revenue, combined with the negative operating leverage effect.

If we were to exclude the cancellations and bad debt effects, as we have explained previously, EBITDA declined by 109.4% in the second quarter compared to the same period in 2019. EBITDA in the first half of the year amounted to €194.1 million, which represents an 83.6% decline versus the previous year or a 65.2% decrease if we exclude cancellation and bad debt effects associated with the COVID-19.

Let me give you the details of our cost structure evolution over the period. In the second quarter of 2020, cost of revenue amounted to an income of €7.8 million versus an expense of €364 million in the same period of 2019.

Cost of revenue was impacted by the acute reduction in air bookings volumes as well as higher-than-usual air booking cancellations relative to the gross bookings because of the pandemic, partially offset by our bookings cancellation provision. Excluding the effects of these higher-than-usual cancellations and the cancellation provisions, the cost of revenue declined by 77% in the second quarter.

And it was partially offset by the softer pace of the volume contraction in hospitality. In the first half of 2020, cost of revenue declined by 72.4% compared to the first half or by 51.4% if we were to exclude the COVID-19 cancellation-related effect.

Supported by our cost-saving plan, our combined operating expenses cost lines, including both personnel and other operating expenses, decreased by 16.3% in the second quarter of the year. In the first half of the year, however, due to an increase in the bad debt provision; a lower capitalization ratio as a consequence of the reassignment of resources to services, which is a non-capitalized R&D activity; and the reduction of some of the longer-term programs whilst we maintains all of our operational needs; and lastly, because of the negative ForEx FX in the 6-month period, our reported net fixed cost decreased by 9.6% in the second quarter and by 3.5% in the first 6 months of the year.

Let's review now by segment. Distribution contribution contracted by 87.1% in the first half of the year or 63.2% pre-cancellations and bad debt effects, resulting from the decline on the Distribution revenue we have just explained, and 60.6% reduction in net operating costs, driven by the decrease in both variable costs, which flex with the bookings volume evolution and fixed cost based on our cost-reduction measures.

IT Solutions contribution contracted by 46.9% in the 6 months period in 2020 versus 2019 or 42.7% pre-bad debt effect as a result of the revenue decrease we have described in IT Solutions and a 3.2% growth in net operating costs in the first 6 months of the year compared to prior year, impacted by an increase in the bad debt provision, excluding which net operating cost declined in the period, supported by the cost-saving measures. Also impacted by our cost-saving measures, net indirect costs decreased by 11.6% in these first 6 months of the year.

Below the EBITDA line, in the second quarter, D&A increased by 31.1%, mostly driven by the impairment losses. The high reduction in travel volumes brought about by COVID-19 generated an accounting impairment test "triggering event" for Amadeus.

We identified impairment losses related to the specific development and implementation efforts carried out for customers that have either canceled contracts, suspended or ceased operations and also assets that may not deliver the expected benefits over the same time frame as before. And as a result, we have charged an impairment amounting to €63.1 million, €45.7 million post-tax, that was accounted for in the second quarter of the year.

First half 2020 D&A increased by 22.4% relative to last year, driven by the same impairment losses. Net financial expense increased by 18.1% in the second quarter versus 2019 or by 9.5% if we were excluding financing fees in relation to the new credit agreement recognized through P&L, due to a 55.3% higher interest expense as a consequence of both a higher average gross debt outstanding and higher average cost of debt.

And in the six-month period, net financial expense decreased by 26.5% versus 2019 or 31.3% if we are to exclude the financing fees in relation to this new credit agreement, as a result of €16.9 million of lower exchange losses and an increase of 23.8% in the interest expense. In the first half of this year, our income tax expense amounted to an income of €76.9 million.

The group income tax rate for the period was 28.5%, which is higher than the 22% income tax rate reported both in the first quarter of 2020 and in the full year 2019 and 26% reported in the first half of 2019. This increase in the tax rate comes from the effect of tax deductions associated with our R&D in the context of a negative taxable income result.

The combination of a contraction in operating results, a higher financial expense and tax income resulted in a 170% decrease in adjusted profit and an adjusted earnings per share decline of 166.9% in the second quarter of 2020. If we exclude the cancellation and bad debt associated with the COVID and the financing fees in relation to the new credit agreement, our adjusted profit contracted by 146.9% and adjusted earnings per share by 144.9% in the second quarter versus the second quarter of the previous year.

