Sabre Corporation

Good morning, and welcome to the Sabre Third Quarter 2020 Earnings Conference Call. My name is Victor, and I will be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to the Vice President of Investor Relations, Kevin Christie. Please go ahead, sir.

Thanks, Victor, and good morning, everyone. Thanks for joining us for our Third Quarter 2020 Earnings Call. This morning we issued an earnings press release, which is available on our website, at investors.saber.com. A slide presentation, which accompanies today's prepared remarks, is also available during this call on the Saber Investor Relations webpage. A replay of today's call will be available on our website later this morning. We would like to advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including the duration and effects of COVID-19, industry trends, expected advancements, cost savings, and liquidity, among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those statements made on today's conference call. More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 10-Q filed on August 10, 2020, and our 2019 Form 10-K. Throughout today's call, we will also be presenting certain non-GAAP financial measures. All references during today's call to EBITDA, operating loss, and EPS have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on our website at investors.saber.com. Participating with me are Sean Mankey, our Chief Executive Officer, and Doug Barnett, our Chief Financial Officer. Dave Sherk, our President of Travel Solutions, and Scott Wilson, our President of Hospitality Solutions, will be available for Q&A after the prepared remarks. And with that, I'll turn the call over to Sean.

Thanks, Kevin. Good morning, everyone, and thank you for joining us today. Before we get into the details of the quarter, I would like to first thank my team members around the world for their sacrifices and ongoing endless efforts. I am humbled and very proud of what they have done for our customers and our company. During today's call, we will focus on a few specific areas, including comments on the ongoing response to the COVID-19 pandemic and customer engagement, the continued progress with our technology transformation and product enhancements, and finally, an update on our financial and balance sheet focus. Early on in the course of the pandemic, we took swift and decisive actions to protect our people, our company, and our balance sheet to give us additional runway to help weather this pandemic. Those actions have allowed us, allowed our team to focus on controlling what we can and using the unprecedented time to challenge traditional thinking, advance innovations, and position Sabre for the future. The COVID-19 pandemic continues to suppress travel demand and impact our customers, partners, and, of course, our financial results. Importantly, Q3 booking trends showed signs of improvement from the second quarter, and we have cautious optimism for ongoing improvements. Even in these tough times, we continue to win new business and lock in long-term commitments with some of our largest customers. Our value in the travel industry continues to be well known as evidenced by the 1,400 airline and agency deals we have signed year to date. Our customers trust us to be there for them now and on the other side of this pandemic. We took decisive actions to reduce our cost structure, manage cash burn, extend our debt maturities, and add to our liquidity position. We've also continued to invest in our technology transformation and migration to Google Cloud. which will further reduce our costs and allow for more efficient product development and deployment. As I'll discuss in more detail in a few minutes, our partnership with Google extends well beyond just a cloud deal. In just the past two weeks, we have announced two major advancements. First, we are pioneering artificial intelligence technology for travel. The technology, known as Sabre Travel AI, is powered by Google's state-of-the-art AI technology and advanced machine learning capabilities. Second, in partnership with Google, we will be accelerating availability of the travel industry's first smart, scalable retail engine. We expect to launch Sabre Smart Retail Engine, the first product powered by Sabre Travel AI, early next year. These advancements are the next step in our Google innovation framework. Putting it all together, we have taken decisive actions to manage through the COVID-19 global pandemic. while continuing to execute and deliver on our technology transformation and product capabilities that will be necessary for our customers to rebound and excel once the impact of the pandemic recedes. Turning to slide five, industry air net bookings improved in the third quarter, slowly but steadily. In July, GDS industry net air bookings were down 94%. August was down 88%, and September down 82%. Improvement has been most pronounced in our largest market, North America. The relative