2015 Shareholders' General Meeting - Press conference: Luis Maroto speech

 

Madrid, Spain, 25th June, 2015

 

Good morning and thanks for joining us.

 

As you already know, the Amadeus IT Holding annual shareholders meeting will be held in an hour´s time. In it, we will review the milestones of 2014 and also go through our challenges for the future.

 

Last year we achieved significant successes in both of our main business lines: Distribution and IT Solutions. I won´t go into much detail, as many of you already familiar with them.

 

Simply I would like to highlight that in 2014 we processed 526 million bookings, 4.6% more than the year before. And that air bookings by travel agencies grew by 5.2%, a figure higher than the distribution industry as a whole, which grew at a 3.2% pace.

 

This difference is the consequence of an increase in our market share, which by the end of 2014 was 41%. Our geographical diversification; the signature of new contracts and renewal of existing agreements with leading full service and low-cost carriers; our leadership in the online world, and our continuous effort towards both enriching our content and the functionality of our products were the key to the growth of our Distribution business.

 

In the IT Solutions business, in 2014 we reached a total of 695 million passengers boarded (PBs), 13% more than in 2013. We signed milestone contracts such as Southwest Airlines for the management of its domestic flights, and additionally with Japan Airlines, Swiss Air, Vistara – the first Indian airline to contract our passenger service system (PSS) Alt a – and Thomas Cook.

 

And we expect to continue growing over the next few years to reach nearly one billion passengers boarded in 2017. We are already working on the migration of Southwest Airlines, Japan Airlines and All Nippon Airways, amongst others.

 

Focusing on our business as an IT provider for other areas of the travel industry, we have made huge strides in the airport segment. We have reinforced our position as the leading IT provider for ground handlers, where last year we launched ACUS, our integrated airport management system. We followed the acquisition of UFIS in 2014 with the acquisition of airIT early in 2015, which will help us expand our business in North America.

 

And I can’t finish this review of 2014 milestones without mentioning our agreements with Intercontinental Hotel Group and BeNe Rail to develop innovative platforms for content distribution and customer management.

 

These commercial successes allowed us to report solid financial results and for the fourth straight year be the number one investor in R&D in our sector in Europe, with a total investment of around 570 million euros in 2014.

 

Amadeus operates in an industry closely linked to the evolution of the world economy, which as you all know is expected to grow by 3.5% this year, according to the IMF. According to IATA this will translate into an increase in passengers volumes.

 

Based on this outlook for growth and in line with our own evolution, we expect to continue expanding both of our business lines: Distribution and IT Solutions.

 

Now I would like to address the latest developments in the Distribution industry.

 

Less than a month ago, Lufthansa announced its intention to impose a surcharge of 16 euros per ticket booked through Global Distribution Systems (GDS).

 

First of all, we would like to stress that we respect the commercial decisions of Lufthansa. However, we believe that with this surcharge Lufthansa will be penalising travellers, who will now have less transparency when searching for flights. It will also be harder for them to compare prices and, ultimately, they will end up paying more for a service that, in essence, will not have changed.

 

Lufthansa claims that the decision is justified because of an alleged difference between the cost of direct distribution – through its own websites or sales offices – and the cost of indirect distribution.

 

We do not agree with these calculations. It is common industry knowledge that the investment in digital advertising needed to attract a customer to an airline´s websites is close to 15 euros per booking. Also, a quarter of airlines’ website traffic is actually redirected from online travel agencies and metasearch websites, both of which are GDS users.

 

Not only that: over many years GDSs have proved that we are the most profitable distribution channel for airlines. Our fees are about 2% of the total price of a ticket, and we bring the airline a yield 40% higher than any other channel, including the direct one.

 

This comes from the fact that the highest yield bookings, those from business travellers, are massively intermediated by travel management companies (TMCs), who are users of the GDS. Even low-cost airlines have recognised this and, in the last few years, have come back to the GDS with the aim of increasing their sales among business travellers.