In the first six months of the year, if we exclude the cancellation, bad debt and financing fees, our adjusted profit and adjusted EPS declined by 89% and 89.2%, respectively. Turning to Page 13 to review our cash flow evolution in the period, we start now with the CapEx.

In the second quarter of 2020, CapEx declined by €57.5 million or 33.7% versus the same period of 2019. CapEx in property, plant and equipment declined by €7.3 million or 45.1%.

This was reduced by the cost-saving measures put in place. CapEx in intangible assets declined by €50.2 million or 32.5% in the second quarter as a result of the lower capitalizations from software developments in the period as well as reduction in the amount of signing bonuses paid.

Lower capitalization from software development were due to the decline in the R&D expenditure of 17.4% in the second quarter, resulting from the selective approach to our investment in the context of COVID-19, where we prioritize investments in strategic projects while postponing efforts devoted to more long-term initiatives. And also because of a lower capitalization ratio due to project mix.

In the first six months of the year, as you can see, CapEx decreased by a total amount of €105.4 million or 28.5% relative to the previous year, driven by the similar dynamics as in the second quarter and explained by a decrease of both CapEx in intangible assets by €81.5 million and CapEx in property, plant and equipment of €23.9 million versus 2019. Moving on to our free cash flow.

Amadeus Group free cash flow amounted to negative €462 million in the second quarter of 2020 and negative €172 million in the first half of the year. This negative evolution was driven by the severe impact of the COVID,which has been already largely described throughout the presentation.

In the second quarter, we also had an increased outflow from the change in working capital and higher interest expense, partially offset by the lower CapEx amount relative to last year, as I just described, and by tax collections in the second quarter of 2020 as opposed to tax payments that we had in the same period in 2019. Let me give you some color on the behavior of these other variables within the cash flow over the period.

The outflow from change in working capital in the second quarter deteriorated relative to the same period by €38.4 million, primarily resulting from the activity deceleration we have experienced over the past months. In the second quarter, we saw significantly higher cash distribution cost payments associated with incentives of previous periods, in proportion to the distribution expense accounted for in the quarter as compared to prior year.

Also, part of the cost-saving measures put in place at the end of the first quarter and during the second quarter of 2020, which have reduced our fixed cost during the period, have not yet had a cash impact. These effects were partially offset by delayed payments amounting to €126 million, partially delayed to the second half of 2020 and partially delayed to 2021, which were related mainly to social security, payroll taxes and employee bonus payments, as well as to changes in the payment terms with some vendors.

In the second quarter of 2020, we had a cash tax inflow of €20.6 million, that was mainly driven by the reimbursement of prepaid taxes paid in the first quarter in Germany, as now we have tax losses because we are expecting negative benefits for the year in this country; and secondly, by the tax reimbursements received from previous years. Interest and financial fees paid increased by €25.4 million in the second quarter of 2020, by €26.2 million in the first 6 months of the year.

However, excluding upfront financing fees paid in relation with the new credits that we have touched upon, based on the issuance of convertible bonds amounting to €26.3 million that were paid were broadly in line with previous year, both in the quarter and in the 6 months period. And with this, and a lot of numbers, I'm afraid, we have finished the presentation of our first half of 2020 results, and we are ready to take any questions you may have.

Thank you.

I've got two, if I could. Maybe just first of all, on the liquidity position.

Obviously, there's a need to have that given how the business is performing and the risks to travel recovery. But could you maybe just talk a little bit about how useful that could be in enabling you to win business over the next 12 to 24 months?

Would you be willing to use cash to help agents migrate to you and also to help airlines pay for migrations? And do you see that as a weapon to be able to get you to win business over the period?

And then maybe just secondly, could you help us with any conversations you've had, in the travel industry, generally around companies looking to outsource to a much greater extent than previously? Where are we with that?

Are those conversations happening yet? Or is it still too early for the companies to be thinking about how they change a lot of the systems they run from internal to external and fixed to variable?

The answer to both -- thanks, Adam, for the question. The answer to both is yes.

In the first case, liquidity, I mean cash is important. Of course, we need to protect our cost as much as we can.

But at the same time, when it makes sense, we can go work with our customers to see how we can support them and how we can get additional business for the medium term. So, the answer is yes, we do that.