strength of the regional mix helped those savers' gross and net air bookings outperform the industry in the quarter. North American bookings continued to recover in October and demonstrated a 20 percentage point recovery versus July growth rates. Turning to other regions, Latin America has also shown continued signs of improvement. Asia Pacific has been the slowest to recover, but has trended in the right direction. While all other regions showed continued positive improvements in October, the improvements in booking trends stalled in EMEA. Despite this, total industry global bookings were down 80% in October. On slide six, you can see all Sabre Key metrics have shown improvements since record declines driven by the COVID-19 pandemic. In April, all metrics were down approximately 90% or greater, But exiting October, gross bookings were down approximately 80%, passengers boarded down 70%, and gross CRS transactions down 50%. The negative impact from cancellations moderated in the third quarter as cancellations have begun to stabilize in the past few months. Looking at the GDS industry data on a weekly basis through October, you can see net booking trends have continued to improve. As I previously mentioned, the improvement is most pronounced in North America, our largest region. Slide 8 demonstrates the passengers boarded have also shown continued signs of improvement. Excluding airlines that remain significantly impacted by government travel restrictions, passengers boarded for our top 20 carriers approached a 40% recovery in October versus an effectively zero volume environment in April. On slide 9, you can see hotel transactions continue to outpace improvements in our air bookings and passengers boarded. Hospitality industry bookings were down about 50% in the third quarter. The positive trend we were beginning to see in the EMEA region flattened and reversed due to new resurgence of COVID-19 cases and re-implemented travel restrictions in the region. It is clear the COVID-19 pandemic has been unprecedented. On slide 10, we provide perspective for just how unprecedented. Over the last 50 years, global travel volumes has grown at a multiple of GDP. In fact, during this time, there have only been six calendar years in which global passenger volumes declined, and the maximum decline was less than 2 percent. Over the last five decades, average annual growth has been 3.8 percent at its lowest and 8.6 percent at its highest. We have directly benefited from the steady growth in global travel volume. Our resilient, volume-based business model filters out noise from fluctuations in the price of air tickets or hotel room nights. While our customers may have to put a $500 ticket on sale for $200 to stimulate demand, we enjoy a transaction-based revenue stream. Because of this and the recovery data we have shared, we feel we will be well-positioned for an early COVID-19 recovery. We strongly believe there is pent-up demand for travel and that the industry will continue to recover from this extraordinary time. Let me now turn to a commercial update. Despite the challenges presented by COVID-19, we continue to win new business and sign key renewals. As I mentioned, we signed 1,400 individual airline and agency deals so far this year. These are in addition to several thousand hospitality deals also signed year to date. Let me take a second and highlight a few that closed in the third quarter. In distribution, we were very happy to announce a distribution renewal with one of our largest customers, American Airlines. In addition, We added SAS in Scandinavia and Jeju Air, a top South Korea low-cost carrier, to the list of marquee airlines we have renewed this year. You may recall we highlighted renewals with United, Emirates, and Copa last quarter. Airlines are turning to establish efficient, robust distribution channels such as our GDS to fill seats and distribute their inventory far and wide in this historic low-demand environment. As further proof points of this, in Q3, we also signed new distribution agreements with FlyGangwon and AirPremier both in South Korea, Thai Smile Airways, a subsidiary of Thai Airways, Air Belgium, and Voyage Air in Bulgaria. We also made strong progress with agencies, including a new win and a competitive takeaway with BidTravel, the largest travel agency network in Southern Africa. We also signed incremental conversions with Royal Travel in the U.K., Berghansen in Norway, and Alpersan in the Middle East. Finally, we signed other key renewals in the quarter, such as Travel Store, the largest TMC in California, TripActions, an online travel management company, Travelmatic in Italy, and Tandem Travel in New Zealand. Turning to our IT solutions portfolio, after only a couple of quarters of integration with a Radix product family, we are already seeing positive movement even despite COVID. In Q3, we signed a new Radix agreement with ViaTravel, a major tour operator in Vietnam that