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Sabre Corp (NASDAQ:SABR)
Q2 2020 Earnings Call
Aug 7, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Sabre Second Quarter 2020 Earnings Conference Call. My name is Crystal, and I'll be your operator [Operator Instructions]

I will now turn the call over to the Vice President of Investor Relations, Kevin Crissey. Please go ahead, sir.

Kevin Crissey -- Vice President, Investor Relations

Thanks, Crystal, and good morning, everyone. Thanks for joining us for our second quarter 2020 earnings call. This morning we issued an earnings press release, which is available on our website at investors.sabre.com A slide presentation, which accompanies today's prepared remarks is also available during this call on Saber Investor web page. 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, cost savings and liquidity among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the 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 May 8, 2020 and our 2019 Form 10-K.

Throughout today's call we will 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.sabre.com.

Participating with me are Sean Menke, our President and Chief Executive Officer and Doug Barnett, Executive Vice President and Chief Financial Officer. Dave Shirk, our Executive Vice President and President of Travel Solutions will be available for Q&A after the prepared remarks.

With that, I'll turn the call over to Sean.

Sean Menke -- President and Chief Executive Officer

Thank you, Kevin. Good morning, everyone and thank you for joining us today. These, without a doubt are extraordinary times. The COVID-19 pandemic represents the greatest challenge ever faced by the global travel industry and our financial results continue to reflect this reality. We have responded quickly and aggressively, managing that which is in our control. As COVID-19 started impacting bookings in Asia, we took immediate action to reduce expenses. As the impact of the virus spread, we made more significant cuts, including a large scale furlough of about a third of our workforce and a capital raise of more than $1.1 billion.

We have also been actively positioning Sabre to take advantage of the opportunities on the other side of COVID-19, whenever that time comes. We made the difficult decision to align the size of our workforce to an expected smaller travel marketplace for the foreseeable future. We accelerated the strategic realignment of our agency-focused and airline businesses to provide a more seamless, holistic view of product alignment and connectivity to our customers' needs, and unlock cost efficiencies.

Despite working remotely and balancing the significant personal impacts of the COVID-19 pandemic, we continue to win new customers, expand our footprint and sign key renewals. And we continue to advance our technology transformation, including the acceleration of certain aspects to take advantage of this low volume environment. We are also making meaningful progress in our transition to Google Cloud.

I'd like to thank my Sabre teammates around the world. Like many, they have been challenged in both their personal and professional lives. During this period, they have responded in a positive and action-oriented way to help Sabre and our customers throughout the world. I'm very grateful for their commitment.

Our second quarter results reflect the challenging environment presented. But before I turn it to Doug, let me comment and provide updates on booking trends and status of COVID-19 impact, our business realignment, commercial activity and distribution in airline IT and why we continue to believe in new growth opportunities in hospitality IT, advancements in our tech transformation and strategic initiatives as we look into the future.

Industry air net bookings troughed on a monthly basis in April with all regions down more than 120% as cancellations outpaced new bookings. May was slightly better but net bookings were still negative across all regions. June showed some additional improvement with total air net bookings slightly positive. For the quarter, industry net bookings were down 110%. As a result of this negative booking environment and because cancellations were higher than expected, Sabre GDS revenue was negative in the quarter.

Looking at the industry data on a weekly basis, you can see that net bookings moved positive in all regions for all of July. North America started showing the strongest indications of recovery towards the end of June. This trend reversed due to the increase in the number of reported COVID cases in some states and further travel restrictions, but has leveled and begun a slight growth trajectory again. We have relatively less exposure to EMEA and the rest of the world where the recovery has been slower.

As you would suspect, we spend a significant amount of time reviewing the marketing schedules submitted by airlines around the world and analyze the changes by region. We specifically monitor the current month as well as the following.

Looking ahead, airline published schedules suggests a smaller year-over-year decline in capacity in Q3 compared to Q2. Although the scheduled capacity loaded for sale is trending positively and continues to improve, albeit slowly. Airline marketing schedules filed earlier this week for the month of August show a global capacity down approximately 47% versus a 72% to 56% decline during the period of May through July. It is important to note that airlines continue to aggressively manage near-term operational capacity through flight cancellations and consolidation that reduces the actual capacity flown versus the marketing schedule.

Drilling into daily trends, cancellation activity peaked towards late March as COVID-19 restrictions went into place. Accordingly, there was a high level of cancellation activity in April. Once the cancellation activity was flushed through in May, cancellation volumes leveled off and have improved steadily since. Doug will provide more details on our cancellation exposure later.

