It's hard to predict an aviation rebound, so diversifying further into cruise and rail could help the tech business gradually recover, especially if pent-up demand for European travel materializes.
Domestic travel recoveries stemmed the rate of losses at technology giant Amadeus, which posted a marginally improved set of third quarter numbers on Friday.
The group grew revenue for the three months to October 2020 to $496 million (€41.8 million), which is a significant step up from the $307.5 million (€259.5 million) posted in the second quarter.
“The traffic evolution we saw in the third quarter was driven by domestic air travel, as international air travel continued to be broadly muted by cross-border mobility restrictions,” the company noted in a statement.
It also eked out a modest $2.5 million (€2.1 million) profit — but that’s if you don’t count one-off costs from its savings program and other Covid-related expenses. Efforts to reduce overheads resulted in an adjusted loss of $148.1 million (€125 million) for the third quarter. That compares with a second-quarter loss of $273.7 million (€231 million).
Of the $89.8 million (€75.8 million) implementation costs incurred in the third quarter, most were related to severances. That cost savings program, announced in July, wants to trim $237 million (€200 million) from the business. Some $83 million (€70 million) of this will likely come out of its next fourth quarter, and with the remainder over 2021.
In July, Amadeus CEO Luis Maroto described Amadeus’ second quarter as “the toughest trading quarter in our history.” During the earnings call on Friday, he sounded relieved by the slight gains, but new lockdowns across Europe pose a concern.
“We have seen a continuous improvement [in bookings], every month,” Maroto said. “However, Europe has deteriorated while the rest of the regions have kept improving.”
While Amadeus gains the bulk of its business from aviation, it continues to grow in other areas, and in this quarter’s results revealed several developments that offer it hope for 2021.
In October, it extended its partnership with Deutsche Bahn to enable travelers to book journeys across multiple countries and operators, including offers from different distribution systems and inventories directly at the train station. Amadeus has also partnered with South East Asian online travel agency 12Go to give its customers access to European rail content. This allows 12Go customers to search and book European rail tickets in their own language and currency.
The distribution news extends to cruise, as well. In the quarter it launched the Amadeus Cruise Portal, giving agents access to bookable content from 30 cruise lines.
Although most cruises are postponed for the rest of the year, there’s likely to be pent-up demand from a typically loyal client base. Amadeus’ new cruise platform lets agents sell pre and post-cruise content, such as air, hotel, transfers or insurance, and offer upgrades and amenities. This platform is available in the U.S. and Canada, and coming to Europe soon.
Meanwhile for its hospitality business, transactions continued to outperform air volumes. Amadeus’ IT Solutions division saw revenue contract 52.4% in the third quarter, compared to the same period in 2019, bolstered by revenues across its business portfolio not directly linked to airline traffic or driven by transactions. In the first nine months of 2020, IT Solutions revenue experienced a 37.5% revenue decline relative to 2019.
In the quarter, Amadeus signed a strategic partnership with Accor for its business intelligence solutions, which will include Demand360 for use in its properties.
It also renewed and expanded its business intelligence partnership with Hilton. Elsewhere, it signed up Asia’s Sunway Hotels & Resorts to its iHotelier Central Reservation System, Guest Management Solutions and Website Management Solutions.
For its core aviation business, Amadeus renewed or signed 24 distribution agreements, including a new corporate travel-focused deal with Southwest Airlines and an NDC distribution agreement with Air France-KLM.
And last month it added South Korean low-cost airline Jeju Air, which pre-Covid carried 14 million passengers per year, to its New Skies airline reservation platform. It also extended its digital shopping technology partnership with Turkish Airlines, with Maroto declaring he’d like to convince them to become a full paid-up customer of its Passenger Service Systems product.
Overall, Maroto said global distribution systems continue to be relevant in the crisis. “In times of recovery, there should be a positive effect [on Amadeus]. Airlines are keen to fill the planes from different channels. There will be less push of a pure strategy going direct,” he said. “If we can evolve technology, I am sure in that in the medium term the traffic will be there. We are trying to aggregate content from different sources, including low-cost carriers and NDC.”
Despite a difficult year ahead, Amadeus has already earmarked fixed-cost reductions of $651 million (€550 million) in 2021, compared to 2019, as part of its savings program. It also has £4.4 billion (€3.7 billion) in liquidity, as of September 30.
However, diversifying its business interests can only go so far. It’s still going to rely on passengers being able to travel to cruise ports, and check in to hotels. Amadeus’ exposure in Europe remains high, and the pace of coronavirus’ spread will determine whether next quarter’s results break July’s historic lows.
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Photo credit: Amadeus' headquarters in Madrid. Amadeus