launched its own flight operations. Via Travel is a third airline in Vietnam using Sabre capabilities. To help our customers navigate through COVID-19, we launched Radix Touchless Go, a complete no-touch checking process that assists with boarding, bag tags, and other services, all from a customer's smartphone. In IT operations, we implemented recovery manager ops at Air China and China Eastern. We implemented dynamic pricing engine for Etihad, which helps airlines navigate through this crisis without historic data to rely on. We delivered a seat recommendation solution in partnership with American Airlines, which enables optimal passenger seat reassignment after schedule or equipment changes based on algorithms and business rules. And finally, we implemented a proration engine for Southwest Airlines, which allows airlines to see real-time revenue earnings for each segment in a multi-legged segment. This is a significant improvement versus the historic norm of seeing segment profitability seven to 30 days later in accounting roll-up. Southwest is the first airline to implement this innovative product. As I mentioned, I continue to be pleased with the progress we are making on our technology transformation. As a reminder, the move to the Google Cloud has many advantages, including greater stability with higher availability, faster recovery, industry-leading security, and many other enhancements all at reduced unit operating costs, with right-size deployments and the ability to scale up and down quickly. Our tech migration is helping us already. We significantly reduced our infrastructure footprint. Year-to-date, we have reduced over 2,500 physical servers across our major data centers in Texas and Oklahoma, which represents a reduction of nearly 30% and has resulted in millions of dollars of annual savings. As Doug will explain in more detail later, by the end of 2023, we expect the move to the Google Cloud and our new DXC contract to reduce our operating costs by more than $100 million per year. Beyond the work to migrate to Google Cloud, we have discussed other important parts of our partnership with Google, specifically co-innovation to transform the future of travel. We are now beginning to execute on this aspect of our partnership. In October, we introduced Sabre Travel AI. This advancement is part of our Google innovation framework and is an industry first in travel. Sabre Travel AI is infused with Google's state-of-the-art AI and advanced machine learning technology. Specifically, Sabre Travel AI capitalizes on Google Cloud AI solutions and automated machine learning tools that sense, analyze, and predict consumer behavior using real-time shopping information and sophisticated travel-specific business insights. We expect Travel AI can enrich products across all businesses we support, airlines, hotels, and agencies, using next-generation technology advancements. We are integrating Sabre Travel AI into certain products in our existing portfolio with plans to bring these to market in 2021. Earlier this week, we unveiled the first product powered by Sabre Travel AI technology. Partnering with Google, we are accelerating availability of the travel industry's first smart, scalable retail engine, with launch planned in the first quarter of 2021. Powered by state-of-the-art AI technology and advanced machine learning capability, Sabre Smart Retail Engine will be the first of its kind in travel, designed to be both PFS and channel agnostic. We expect the Sabre Smart Retail Engine to be available to both current and future airline customers regardless of their business model, PSS, or GDS. Sabre Smart Retail Engine is a new innovation that integrates Sabre's dynamic offer management and customer segmentation capabilities with Google's proven and powerful merchandising solution to use real-time shopping data, available content, and AI and ML-based decision support models to test and learn and generate the most optimal offers available. These personalized offer bundles are dynamically priced using customer segmentation techniques can include ancillaries such as seats and baggage, and will eventually include third-party content such as rental cars and hotel stays. Ultimately, we are bringing together some of the brightest minds from Google and Sabre to build and connect the right offer to the right traveler at the right time to increase traveler satisfaction and provide airlines the opportunity to drive new and creative business opportunities. We are excited to bring Sabre's smart retail engine as part of our offer management strategy. one of our strategic initiatives announced at the beginning of this year, and a step towards achieving our 2025 vision of delivering truly personalized travel. These are examples of how we are thinking about the future. We are making the investments now that we expect will position us for success post-COVID recovery. And with that, I would like to turn the call over to Doug.