On Slide 8, you can see the year-over-year improvements in air bookings and passengers boarded since late March. Importantly, you can also see strong hotel performance with new central reservation system transactions down about 60% year-over-year last week. We believe this is a reflection of travelers being willing to drive for vacations closer to home. Sometimes overlooked, Sabre is the leader in CRS third-party Hospitality IT with over 40,000 properties on our central reservation system and $108 million transactions processed last year, and we do business with over 40% of the world's leading hotel brands. Because of our large footprint in hospitality, we expect to continue to benefit as hotel transactions lead the travel industry recovery.

We recently announced a strategic business realignment combining our airline and agency-focused businesses with important leadership changes. More specifically, we moved from a business unit alignment to a functional alignment. This new functional structure is more consistent with other best-in-class technology companies. Our new functional areas are product management and marketing, global product development, agency and airline-focused sales and account management, and finally, professional services, consulting and support.

This new organizational structure became effective in early July and we announced updated leadership for each of these areas. The leaders report to Dave Shirk and are responsible for delivering the next generation of retailing, distribution and fulfillment solutions. The expected benefits of our functional structure are a more seamless customer experience and the ability to unlock cost efficiencies.

We believe the realigned leadership focus areas from product development and marketing to sales and professional services will allow us to go-to-market and operate more effectively. As a part of this realignment, we have right-sized our global organization and a reduction in workforce. Inclusive of the voluntary severance and early retirement programs, our organization is about 15% smaller than in 2019 year-end.

Let me switch gears and provide a commercial update. Even with the current 19 -- current COVID-19 induced challenges, we continue to win new business and sign key renewals. More specifically on distribution, we are happy to announce that Finnair is again being distributed on a worldwide basis through the Sabre GDS, and we can share that the district -- that distribution of Lufthansa content has continued uninterrupted while positive progress continues with our negotiations for a new agreement. We also renewed key agreements with United Airlines, Emirates, Copa and Air New Zealand, and we announced a new distribution agreement with Royal Air Philippines. In addition, we signed new agency business in the quarter that we expect will result in incremental share gain.

For SabreSonic, our full-service airline reservations system, we had two important new wins. First, we announced a new PSS deal with Pacific Airlines, which was formerly known as Jetstar Pacific. We've been talking about the opportunities we see particularly with low-cost carriers who need to upgrade to a full-service reservation system as we believe one of our competitors has entered a heavy renewal cycle.

This win is an example of a competitive takeaway and Pacific Airlines is one of the fastest growing airlines in Asia Pacific, with over 6 million passengers boarded in 2019. I'm also pleased to announce a win with ASKY, a small African commuter airline that is the fastest growing in the region. We are in active conversations with other carriers around the world and feel good about our opportunities.

Turning to the Low Cost Carrier segment, our Radixx integration is well under way. We believe the LCC segment is recovering faster relative to other segments and as a result are seeing deal activity ramp up. We signed a renewal in the quarter with Skymark that includes an expansion in their domestic business.

We continue to see traction with airline software sales and implementation. As we announced in May, Southwest extended its use of Intelligence Exchange, our leading analytics product, and adopted Proration Engine to perform real-time proration of tickets and deliver accurate, flight-level revenue data. In addition to Intelligence Exchange in deployments, we also completed successful implementations to transform retailing and airline operations at Etihad and ASL France, and we implemented Digital Connect at LATAM in the quarter.

As I described, hospitality CRS transactions trends are better than airline bookings. We have seen a steady recovery throughout the quarter, with transactions from down 90% to down 60% by quarter end. We are expanding our geographical footprint and seeing commercial growth in EMEA and APAC, including new agreements with Lotte Hotels & Resorts in South Korea and Resorttrust, Inc. in Japan.

We also moved into the all-inclusive resorts space with our recent implementation with Barcelo Hotel Group. Although our full-service PMS development was paused as Accor manages through COVID-19 related pressure, both parties remain committed to the partnership. As I mentioned, we are the leader in Hospitality IT and are encouraged by the conversations we've had with hoteliers. They are increasingly recognizing the advantages of our variable cost model over a fixed cost IT model.

As you're all aware, our technology transformation is a key component of our strategy. The progress we have made to-date with the Cloud migration allowed us to dynamically scale down processing capacity and related expenses this quarter in response to reduced travel volumes. We are taking advantage of the low volumes to accelerate certain aspects of our tech transformation. For example, session management and security modules, which as you may recall were rolled back to the mainframe last year are now ahead of the revised schedule. The distribution portion of the migration is already complete and the airline component is substantially finished with completion expected in Q3. Offload migrations are also under way for airport check-in, reservations, pricing, payments and schedule changes.