We have a lot of activity. We have a lot of conversations.

And as part of this conversation, of course, we need to discuss about the payments and the conditions. And in these moments, yes, I mean, in some cases, we may be more flexible.

Of course, we need to, again, take into account that protecting our cash is also important. So, we will do our best to really balance between additional business and cash protection.

With regards to outsourcing versus in-house, it's -- the answer is also yes, as I mentioned at the beginning. We feel our business model is impacting us heavily, as you know, because we have a lot of part of the business that is based on transaction.

But it is clearly a good protection for the customers when there is a variation of the volumes as we see today. And therefore, in these moments, some of the discussions we can have with different parts of the industry is about how we can really convert part of their fixed cost into a variable cost based on volume.

So we see in the conversations, this is happening. I mean, I have mentioned already that despite the current situation, we have been able to sign a customer, another one of Altéa.

And hopefully, this will happen in other parts of the business, or including also in Altéa. So, definitely, usually, in this moment, is where our value proposition can be stronger.

And of course, we will try to really pursue that, not just, again, with airlines but, the case of airports, I mean continue issuing RFPs and they continue looking for solutions. So, the commercial activity, despite the current situation, is very active.

Of course, it's not bringing the revenues now, but hopefully, once the recovery comes, we will see in our revenues and in our P&L.

Two questions for me on the cost savings plan that you announced today. So, number one, the extra 200 million in cost that you're taking, can you help us get a better understanding of the phasing thereof?

Is this primarily a second half '20? Or is it more a 2021 expense?

And then bigger picture on the cost saving plan. From the press release I read, there are sort of big organizational changes happening.

So are you changing the way you go to market and sell the product? Is the R&D organization changing as well?

Is that all being brought together between Distribution and Airline IT? And let's get a better understanding of what is changing organizationally.

Okay.

You take on the organization?

Yes. I take on the organization.

No, we try to really first align, be more efficient, try to leverage our technologies, and we believe there are an evolution of the business when we deal with NDC and when we deal with discussions with airlines that, okay, by fact of putting some of the business together and part of optimizing the way we are working and facing, the evolution of the business will be better. So, that's mainly a business reason.

And of course, also, we feel that we can optimize the way we have been working with our customers. So, it's not really a big reorganization in the way we operate, some evolution and adjustments, both on the technology front.

But we are trying to leverage more the assets that we have for the overall company and the fact, as I mentioned before, that we are accelerating our move to agile. We are also moving and discussing our steps to move to the cloud.

I mean, all these technology evolution that we have had in the past, we are reinforcing some transversal initiatives, and this is the main objective. And in the case of the business side, we try to really evolve the organization, as we always do, with regarding how we are going to address and face our customers.

So it's mainly maintaining, again, the core of the company. So it's not changing what we have been doing, it's trying to optimize the way we have been dealing with that.

But there are no really fundamental changes in our business model or there are no fundamental changes in the way we have been operating up to today.

And related to the implementation cost of restructuring program, most of it will happen throughout 2020. There will be a part of it that will happen in 2021.

But don't worry, we will be giving you details as and when they are recorded in the P&L and as and when they are cashed out. So that's the same way that we've provided you this time with an underlying, we will give you enough information as and when they happen so that you can see the reported P&L, as we always do plus the impact of this cost, both on the P&L and the cash whenever they are to happen.

But the vast majority of it will happen basically in 2020, and that's why we believe that all of the savings will be up and around in the -- for the full year 2021.

The first one was just a follow-up on the cost cuts, probably for Ana. Can you say what level of bookings you would need relative to 2019 now with the new cost base in order to have an EBITDA which was comparable to the 2019 level?

And secondly, on the cost cuts, I think you said that, well, if the bookings were to return fully again to last year's levels, some of those cost cuts can unwind. Could you just talk a little bit more about how much of the cost cuts are structural relative to some which would actually come back if the volumes return?

Yes, that was the first 2, and I've got 1 follow-up.

Okay. On the second one, what we are saying is the €550 million are here to stay.

Part of the €300 million gradually, whenever volumes come back, we will take part of the activities that we have canceled so they will gradually recover. It's not that they will come up in one single go.

If that -- normally, if that line of travel tends to grow with inflation, well, you will have years when travel is going to grow much more than inflation. Because right now, it's 0.