Thanks, Sean. The impact of the pandemic hurt our results significantly again in Q3. though certainly less than in the second quarter. Revenue was down 72% in the quarter, totaling $278 million versus $984 million last year. We described how 15% of our revenue, or approximately $150 million per quarter, is not tied to travel volumes. This remains the case. Because our net bookings are now positive, our revenues surpassed this figure. Our distribution bookings were down 86% in the quarter, Gross bookings were down 84 percent, 83 percent, and 81 percent in July, August, and September respectively. We report bookings on a net basis, meaning net of cancellations. Net bookings were down 91 percent, 87 percent, and 81 percent in those same months. Consequently, our distribution revenue in the quarter was down 84 percent to 105 million. In terms of future cancellations exposure, we have recognized $30 million in revenue from bookings not yet departed and have a $33 million cancellation reserve. Our IT solutions revenue fared better, down 46% year-over-year due to a higher percentage of our revenue not tied to travel volumes. Hospitality revenue is down 40%, with a 37% decline in CRS transactions. EBITDA Operating income and net income were all negative in Q3, reflecting the impact of the COVID-19 pandemic. The year-over-year decline in revenue was partially offset by a decline in incentive expense, headcount expenses due to cost savings initiatives we have already executed, and technology expenses due to the lower transaction volume environment. In addition, free cash flow was negative $201 million in the quarter, As expected, our free cash flow was reduced by $20 million in severance payments and $13 million net cash outflows to carriers resulting from previous booking cancellations. Please note, when we previously gave our monthly cash burn guidance, these two items were addressed as reductions to our existing available cash balance rather than specifically itemized as expected future uses of cash. Excluding these two items, our monthly free cash flow was negative 56 million compared to the 80 million monthly cash burn rate we discussed in a zero booking, zero PB environment. Looking ahead to Q4, I'd like to mention three items that are expected to negatively impact our Q4 free cash flow by approximately $90 million. First is the seasonality of our cash interest payments. Second is the timing of employee cash benefits. While typically paid in the first quarter each year, they will now be paid in Q4 2020. This is an acceleration of what has historically been paid in the first quarter, so we will see the offsetting benefit in Q1 2021. Third, we expect to make additional severance payments related to the cost reduction measures implemented earlier this year. We expect this to conclude the bulk of the severance payments associated with the actions taken in 2020. Last quarter, we talked about our business realignment and that we expect the changes to our financials as a result. Accordingly, our Q3 results include two changes to our financial reporting structure and a recast of historical results. First, we have implemented a change to our reported business segments. We will now be reporting two segments, travel solutions and hospitality solutions. As part of our travel solutions reorganization, we combined the travel network and airline solutions businesses into one segment. We will no longer be reporting travel network and airline solutions as separate segments, as these teams and activities have been combined. We will continue to report the revenue and key metrics you are accustomed to seeing and modeling. This includes our GDS transactional revenue, now called distribution revenue, and bookings details. We'll also report IT solutions revenue, or revenue generated from our airline reservation systems and commercial and operations products, and we'll continue reporting passengers boarded. Please note the majority of what was formally reported as travel network other revenue is now recognized under IT solutions. As mentioned, we will continue to report hospitality solutions as a separate segment. Second, in an effort to continue to provide clarity on our technology spend, we are now presenting technology costs as a separate line on our P&L. Therefore, our main cost buckets are now cost of revenue, technology costs, and SG&A. While there was no impact to other financial measures, as a result of these changes, our adjusted gross profit is more favorable than previously reported, as it now excludes technology costs. This is expected to provide a more transparent view of variable expenses and gross margin, direct accountability of expense to revenue ratios to drive productivity, and closer benchmarking to peer tech companies. We have disclosed reclassified financials that reflect these changes for Q3 in year-to-date 2019 and 2020, in our earnings materials and in the Saber historical Excel file posted on our IR website at investors.saber.com. We expect to provide reclassified quarterly financials for 2018 through 2020 when we release our Q4 and full year 2020 results in February. We are on track to achieve $275 million of non-volume related cost savings in 2020 versus 2019. Remember, this is primarily headcount related expenses and partial savings from our renegotiated DXC contract. Natural savings in incentives and technology hosting expenses caused by the lower volume environment are incremental. On a go-forward basis, we expect a minimum of $200 million of non-volume-related cost savings per year compared to 2019. Of this, approximately $175 million in savings is driven by lower headcount expenses from reductions that have already been executed. To be clear, these cost savings are not driven by temporary factors like staff furloughs. Approximately $25 million impacts the fixed portion of our technology costs and is driven by savings from our new DXC contract. By 2024, we expect an incremental $75 million per year of fixed technology cost savings once we have largely completed the technology transformation and our migration to Google Cloud Platform. These expected savings are already in place, supported by our strategic partnership with Google and our new contract with DXC. Ultimately, with the cost-saving actions implemented this year and financial benefits of technology transformation work, We expect a total of $275 million in annual cost savings starting in 2024 versus 2019. Please note that as we execute the tech transformation, some of these incremental cost savings may be realized prior to 2024. However, we expect the majority to be realized in 2024 and beyond. Incremental to these figures are anticipated savings for lower unit costs on transaction volumes as we migrate to the cloud which has favorable economics. As you are no doubt aware, we took quick action to raise additional liquidity in the event the COVID-19 pandemic persists longer than expected. While they hope this isn't the case, they continue to see signs of modest improvement in bookings. We closed on three important offerings in the third quarter. We generated $598 million in net proceeds from our common stock and mandatory convertible preferred offerings. We also pushed out our debt maturity schedule. We issued $850 million in new senior secured notes due in 2025 and used the proceeds to pay down earlier maturing debt, and we extended the maturity on a portion of our bank facility. As you can see on slide 16, we do not have a material debt maturity until the fourth quarter of 2023, and the majority does not mature until 2024 and beyond. subject to springing maturity conditions. For ease of presentations, we have excluded the immaterial mandatory debt repayments. It's also important to note the material travel event disruption leverage ratio covenant waiver language remains. Consequently, our leverage ratio covenant under our amended and restated credit agreement has been suspended, and we expect this to continue through at least the end of 2020 and possibly through 2021 based on current IATA volume projections. So to summarize, we have strengthened our liquidity position, reduced our costs, extended our debt maturities, and are seeing improving booking trends. Finally, we ended the quarter with a cash balance of $1.7 billion and have no significant near-term uses of cash. Sean, back to you.