We continue to make great progress on our Google partnership. We completed the technical integration of Sabre infrastructure with Google Cloud Platform in preparation to begin migrating applications in the second half of 2020. Additionally, we delivered the first phase of Google Flight search availability. While we undergo a transformational journey with Google, we knew it would also be vital for us to partner with a third party to maintain the secure foundation of our existing systems, while also modernizing our technology to meet customer demands.

After a rigorous bidding process in partnership with Google, I am pleased to announce an expanded multi-year agreement with DXC that reduced our cost structure and extends their support for our global reservations platform. The tech transformation that I described is one of our five strategic initiatives. Our vision for the future has not changed. We still intend to transform our business and create new opportunities for personalized travel.

Our focus on NDC-enablement continues to progress. We achieved a significant milestone just this week. We are officially in the NDC's -- NDC registry as a Level 4 certified aggregator. In addition, Sabre is the only Level 4 GDS aggregator in the registry to name the partners with whom we achieved the certification. Flight Centre and United Airlines. Another airline customer, Belavia, recently achieved Level 3 NDC Certification using Sabre Airline IT capabilities.

We are supportive of the NDC initiative and continue to believe in its long-term value creation. However, airlines are facing significant challenges right now and we believe adopting NDC has changed in the priority list for some carriers. We will continue to execute against our roadmap and look forward to providing continued progress updates.

I want to once again reiterate the significant challenge COVID-19 presents to our industry. We have made hard decisions to better align our organization and cost structure with current demand. We continue to support our customers and remain active with commercial wins and renewals. We are continuing to invest in technology and are using this lower volume environment as an opportunity to accelerate our tech transformation and migration to Google Cloud. As a mission-critical solutions provider to the global travel industry, we believe we have positioned the company well for growth post COVID-19.

Before I turn it over to Doug, I'd like to welcome our new Board members, Gail Mandel, who joined us in April and Gregg Saretsky and John Scott, who joined in July. The Board continues to focus on refreshing this composition and we believe their significant technology, hospitality and airline backgrounds will contribute significant value to the Board.

And with that, I'd like to turn the call over to Doug.

Doug Barnett -- Chief Financial Officer

Great. Thanks, Sean, and good morning, everyone. We are in a time of unprecedented disruption to the travel industry. Revenue was down 92% in the quarter, totaling $83 million versus $1 billion last year. Last quarter we described how 15% of our revenue, or approximately $150 million per quarter is not tied to travel volumes. This remains the case but we did not operate in the zero bookings environment in the quarter. Rather, net bookings were negative and our financial results reflect this.

Travel network bookings were down 105% and bookings trends were in line with the updates we provided throughout the quarter. Gross bookings were down 95%, 91% and 86% in April, May and June, respectively. We report bookings on a net basis, meaning net of cancellations. Net bookings were positive in June for the first time since early March and continued in positive territory in July. However, net bookings were negative in April and May and for the second quarter as a whole as cancellations exceeded our expectations. Consequently, our TN revenue in the quarter was negative $33 million.

Let me update you on our current cancellations exposure. As of the end of Q2, we have recognized $27 million of revenue from bookings that have not yet departed and we increased our cancellation reserve to $60 million, as of the end of Q2. Remember that about half of the impact of cancellations is offset by reductions in incentives.

EBITDA, operating income and net income were all negative in Q2, reflecting the impact of COVID-19. The year-over-year decline in revenue was partially offset by a decline in incentive expenses, headcount expenses due to our cost savings initiatives and technology expenses due to the lower transaction volume environment. In addition, free cash flow was negative in the quarter. Our normal-course financial results slides are in the appendix of our earnings presentation.

Last quarter, we talked to you about how our variable costs accounted for two-thirds of our total cost base or they represented about $2 billion in 2019. The three categories of variable costs are Travel Network incentives, volume-related technology hosting costs and headcount-related costs.

In the second quarter, we saw the benefit of our highly variable cost base across all three categories. The incentives were $366 million lower than the prior year. Volume-related technology hosting cost totaled about $250 million in 2019. In the second quarter, given the dramatically lower volume environment, our technology hosting costs scaled down nicely. Because we were able to dynamically scale down processing capacity, we have reduced cloud costs by approximately $2 million per month. On the mainframe, our costs this quarter were down 35% year-over-year. Our total tech costs, which also includes fixed hosting and R&D costs were down $53 million or 26% in the quarter.

On headcount, we recognized significant savings in the quarter due to our cost savings actions. We made the difficult decision to reduce our workforce by approximately 15%. In the quarter, we recognized a restructuring charge of $48 million related to this. We believe our total headcount-related costs will be down 20% to 25% versus where they were at the beginning of Sean's leadership three and a half years ago. For the quarter, our non-development labor costs were down $44 million or 37%.