 

Lufthansa has claimed in different forums that we the GDSs are expensive and not innovative enough. I would like to go quickly through our history. Amadeus, just like other companies in the industry, was in fact a creation of airlines with one clear goal in mind: to improve their existing mass distribution systems, and to outsource the huge investment in technology and innovation that was needed, and is still needed, for the development of these systems.

 

In 2001, airlines also trusted Amadeus for a second round of technological innovation of crucial importance: the passenger service systems (PSS). Our platform, Alt a, allows airlines to manage the key processes of their customer relationship management, while also optimising costs. The development of this platform by an individual airline would have taken an accumulated investment of 40,000 to 60,000 man-years. Thanks to our community platform model, we have developed the leading system in the market with an investment of close to 7,000 man-years.

 

In short, there is little space for doubt about the efficiency, not least when talking about costs, of the services we provide to airlines. We are convinced that airlines have no doubts about this too: we have agreements with more than 430 airlines to distribute all of their content through our system, without exceptions nor surcharges.

 

The travel industry is now facing a new challenge. The explosion of the Internet and mobile devices have given the traveller more power than ever before in their relationship with companies in our industry. The traveller is now looking for a more personalised experience and integrated services.

 

Lufthansa’s surcharge goes in the opposite direction. It will reduce transparency and make comparison harder for travellers. If travel agencies choose to accept this new distribution model, they will have to commit to new IT investments to implement new direct connections. The cost of those investments will ultimately be passed on to the traveller.

 

Even though we respect the decision by Lufthansa, and despite the fact that we share their concerns to improve customer service while, at the same time, increasing profitability, we believe the path they have chosen is not the right one to achieve this.

 

IATA estimates that airlines generate average income of seven dollars per passenger. Despite high occupation rates and the decrease in fuel prices, or the revenues generated by ancillary services, airlines have failed to find a way to increase that average income.

 

At Amadeus, we believe in a model that pursues generating higher revenues, putting the traveller at the centre of the travel industry ecosystem. In that model, the traveller has access to information in a fast, transparent and objective way, whatever channel he decides to use. This is guaranteed by the current distribution model.

 

But we also believe that, as an industry, we need to go a step further. Our vision is to connect all travel services providers to facilitate the interaction of all players in the travel value chain: what we call the travel ecosystem. For this to happen, we need to enrich the content we offer, and also to develop our IT solutions, to move towards a greater personalisation of services for the traveller.

 

Our studies show that, with this model, airlines would generate up to 130 billion euros, by providing more dynamic and personalised services. If that content is the same through all channels, we estimate that airlines could generate up to an extra 53 billion euros in income. And if, on top of that, we add the impact of innovations now being developed by technology providers, such as our global merchandising system, that would mean another 77 billion euros. In total, close to 250 billion euros.

 

Our vision is focused on generating revenue in a sustainable manner. We defend a sustainable distribution model in which all players, from the airline to the traveller, can benefit from the advantages of interacting in an intelligent, objective and transparent way.

 

 

-Ends-

 

Amadeus

 

Amadeus is a leading provider of advanced technology solutions for the global travel industry. Customer groups include travel providers (e.g. airlines, hotels, rail, ferry operators, and car rental companies etc.), travel sellers (travel agencies and websites), and travel buyers (corporations and travel management companies).

 

The Amadeus group employs around 13,000 people worldwide, across central sites in Madrid (corporate headquarters), Nice (development) and Erding (operations), as well as 71 local Amadeus Commercial Organisations globally. 

 

The group operates a transaction-based business model.  For the year ended December 31, 2014 the company reported revenues of €3,417.7 million and EBITDA of €1,306.0 million. 

 

Amadeus is listed on the Spanish Stock Exchange under the symbol "AMS.MC" and is a component of the IBEX 35 index.

 

To find out more about Amadeus please visit www.amadeus.com, and www.amadeus.com/blog for more on the travel industry.