Thanks, Doug. In summary, we remain focused on the future. Our confident travel will rebound and feel competitively well positioned post-COVID-19. I want to once again thank my Sabre teammates around the world for their dedication to serving our customers, shareholders, and each other during this difficult time. And with that, Victor, I'd like to go ahead and open up the call for questions.

Thank you. As a reminder, ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone To withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. And our first question will come from Mark Mortler from Bernstein Research. You may begin.

Thank you so much. And nice to see the steady improvement. Obviously, it's been a slow slog forward. I apologize, but I got two questions, if you don't mind. Doug, you had one-time items impacting cash in Q3, and now there's another $90 million in items impacting Q4. Can you give us any sense of what you now currently see, obviously, in terms of other one-time items or timing changes in terms of cash impacts for 2021 and beyond?

Yeah, Mark, once we've burned through the severance payments, which we'll do primarily by the end of 2020, and obviously we're seeing a lot less impact from cancellations than we saw earlier in the year, so I don't expect those two items to continue. And the only reason why you had a variability of the interest costs in the fourth quarter versus the prior quarters is because of the financing that took place in April, so they will commonize and be normal throughout all of 2021 and beyond.

So we shouldn't expect any specific specialty one-time items at this point, right? And then can you give us any color on travel agency failure rates?

Yeah, Mark, I mean, what we've seen so far, you know, and I'm going to go around the globe, we haven't seen what I would consider a lot of failure rates. Many of them have gotten a lot of expense out. There's been a number of, you know, furloughs that have taken place. You know, what we have seen is some level of, you know, consolidation M&A taking place, you know, with CTM, you know, the large TMC out of Australia acquired travel and transport here in the U.S. But for the most part, we have not seen a lot of failure at this point. Perfect.

I really do appreciate that. I'm sure there's lots of other questions. Thank you. Thank you, Mark.

Thank you. Our next question will come from the line of Ashish Sabhadra from Deutsche Bank. You may begin.

Thanks for taking my question, and let me echo the good, the strong, or sorry, the improvement that we are seeing in the bookings here. One of the key debates that we've heard from investors is around the corporate bookings, specifically around the disintermediation from Zoom or video conferencing, but also the on the positive side, the increased managed care. So, Sean, maybe if you can take your crystal ball and give your thoughts on what you think about the corporate travel, particularly on the disintermediation front. But also, if you've done any research in the past talking about what percentage of the corporate bookings was managed and how the duty of care emphasis post the pandemic could potentially shift more volume to the GDS. Thanks.