The other third of our cost base, or approximately $1 billion in 2019, we define as fixed in the near-term. We are working hard to reduce this fixed cost base. A couple of areas I'd like to highlight include examining our real estate footprint around the world as we look to adopt a more flexible work-from-anywhere policy. Additionally, as Sean discussed earlier, we have extended our contract with DXC, which will help reduce the fixed portion of our technology hosting costs. We expect our new agreement to provide approximately $80 million in cumulative savings over the next three years, compared to our pre-COVID-19 expectations. This represents significant cost savings that largely offset the mainframe cost overruns we discussed on our February call.

To be clear, we no longer expect to spend the incremental $150 million of technology spend we expected coming into the year. We now expect our total tech spend to be significantly lower than the original guidance provided in February of $1.2 billion. This change is a combination of reduced volumes through the volume-related component of our hosting costs, DXC cost savings and reduced R&D headcount.

As we look to the future, our technology footprint and headcount have been aligned to what we expect will be a smaller travel industry post-COVID-19. We continue to expect total cost savings of $275 million in 2020. On an annual run-rate basis, we expect approximately $200 million in savings versus 2019. This includes headcount-related savings from our smaller employee base and savings from our new DXC contract. Additionally, there could be incremental technology hosting cost savings, if a lower booking volume environment persists. We can take further actions to reduce our cost structure, but we hope it won't be necessary.

Let me remind you of the quick and effective actions we took to strengthen our liquidity position during this crisis. We identified and implemented $275 million in 2020 cost savings, renegotiated our DXC contract, suspended dividends and share repurchases, drew down on our revolver and raised $1.1 billion from the issuance of senior secured and exchangeable notes.

Additionally, the Bureau of Transportation Statistics published the official data for April passenger enplanements, which confirms that a Material Travel Event Disruption occurred. Therefore, our leverage ratio covenant under our amended and restated credit agreement has been suspended for at least the second and third quarter of 2020. Current carrier capacity forecast lead to our expectations that this suspension will remain for the balance of the year. Finally, we have no significant expected near-term uses of cash.

In a zero bookings environment, we continue to expect approximately $150 million of revenue and $240 million of cash burn per quarter. In the second quarter, free cash flow was negative $446 million and was impacted by approximately $240 million of cash burn in a zero bookings environment, $67 million lower revenue than the zero bookings expectations because bookings were actually negative for the quarter, three previously disclosed cash usage items. $30 million in refunds owed to airlines for Q1 cancellations, $52 million incentive payments delayed from Q1 and $21 million of Farelogix termination fees. And finally, $13 million in severance payments, which we previously thought would be a Q3 item and $23 million in other working capital items.

We ended the quarter with $1.3 billion in cash. With our current cost structure and bookings mix, we expect to achieve break-even free cash flow at approximately 70% of 2019 volumes. Before I turn it back to Sean, please note that our business realignment that Sean reviewed earlier is expected to result in a reclassification of our financial statements in the third quarter. We intend to continue providing you with distribution, IT solutions and hospitality IT level revenue detail and will continue reporting our key volume metrics.

Sean, back to you.

Sean Menke -- President and Chief Executive Officer

Thanks, Doug. As discussed, COVID-19 presented an unprecedented challenge in the second quarter that was reflected in our results. However, we remain focused on the opportunities during and after the industry recovery. We continue to make advancements in our technology transformation and identify incremental savings as well as commercial wins in distribution and airline IT. We are the leader in hospitality IT and remain particularly excited about commercial growth as hotel bookings lead the travel industry recovery.

Finally, 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. Together, we will get through this and we will make travel happen again.

Operator, we're happy to take questions at this time.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from John King from Bank of America. Your line is open.

John King -- Bank of America Merrill Lynch -- Analyst

Yeah. Thank you and good morning to everybody. Thanks for taking the questions. Two questions, please. And well, I guess the first one, it's almost impossible to answer, I realize, that I guess you're in as good a position as anybody to comment on what you would expect on the global recovery? What would respond most soonest? I guess most people are expecting domestic to come back first, that should obviously favor North America. On the other hand, corporate is obviously very depressed, so what's your best guess in terms of the regions that will lead the recovery?

And if I could just also check on, you said on the 70% assumption around getting to free cash flow break-even that you're assuming some essentially degradation, I guess in the bookings mix and maybe you could also talk to what you're expecting when you get back to the kind of 70% level?