So part of those -- not all of the lines, but some of the captions, of course, there will be some increase because the demand has gone to total 0. Now what we are saying is because of the other programs, so better integration of the M&A, having more digitalization, et cetera, some of those programs will take longer to keep all of the savings than just 2021.

They will still be providing additional incremental savings in years 2022 and 2023 that we believe will offset the increase on these other captions. So we are trying to explain, we have put in place two programs.

The second one is forever. The first one, part of it will come back.

But the second one takes also -- gives also additional savings in following years that we believe will offset. So all in all, you can count for the €550 million as a structural cost-saving measures starting in January 2021 onwards.

That would be. Now in terms of level of bookings, difficult to tell you, John, because it will depend how much is local?

How much is domestic? How much is done directly?

How much is done through the travel agency channels? How much impacts the rest of the services that we have?

So we don't know. As you can see what we are doing is clearly adapting so that, as Luis has mentioned, we protect our cash.

Now, of course, we are trying to enhance our profitability, reducing costs, adapting, and we will continue to do so as the events flow. But it's difficult to tell you a complete number.

You can also see the math. You can see that more or less, 1 percentage point of reduction in traffic is more or less 1 percentage point of reduction on the underlying EBITDA, revenue, et cetera.

If you do that calculation and you take the cost cutting, incremental cost cutting, it's not so difficult to come to a point of breakeven. But of course, it will depend on the profitability of the bookings that come first, the bookings that come later on, if passengers boarded are more locals or more full service, geography, I don't have an exact number.

But appropriately 1 percentage point goes up and down, 1 percentage point of revenues and EBITDA. And now you need to add the additional savings as a proxy.

That's clear. That's very helpful, yes.

No, that does help. And then just the other one was on the cancellations.

Obviously, that's been a big negative for you. I suppose, ultimately, that's going to become a positive, but maybe not yet.

So maybe you could just talk about what you're seeing in terms of cancellations and what we would expect in terms of -- I mean, difficult to forecast, I realize, but what would you expect in the rest of the year?

The logical thing is that, as you are very rightly pointing out, that whenever volumes kick in, Distribution bookings should grow faster and then passengers boarded should grow later on. Because normally, the -- all of the cancellations become rebookings.

And normally, that would be the trend. Now today, giving you that answer, it's a bit difficult.

What we've seen is a certain stabilization of the cancellation. So we saw a big increase of cancellations throughout April, or even before, starting in March, April, May.

And what we've seen recently is a stabilization. So now you have -- you always have cancellations.

There's always been cancellations in -- and that's why we have always been accruing for our cancellation provision. So that's always the normal.

But of course, the levels that we've seen in this month have been something unprecedented. Now we're seeing that we are more or less stabilized.

And you look at that based on percentage of cancellations relative to total bookings?

Today, the problem with today bookings and percentages is that, because there are so little bookings, and so every day cancellations can become a large percentage or a low percentage, depending on how they're evolving. We've given you the data on gross bookings, that's the part where you have the growth of the added bookings, which is the underlying that we are giving you.

And then you have the cancellation. So you can also make more of, let's say, the math.

The normal cancellation or normal years over the last, whatever, 5 years, has been around 15%, more or less, of the total booking being canceled. That usually was our cancellation provision.

I got a couple actually myself. Ana, just following on from that last answer you gave.

You -- so in the presentation, you suggested that the reason you've got a positive cost of goods sold was primarily due to the cancellation provision reversal. And the percentage figure you gave suggested that, that in absolute terms, must have been a reversal of around about 70 million to 80 million in the second quarter.

Is that correct, ballpark?

No.

Okay. So it wasn't the main reason.

It was a contributing factor, but it wasn't the main reason that the cost of goods sold went from negative to positive in the quarter?

No. In the cost of sales, you have two things.

You have the fact that you canceled the incentives and you are canceling more incentives than what you had in the actual positive. So you have, the same your net bookings go to negative, your net incentives go to negative as well or to positive in this case because you have cost.

You have the two -- the one offsets the other, they are a mirror. One is in revenues, and the other one is on cost.

So your revenues become negative and your cost becomes positive. That's basically the major impact.

Okay. And when you talked about the 550 million combined reduction to the cost base, in the presentation, I think you referred to it as being both OpEx and CapEx.