Yep. Thanks, Ashish, for that question. So, let me just touch upon, you know, the way that we look at this. And Again, I go back in history a little bit, just my number of years in the business, and go back to 9-11, go during the period relative to the economic, essentially, recession that took place 2008 through 2010, roughly. There was a call for corporate travel really slowing down and not rebounding the way that it did. As you look at it, it did. There was a rebound that took place. No doubt that we're seeing more of a significant impact in what's taking place. If you do a breakdown of what we're looking at, and we look at the data very closely, we do see that leisure bookings are recovering faster than corporate bookings. But when you look at the trough, it was down essentially 100%. I think at the peak down, it was probably 98%, 99%. we're actually seeing corporate bookings in the range down about 80% or so, give or take a couple of points. And with that, Ashish, you know, the one thing that's clear is we don't see really corporate bookings starting to recover until 2021. The other thing that is very important, and, you know, we are an organization that I have thousands of employees that travel around the world, and you mentioned this, and it's the duty of care and the importance of duty of care. And there are things that are being worked on relative to additional technology that is going to allow corporations, you know, to make sure that they are doing the best thing and the safest thing for their employees around the world. So I look at it that we have to be patient. Recovery is taking place, you know, and again, living through this a couple of different times. There's no doubt in my mind that we have seen, you know, essentially Zoom calls as well as Teams calls have allowed us to be efficient. But I do believe we will see corporate travel recover over a period of time. I don't think it's just going to snap back, but I think we just have to be patient. It goes back to everything that we have done as it relates to, one, raising liquidity, focusing on the balance sheet, continuing to improve our technology, products in the marketplace that position us well for the future.

Thanks, Sean. That was a very helpful color. And then just moving on to the Google partnership, congrats on those new product launches there. I was just wondering if you can talk about or remind us how Google is helping you in developing those products. Do they have engineers on their front actively helping you with the development? So that's one part of the question. And then the second question would be just how does it change your competitive positioning going forward with these new products out in the market? And then third, I know it's still very early days, but have you had any conversations with any of your customers on these modules or any initial feedback? Thanks. Sorry for so many questions.

Yeah. No, thanks, Ashish. I mean, first and foremost, I think, you know, we're already doing great things with the products, and I think this is just going to pull us, you know, even further into opportunities to continue to accelerate wins in the future because it's really aligning to what the marketplace needs to do. You know, as a reminder, there's sort of four aspects of the Google relationship. One is the cloud deal that Doug talked about and the savings that we get. The second is really the technology transformation. Part of that is with Google and then also the new DXC agreement that really gives us a lot of flexibility in how we think about the transformation. With that, there are a number of Google engineers that are helping on that tech transformation. The third part of it is really the machine learning, the AI side of the equation, and we talked about this and how this is going to be integrated and it's taking place now. The other piece of it is the innovation framework. And again, this really does get into what we're doing on the merchandising side. And, you know, we'll get, you know, we'll be able to share more with this, but this is essentially a Fairlogix replacement in what was taking place there. And we believe it is what we consider to be Gen 3, which is really not in the marketplace because it really does get into dynamic offers. So when you look at it, Ashish, it's really all the components of the relationship are beginning to come together. that's allowing us to continue to position ourselves to be able to transform the industry that we're in. Thank you.

Sheesh, just to add to your question on customer interaction, we've already had multiple customer sessions, joint sessions, ourselves, Google, and the customer. And we have a backlog of folks that, with these announcements, are very interested in continuing that. So we've got our teams pretty busy over the course of the next several months on the topic.

That's great. Good results once again. Thank you. Thanks, Ashish.

And once again, that's star one for questions. Star one. Our next question will come from the line of Jed Kelly from Oppenheimer. You may begin.

Great. Thanks for taking my question. Just getting an update on the booking mix and when you can become free cash flow neutral. Does it still need to be 70% of 2019 levels, or is there a way you could reach free cash flow neutral before then?

Yeah, Jed, as you recall, last time at the end of last conference call, we gave kind of two goalposts, I'll tell you. The unfavorable mix we're seeing right now between corporate and leisure and international and domestics, If that were to stay the same as what we're seeing right now in today's environment, then we would need to have a 70% recovery. If we got back to the more historical mix of what we had for those categories, it would be 60%. So the other goalposts are somewhere between 60% and 70%.

Got it. And then just on your partnership with Google, How does that impact your relationship with the OTAs? I mean, is that going to be competing with them, or how should we do that?

Yeah, Jed, I think the best way of thinking about this, and it goes back to really just what I walk through on the technology and what that is providing. And, you know, we sit in a position that we have to look at, you know, airlines. We have to look at hoteliers and how are we helping them create facilities new products that they can sell. And at the same time, we also have to be thinking about OTAs as well as, you know, TMCs, brick and mortar on the other side of the equation. And a big part of what we continue to hear and what we're facilitating, because we have, you know, a vast majority, a lot of focus on this, is how do we make sure that those new offers are essentially pushed through to the agencies that want to sell them? So I look at it that As I've said all along, we're a technology company. We're focused on providing the technology to our customers, and we're capable of seeing sort of the end-to-end capabilities that are required to facilitate the change that a number of people are looking for. Got it.