Sean Menke -- President and Chief Executive Officer

Yeah. So, John, I'll take that first question then Doug will take the second part of that question. You know it's very difficult, right. And you said it in your question looking at this. I mean, when we see things that are taking place, one, it was very clear that we are seeing specifically in North America the recovery of bookings taking place, and that was one for a number of different reasons relative to the ability to fly within the United States.

The thing that we continue to deal with and as you saw, this came out last night, that the restrictions as it related to some travel to from the United States has been lifted. So we're going to continue to see that, but as we monitor this, we monitor, as I mentioned, the schedules and what's taking place with different carriers. We're also looking at where there are travel bans. We still have countries throughout the world that have restrictions just flying in general. So that's a guess is what it boils down to as everybody is trying to figure out.

As you look at the other component of this that you talked about, its definitely more on the short-haul domestic side of the equation. The other is, it's leisure-focused. As we saw bookings recovering specifically in the second quarter, the way that we really track it is probably more on the leisure agencies' OTA focus versus what we're seeing on the TMC side. We saw that OTAs were definitely or the leisure agencies were driving more of that.

When we did see the increased cases in COVID-19 taking place in June, we also saw that as it related to leisure traffic that it began to drop again and while it was taking place. What we do see right now and I mentioned this, is sort of a leveling out took place and we're seeing sort of an increase in what's happening. So we watch that and as you would imagine, this was really in my notes, it really gets into what do we control and how we've been managing this over the past several months and that's, as Doug and I talk about, is managing our current -- the current environment as it relates to the cost savings, liquidity, the strategic initiatives that were very -- are important to us and I will tell you they are more important to me now, because I think they will be more important on the flip side of this, the focus on technology, the customer engagement.

And the other thing that I'll tell you is the motivation of my workforce, the team members around the world has just been unbelievable through some very tough time. So that's how we're looking at it John, and I think everybody is doing it day-by-day. And Doug, do you want get that second...?

Doug Barnett -- Chief Financial Officer

Let me give you some numbers, John. So first, corporate versus leisure. Normally what we typically would have seen is corporate is 50% or 55% of bookings and leisure is 45% to 50% of bookings. Currently right now, we're seeing leisure bookings up by about 25 basis points -- 25 percentage points, excuse me, to about 75% of bookings. So the impact of that is that corporate booking fee is typically about 30% higher than leisure. But there is a corresponding similar increase in incentive rates on that.

With regards to domestic and international. Pre-crisis international was about 55% and domestic was about 45% of new bookings. Right now, what we're seeing is domestic has increased a similar amount 25 percentage points to almost 70% of new bookings. Here, there is a more of an impact because international booking fee is about twice what you'll have of domestic booking fee and quite honestly, the IPBs on those are not that dissimilar, so there is more of a financial impact from the domestic and international impact than there is domestic to leisure or corporate to leisure, excuse me.

Sean Menke -- President and Chief Executive Officer

So, John, I think that gives you some good insight on both of those questions you had.

Doug Barnett -- Chief Financial Officer

Yeah, and John, just for your clarity. Just I'd want to make sure that I sum up. The 70% that I gave you is in line with these new trends, not with historical.

Sean Menke -- President and Chief Executive Officer

Yeah. So, I mean, what Doug is alluding to is, if you go back to the historical mix all the actions that we've taken, your actually break -- your breakeven cash flow would actually be lower than that 70%. So he's got -- we factored in everything that we're seeing right now.

John King -- Bank of America Merrill Lynch -- Analyst

That's really helpful. Thank you for the detail. And if I could just ask one follow up around the cash position at the moment, $1.3 billion. Maybe Doug, you can -- can you call out anything, puts and takes on that in terms of working capital swings we might expect going forward. Obviously, it's been a negative this quarter, does that essentially turn to a positive as bookings begin to trickle back and similarly around the cancellations presumably, you're now seeing lower than normal cancellations. Again, is there some kind of positive we should perhaps be thinking about in terms of the balance sheet.

Doug Barnett -- Chief Financial Officer

Yeah, I think the only thing I would monitor is the following that will occur. So we had on a gross basis, we had over $100 million worth of cancellations in the quarter. So it obviously had a material impact in Q2. Obviously, we come into Q3 with less exposure than we had, obviously because I just I walked you through how that's dropped materially. So there could be a little bit of an impact still of cancellations.

The other thing you could see just on a quarter-to-quarter swing obviously as bookings return, you'll have a little bit of a working capital drain as revenues rise. And obviously there'll just be a time initiative coming into the next quarter. But I'd say the only thing I would really -- I'm only at all concerned about from a cash flow standpoint going forward is the continual level of what we're seeing in cancellations. What I gave you with that exposure is on a net basis that exposure after incentives is about $40 million to $45 million going forward. So it's much smaller than it was coming into Q2.