How much of that 550 million is actually cost that goes through the P&L as opposed to capital expenditure that's saved as a cash saving?

Again, it's something that we will let you know as we move along, them. Because, of course, we know the plans, but then you have the capitalization part of it, you have the different timings, so I cannot give you an answer right now, Neil.

But don't worry, we will provide you with visibility over the year so that you can see what's underlying, what's the impact on the OpEx, what's the impact on the CapEx and what's the impact on the cash. We will be giving you that visibility.

But I cannot give it you upfront. It will have to be once and when we start doing it.

Okay. Just a final question.

On the -- obviously, you've got a very good pipeline in Airline IT. I think in the presentation or in the text of the press release, you say that you've now got 212 airlines contracted for Altéa or Navitaire, of which you got 203 or 204 signed.

That will suggest quiet clearly 8 or 9 to be implemented at some stage over the next 6 to 12 months. Could you give us a PB or cumulative PB volume for those?

And then the one airline that you've signed a greater than 40 million PB volumes, is that a greenfield piece of new business? Or is that a competitive win from another PSS provider?

As you can imagine, if I'm not telling you the name, it's because commercially, I cannot give you many details. And therefore, you need to allow me not to answer to that last one.

And then the rest is -- we have many airlines to implement yet. Some come from the pipeline in the past, some come from additional ones, but this one is the largest one.

By far, it's the largest.

You can't say whether it was a Greenfield win or from a competitor?

No geographies, no competitor, no nothing. Because if I start giving you more details, there are not that many airlines in the world.

You can come to a name. So...

A few follow-ups. Just on the cost reductions, what types of projects are taking some cuts, I mean, versus what is core.

So, for example, can you just comment on, is it NDC and merchandising? Does that remain?

Or does that slow down a little bit in terms of your investment? What about investment in hospitality?

Does that slow, CRM versus PMS? Just anything there and any pipeline prospects in Hotel IT as well.

Sorry. Second question, competitive positioning, are you seeing any changes there, any aggressive pricing or big boost from your competitors?

And then third question, sort of small one. What are you seeing in Airport IT?

We've just heard elsewhere that some airports might be investing for the longer term while the air traffic is slower in the short term. Do you think that applies to your base as well?

Okay. Let me cover all the questions.

Projects. I mean you mentioned -- no, we are maintaining all our strategic projects.

So NDC, merchandising, we keep investing in Hotel IT, in PMS, all this, we keep all the investments. Of course, as part of the review of what we have done, we have prioritized our projects.

We have delayed some of the things that we are doing. But mainly, what we have done is really decide what is key and strategic for us and decide the priorities of the company.

But everything related to consider strategy for us for the medium term, we are not touching at all. And the cost saving is not coming just from the portfolio of investment.

I mean, we are trying to really optimize the way we have been working in some areas, accelerate some of the things that we were doing in the past. So I would say we are accelerating parts of the projects, again, integrating some companies, looking at our global footprint and try to be a bit more disciplined, if I may say, to where we are going to invest the money.

But all the main projects that we have shared with you, we are keeping investing, unless there is a specific case or could be some cases where the airlines decide to delay some investments, which, by the way, it's not the case. I mean I have to say that -- and that's why we mentioned the service part.

The service piece has done well during this period. Yes, some airlines have decided to really postpone part of the delivery we're having.

But the majority of them have taken the opportunity of this period to keep investing and to keep getting services from us to optimize the way they are working. So I would say, no, project-wise, we are very active.

We keep investing on our main activities. But as part of the review of our priorities, of course, we have decided some of them to really postpone or to put the money in the key ones that we consider.

Coming back to Hotel IT, I mean, the business has been performing very well in January and February, I mentioned in the last presentation of the results. They have been impacted as the rest of the business, less than the rest of the areas, but also impacted by the current situation.

And we continue getting some contracts, as I mentioned in my presentation, I'm having discussion with chains and with hotels as we speak. Again, so hopefully, we will be well prepared for when things are coming back.

But as you know, this is an area of growth with prospects. And I am optimistic once this is -- the recovery comes, the hotel piece is going to really grow quite fast.

In terms of competitors, no news at this point. Of course, we continue talking to our customers, and I imagine they do the same.

No, we don't see any special change in the competitive dynamics as we speak. And of course, we drive ourselves and we try to really convince customers as we always do, to work with us.