And then, you know, it's pretty well understood that leisure domestic accommodation is leading and going to lead to recovery into the first half of next year. Okay. Just how do you kind of, you know, look at your strategy in your hotel business, hospitality business around alternative accommodations and those single unit inventory types that, you know, are probably going to be in high demand even into next summer?

Yeah, I think it's, you know, and I think you know this, well, Jed, as you cover that sector, I mean, a big part of the growth that has taken place now are essentially a number of people that because people are working from home, People have wanted to move out of the urban areas and have been looking for places, so that's been a big driver as you look at that. The other thing that is important is we've had conversations specifically as it relates to distribution and how does that get pushed through our distribution channel. It goes back to some of the things that we've done with our lodging content services capabilities and being able to do that. I think there's a balance associated with it, but I'll have Dave or we have Scott, who is remote right now, who's our new president of hospitality, if you guys have a comment.

Yeah, I think, I mean, one comment I would make, Jed, is just some of the initiatives that Sean was pointing to with our content services on the lodging side. We've been pretty active within the hospitality space from a distribution perspective with the Stay Safe initiative and other things, which, you know, the question that was asked a little bit earlier about duty of care, It's not just on the air side, but it's also on the hospitality side, and we're doing everything we can to help bring that piece along to make sure that certain requirements and certain measurements are met. So I think that will also add to it and help and assist in both the leisure to corporate balance. And then, Scott, you want to add anything on the CRS side?

Yeah, actually, I think the way Sean broke it down makes a lot of sense, is there's distribution and, of course, there's IT solutions. We look at that as another market for us to go with our set of IT capabilities, both on the commercial capability side, like CRS, as Dave just mentioned, but in addition for operations and execution as well. So we think it's a great new market for us to have some conversations with about extending our IT capability reach.

Thank you.

Thank you. Our next question comes from the line of Josh Bear from Morgan Stanley. You may begin.

Great. Thanks for the question. I was hoping you could talk a little bit about the kind of conversations that you're having with customers and maybe touch on how they've shifted over the course of COVID. Are you able to start talking about Sabertravel AI and smart retail and adoption of these new innovations? Is it partly still survival mode? Any context would be interesting.

Yeah, I'll kick this off and then have Dave just get into maybe some more of the details of the conversation. So, I mean, listen, there are some carriers around the world, and I think we're seeing that as time goes, there are certain carriers that are definitely pivoting to more of how they're looking at the future, those that have done a lot of good work relative to their balance sheet, their liquidity, and what's taking place. You know, if I look at the North American marketplace, even though that we have seen increased cases of COVID, we've actually seen in the data that we shared with you, we continue to see the bookings are still continuing to improve slowly, but they're continuing to improve. You know, in the European marketplace, there's definitely been a fall off. So the reason I bring that up is we're seeing different carriers thinking about different things. You know, and what I would say are the carriers that are thinking about really the options or opportunities in the future are there's a lot of focus on what we're doing as it relates to the technology, a lot of interest really well for what we're doing with Google. So, Dave, you want to provide maybe some more on that?

Yeah, maybe I'll break it down to LCC and full-service carrier. It'll probably be a little bit easier to follow Josh. On the LCC side, the conversation is not changed, is aligned, and frankly, the activity has been, you know, very positive in terms of interest and interaction. So, Not much change there, and again, we continue to knock down wins and continue to see steady progress from that. The data continues to say the LCCs are recovering faster than full service in each of the regions around the globe. So we'll continue to take advantage of that, not only with our RADx portfolio, but with the rest of our capability set. On the full service side, there's a range of discussions. It depends on the region and the carrier. There are Some carriers, we're spending a lot of time helping them with planning and scheduling because they're having to re-look at routes and what makes sense and what's profitable. Other places where our operations portfolio, we had a number of go-lives and milestones this quarter in Asia with our recovery systems and movement systems and crew systems. Those are becoming important. And then, to your point, when you start to think about The retailing side, you know, we had a big rollout of dynamic pricing with Etihad and then the announcement of our probation engine with Southwest that got delivered. Again, first of its kind, innovative answer for them to help understand and take apart segments from it. So it just depends on where they're at in the maturity curve and what types of things. As far as our new Sabre Travel AI and the Sabre retailing engine, A lot of interest to learn more and understand more about how those dynamic offers will come together, what and how the patterns and machine learning and the data, ours and the carriers, will come together to help them drive higher revenue yields, even in a recovery-based environment. So we feel good competitively in terms of where the portfolio is at and some of the moves that we're making and taking advantage of the Google situation.