John King -- Bank of America Merrill Lynch -- Analyst

Great. It's very helpful. Thank you, guys.

Operator

Thank you. Our next question comes from Mark Moerdler from Bernstein Research. Your line is open.

Mark Moerdler -- Bernstein Research -- Analyst

Thank you very much. Sean and Doug, I really want to thank you for the level of detail and transparency. It's extremely helpful. Frankly, it takes a lot of work to go through, but it's extremely helpful. Airline and hospitality revenue was down considerably Q-over-Q. Can you give some more color, was this just simply an impact of cancellations pulling down the revenue or others factors in there?

Doug Barnett -- Chief Financial Officer

No, if you take a look at...

Mark Moerdler -- Bernstein Research -- Analyst

Then a follow up.

Doug Barnett -- Chief Financial Officer

Just on our -- if you think about Airline Solutions on the passengers boarded basis, they are down almost 90% and if you take a look at hospitality, they're down almost 62%. So the biggest impact is going to be those two items that's driving -- that's impacting revenue.

Mark Moerdler -- Bernstein Research -- Analyst

But you don't -- you're not seeing, you don't have a -- if the client cancels it doesn't have an impact on -- you couldn't get to a negative over 100%. I mean you couldn't be down that much in the way you are on the travel side.

Doug Barnett -- Chief Financial Officer

Yeah, let me give you a sense because I think what you're trying to get is the differential between p times q and other types of revenue streams. So let me walk you through that. On Airline solutions, the transaction-based revenue is about 50-50 and then if you take a look at -- at hospitality, it's about 80-20. So that -- those items give rise to the 15% revenue that I talked about that, that's not transactions related. There is only about 5% of TN's revenues that aren’t transaction-related.

Mark Moerdler -- Bernstein Research -- Analyst

Okay. Okay. That helps. Thank you. Can you also give some more details on how the -- and you gave some on the -- how the accelerated Google migration is -- could impact the cost structure over the next quarter or two? We have a sense of the longer term but anything more near-term would be appreciated.

Sean Menke -- President and Chief Executive Officer

Yeah, let me sort of kick something off and I'll pass this to Dave and Doug just to help in the response because I think it's important as we look at things, Mark. I always try to take people back to what we said and I think the important thing and you'll remember this going back to Investor Day in 2018. We talked about just cost savings and the desire to essentially have over $100 million of savings by the end of 2023, and I'll tell you the team has met that objective just based on what we've done with Google and what we just did with our DXC. The modernization was another piece of it, as well as what are we doing on product side and the capability. So, Dave, maybe you can kick off on just the transformation as it relates to what's happening with Google. And then, Doug, you can talk on the cost side of the equation, if you don't mind.

Dave Shirk -- President, Travel Solutions

Yeah, no, just to add what Sean's saying, through this and being focused on the strategic imperatives and going back to that 2018 plan that we had set in motion with Google and our transformation, we continue to meet milestones, continue to move it along. Matter of fact, in this quarter we are now at 65% of all of our transactional volume is in the cloud, both hybrid and public -- sorry private and public. So we're pleased with the continued focus around that.

We have now taken all of our Travel Network shopping to the public cloud. We've taken all of our Airline Solutions shopping to the public cloud. So, we continue to move pretty steadily through that and have used this time period to allow the teams to focus in a down-volume period to kind of move that through and Google has been great through that entire process and then equally with this new DXC contract that just further solidifies. We had said back in 2018 that we also were going to look at partners to help us go through that transformation. We now have that completely solidified. So we are absolutely on track for our 2023 majority of our offload effort to be purposed and through that particular process.

And then it's really dependent upon customers in terms of the timeframe, which is again one of the reasons that the DXC contract, that we thought was so important to get secured because we have many customers that have contracts beyond that 2023 period. And as you know, Enterprise IT takes a bit of a cycle time for them to move through that. So we're in pretty good position overall, I think for where those pieces are at.

Sean Menke -- President and Chief Executive Officer

Yeah. And Mark, let me just -- another way of sort of summarizing what Dave was walking through, you'll remember that we had, the private cloud that we set up datacenters a couple of years ago. And because of the lower volumes, when Dave was talking about essentially the migration to the cloud, we've been able to -- and this is some of the cost savings that we've been able to reap because of lower volumes is essentially shutting down the private cloud, getting the servers out.

They were on leases that essentially we were able to get this cost savings. So we've been able to migrate everything to AWS because it's an interim step that ends up happening. At the same time, the teams -- because of what's happening on the volume side, we've been able to get the Google cloud landing zone set up. So that was my comments relative to the back half of 2020. We will be able to start migrating. So not that we want to be in the position of dealing with COVID-19 but it has allowed from that sort of daisy chain that I walked you through for us to be able to accelerate some of the things that we're doing.