And we have constructive conversations with all our customers to get more business, as I imagine they try to do the same. But I wouldn't say there is a change in the competitive dynamic.

What we -- again, what we do is trying to beat them as it is normal. And finally, with Airport IT, yes, you are right that airports, I mean, are taking this opportunity.

And I also mentioned, I mean, that we continue getting RFPs from airports. We continue talking to them.

We work with them in implementation of projects. I would say the airports, of course, are also impacted.

But I would say they, I mean, in the airline space, you have 2 kind of airlines. Some of them decided to grow really full speed and to go ahead with the projects we had with them.

Some others may have some delays in some part of the business. In airports, I would say the majority of them are going ahead with the projects that we had with them and the activity also continues.

I would say we have not seen, overall, despite the current situation, a bigger slowdown in the demands of our customers. In some cases, yes.

But I would say, with the big players and in the case of airports, specifically, that you ask me, the activity is quite big at this point. So yes, the airports, some of them are taking this opportunity to really modernize their system and to really move ahead with some of the projects that we had with them.

A couple from me as well. Firstly, Ana, just looking at the bad debt provisions.

It seems as though all of them went against IT Solutions. And I'm just curious why that is, why there's no bad debt received or risk received in the Distribution business.

And then I think you had about €120 million of provision at the start of the year. So you've shown us the increase, but have you actually used any of those?

So how does that €120 million look now? And then, Luis, just in the Distribution business, I know very unusual first half.

So just looking at revenues over bookings isn't that insightful, but it looks like it's gone up. I appreciate there's some non-Distribution fees in there.

Can you just talk about how the run rate today, the mix of business you have on domestic, leisure versus business, how that affects the actual fee rate that you're achieving because that's quite important when we think about our models for the balance of the year and the next in terms of how sort of different types of travel come back that will affect the revenues?

Okay. Let me start with the bad debt, Michael.

Basically it is on IT Solutions because it's more related to the hospitality. On Distribution and Airline IT, as it's basically transaction-driven, and as you can see in Distribution, revenues have even gone to negative.

There's not much that we need to provide bad debt for. Normally, also, we collect this through clearing houses.

So we don't have this impact. It's more on the hospitality and on the things that are not transaction-driven where we have accounted for the bad debt provision.

So in terms of evolution throughout the year, we have started the year, we ended 2019, if you remember, and we began 2020 recovering part of the bad debt provision that we had in the past. And I think that we explained that it was also basically related to hospitality, where I think I recognized that it caught me a bit by surprise.

We were used to collect money through the clearing houses, and therefore, not having to do much more effort on the collection side. And all of a sudden, we had a certain delay, and we catch up.

So we ended the year 2019 and started the year 2020 quite good on that front. And then, of course, once the COVID-19 started to kick in, we had to accrue for more provision basically related to hospitality.

But the -- we have it now, I don't know -- by heart I cannot tell you the amount that we have right now as of the end of 30. I guess, in the accounts from the IFRS, you can see the number, I don't know it by heart.

We have seen an improvement, again, in collections recently, more towards July and June, compared to what we were seeing in the worst period of April and May. So, we will see how this evolves.

But so far, we have done this large accrual to reflect the reality of what has happened and the impact that the pandemic has on our customers as well. And then the second one, on the mix of the fee.

Of course, what we are seeing now is a recovery more on the domestic than on the international. We expect that this would be the trend in the next coming months, as the international long-haul seems to be still not prepared.

But you have also the cancellation provision. You have the travel agencies, IT revenues, you have the -- I mean, you have several other -- the part of Distribution payment.

You have many lines that are not just the pure booking fee, which impacts the pricing. And when you have so low volumes, it's also very difficult to make any numbers.

So, I would ask you not to look at the pricing effects. It's like the market share gains or pricing effects.

All of the numbers, they get so distorted by these big variations in volumes, up and downs, and cancellations, up and down, that on a given quarter, trying to look at the underlying pricing effects is difficult. The reality is that our contracts on IT tend to be 10, 15 years; on Distribution, tend to be 3, 5 years.

And because it is transaction-driven, the pricing doesn't have a much of an impact. Then is the mix, the different lines that hasn't made the variation.

So, thank you very much for your attention today. It continues to be difficult for everyone.

And I would like to thank you for your support and confidence and wish you a nice holiday period.