And the nice thing about it, too, is there's a good collaboration between ourselves and Google and the airlines that we're talking to because this is not just, you know, Sabre going and talking to these airlines, but it's the request to also have the discussion with Google, understanding what these technology capabilities can do. So, again, you know, this is part of the innovation framework that we talked about. There's been a lot of questions about it, and we're really happy to be able to really talk about some of the things that are really coming to fruition.

Thank you. Thank you. Our next question will come from Matthew Broom from Mizuho Securities. You may begin.

Thanks very much. Could you maybe comment on the pricing environment in terms of your negotiations with travel agencies and airlines as you renew contracts?

Yeah, if you look at it, I mean, we mentioned a lot of the GDS agreements. A lot of them have been just renewal of the agreements that are in place. So, in essence, you know, the economics are status quo to what they have been, and it does go back to what we said all along is the desire to have essentially their products and services in the GDS, you know, selling to that distribution channel. You know, when you look at it relative to the agency side of the equation, a big part of it is the renewals that are taking place there as well. So I would not say there has been a significant amount of cost pressure in any of the discussions that we're having. Anything that we try to help carriers with has been baked into what Doug has shared.

Okay, thanks. And I guess just in terms of your internal realignments, So how is that process going? Have there been any sort of meaningful challenges or benefits that hadn't originally been anticipated? Just any kind of an update, that would be great. Thanks.

Yeah, I think the first thing that I would state, and I'd ask Dave to comment on this, is what I had believed all along relative to aligning what were the former tribal network and airline solutions organizations and understanding essentially the cross-pollination of how they actually come together and not siloed really does allow us to be better educated and doing things in the marketplace that allow us to look at the full spectrum of what we offer. And Dave has really been managing this, and I think he could probably give you a couple examples.

Yeah, I think, you know, maybe from an outside-in perspective, it's been interesting, the customer feedback. We've had continued positive interaction and responses from our customer base, which is good to see. The level of servicing has actually gone up. Our employee satisfaction levels from surveys and pulse checks and various different means that we use to interact with our employee sets have been some of the highest that we've seen in some time. So despite The difficulty of a COVID environment, I think the entire – I'm really, really proud of the employee population and how well they've responded. And, again, I get calls – I'm in contact constantly with CEOs and chief commercial officers of our various customer sets or even heads of a number of our agency partners, and the feedback continues to come in and the responsiveness that the teams are seeing. So I think we're breaking down a lot of legacy silos. And the innovations speak for themselves of the things that we're putting out into the marketplace while we're in the middle of this. So very resilient and very happy with the progress that we've made to date.

Okay. Thanks, Dave and Sean.

Thank you.

Thank you. And I'm actually not showing any further questions at this time. I'd like to turn it back over to Mr. Menke for any closing remarks.

Great. First, I want to thank my team members around the world. They have done an enormous amount of work over the past several months in what's taking place. And if you actually look at it, it's been going on over the past couple of years. If you look at sort of where we are right now, we have done an enormous amount of work and really stepped into another gear relative to managing the crisis. We've done a lot as it relates to our financial strength. We make really quick, decisive decisions that, you know, was really based on information that we're capable of just because of the seat that we sit in. And so we've been able to do that really in thinking and balancing the decisions of employees, customers, and shareholders. I think the important thing is really we're looking sort of post-COVID. We're dealing with it right now, but because of what we've done, there are true underlying cost savings that Doug has outlined as it relates to Google, GCP, DXC, other costs that have come out. As you can also tell by our comments, we are laser-focused on our technology transformation and the products that we're rolling out in the marketplace. And we believe that when you really do look at beyond recovery here, that the market opportunities and what we have done to position this organization is going to be very successful. So with that, I would like to thank everybody for joining us today and look forward to talking to you in the future.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.