So Doug, I don't know if you want to add anything.

Doug Barnett -- Chief Financial Officer

Yeah. No, the only thing I’d add obviously is two things. One with regards to the DXC contracts I mentioned between now over the next three years. It's $80 million. I can tell you that once you’re beyond that period, there are actually savings accelerate that we did not front-end load the savings with the DXC contract. We have actually pushed them more in the back half of the contract terms.

The other thing I might add is, as we do migrate off of AWS onto Google, we do have more favorable hosting rates with Google. It's one of the benefits of that contract. So you will get some benefit literally just migrating off of AWS to the Google platform.

Sean Menke -- President and Chief Executive Officer

Yeah. So that gets back to my comments relative to going back to 2018, the cost savings that we talked about getting, that's all in place relative to just executing right now, because the contract with Google, the contract with DXC, essentially allows that to happen in the environment. The modernization is happening and then the teams are doing a great job on just the products and capabilities. So again, outside of what we're dealing with on COVID-19, I couldn't be happier with the tech transformation and where we sit right now.

Mark Moerdler -- Bernstein Research -- Analyst

I really appreciate it. One more quick follow-up, if you don't mind. How do you think about the impact on the time it takes from a query from an OTA, till you respond? Like how much that will shrink once this Google transition occurs and how do you think that's going to compare to your competitors in terms of your ability to respond and meet timing requirements?

Dave Shirk -- President, Travel Solutions

Yeah, let me just give you a little bit of a response to that, Mark. This is Dave. One of the nice things about the reasons for going with Google is that we get to take advantage of, instead of having today, a lot of that capability was centered just in one location with a backup structure for it when it was internally controlled. This move of taking everything to the cloud and the fact that we're at a 65% point and the shopping points that Sean just clarified for you, that means that as part of this -- part of the Google transformation will allow us to distribute that geographically. So we will be much, much closer, much, much smaller latency.

So we already have improved -- by moving to the cloud we've already improved the level of shopping response times to OTAs and now we will have the geographic distribution, which will be an even more significant part of the way that plays out. So feedback from the OTAs pre-COVID and even during COVID, is positive in terms of how that architecture and the ultimate customer servicing level will increase as a result of it. So we feel pretty good about that from a competitive advantage perspective with the footprint that we have and the way we've been moving through this technology transformation.

Sean Menke -- President and Chief Executive Officer

And Mark, let me add another sort of data point and it gets -- because you asked about OTAs but I will tell you, you heard me talking about hospitality CR capability -- CRS capabilities. The same thing that Dave just walked you through, actually is happening within -- what we're doing in the hospitality business. The ability to essentially use Google as the backbone and it is becoming what we believe is a differentiator in our conversations with hospitality organizations around the world is because of that, when you look at CRS, you also get a higher transaction rate speed again there. So there is multiple different things that it's helping in. And as you can imagine, the more deployments that take place and this gets into the airline IT side of the equation as...

Mark Moerdler -- Bernstein Research -- Analyst

Yeah.

Sean Menke -- President and Chief Executive Officer

Well, you're going to get it there. So you just can't look at it from what we consider to be the GDS transactions. It really does transcend into what was happening in hospitality as well as what's happening in airline IT.

Dave Shirk -- President, Travel Solutions

Yeah. And maybe one last point to Sean's. Every aspect of this also then gives us redundancy. So you end up without a single point of failure anywhere in the system. So anytime we go through any maintenance cycles, any change cycles, etc., we now have a fully distributed system, which has been a big part of what our internal team has been architecting with Google, and the way in which this will play itself out.

Mark Moerdler -- Bernstein Research -- Analyst

Beautiful. Very helpful, thank you.

Operator

Thank you. Our next question comes from Neil Steer from Redburn Partners. Your line is open.

Neil Steer -- Redburn Partners -- Analyst

Hello. So, can you hear me okay?

Sean Menke -- President and Chief Executive Officer

Yeah, Neil.

Doug Barnett -- Chief Financial Officer

Hey, Neil

Neil Steer -- Redburn Partners -- Analyst

Hi, guys. Firstly, can I echo the comments made earlier on about the level of detail in the presentation. That's hugely appreciated. So thanks very much indeed for that. I -- most of my questions have been asked. Just got a couple of follow-ons. You mentioned in the presentation that you are still working with Lufthansa and I suspect the same thing is true for a number of the other sort of the network carriers that in the past have gone away from full content deals or fuller content deals on to what I believe, you'll refer to as the general distribution arrangements.

And the question is, are those airlines and Lufthansa looking to go back and continue a general distribution agreement or are they looking in some way to go back on a content deal and reclaim, if you like, some of the discount that they previously would have had on a fuller content deal?

Dave Shirk -- President, Travel Solutions

Yeah, no, I --Neil, this is Dave. Since I've been driving most of the discussions with Lufthansa and the team on several of these others, I would tell you that the entire focus and environment has really been around thinking about the future of retailing and what needs to happen around it. And so ultimately that means that content is important in that process in the way it differentiates itself. So I would tell you that the premise would be, there's always fun negotiation process, but these have been very, very balanced, very, very focused cycles to think about how and what happens after the recovery.

Obviously, right now, everyone is concerned and focused on just putting seats or cheeks in seats on planes or in hotel rooms but for these GDS situations. I can tell you that the majority of those discussions have been focused around how we think about the value and what that looks like overall from the consumer and the offer level of richness as we go forward with it. And that's been the focus. That's been the focus pre-COVID and the focus during COVID. So we haven't seen any significant weirdness, as you would describe it in terms of the comments that you were -- the question that you were asking.

Neil Steer -- Redburn Partners -- Analyst

Okay. And then, my understanding is that on the GDS platforms, ordinarily, sort of pre-COVID, I think that the average gap between a booking, sitting on the platform and the passenger then flying typically would have been about two to three months, which would tend to suggest that if we are expecting passenger travel volume to improve at some point in the future and I appreciate that the timing precisely is I'm sure, but should we expect the buildup in the recovery of the active volumes or the live volumes as it were on the GDS platform to lead the market a little bit as that sort of -- as the GDS platform replenishes and how significant could that be in terms of the GDS net booking dynamic?

Dave Shirk -- President, Travel Solutions

Yeah, I -- Neil, this is Dave, again. I think there is certainly truth in the statement that you just made and we're watching that. It's one of the reasons why we watch all the regions very intently, all the carriers very intently and also trying to balance what we see from a PB perspective versus a GDS perspective because you'll tend to see some variation geographically because of the domestic concentration in some of the pb.com types of activities.

So I think you will see what you're describing. But again, I think it's going to be a multi-data point and I think the other factor that's a little different this time that we're seeing and watching is the way that governments react globally has been very, very erratic in terms of this. And so, I think that also will play a factor that normally you'd see the data and what I would call a normal kind of economic cycle.

In this case, because of the governmental involvement I think we'll see that be a bit of a difference player in the way in which we're seeing some of these trends take and play themselves out.

Sean Menke -- President and Chief Executive Officer

I mean if we look at bookings right now, Neil, it's definitely the normal sort of booking window. If you look at an advanced purchase perspective, it's definitely upside down, right. We're seeing bookings that are much, much closer in. And the other thing that is taking place right now with specific carriers around the world is they have relaxed their cancellation policy. So there is a combination. I think that's part of what airlines are dealing with right now as -- and there has been some good articles out there and we actually -- it's kudos to the team here at Sabre relative to what they're doing with dynamic pricing, dynamic availability is what you used to use at your revenue management sort of historic history is all out the window right now.

So you really have to be looking at it from a more dynamic perspective on what's happening. So those are some of the things that we're dealing with. And I think I'm the optimist because I do believe, I lived through 9/11, I lived through the Great Recession, more on the airline side of the equation but you have to believe recovery happens and I do believe it happens and the question is how do we help our customers manage through this. And part of that is what we're talking about or looking at in the booking cycle.

Neil Steer -- Redburn Partners -- Analyst

Okay, thanks for that. And Sean, you've actually just come to sort of the last comment, straight question I had, which is that if you're optimistic by nature, do you subscribe to the view that henceforth forever, this marketplace is now structurally changed than the -- whether it's the OTAs now having huge and significant market share gains at the expense of the TMCs or business travel volumes never get back to the same proportional mix that we had previously? Do you subscribe to that view or do you think that that may take three or four years but eventually will get back to sort of a more balanced market that we had in 2019?

Sean Menke -- President and Chief Executive Officer

Yeah. Listen, I think there are changes but I do come back to there is more balance. I remember the discussion after 9/11 and business traffic is not going to happen and we saw it come back. After -- during the great recession I saw many things happen, and I'm just a fundamental believer because listen, we have spent enormous amount of times on Teams and Zoom and we have gotten things done.

But I can tell you, many of the discussions that I'm in with people around the world is we cannot wait to get back on airplanes and have the personal contact and I hear a lot of that. So I think a lot of this just gets back to people feeling comfortable in traveling. And with that there, be it the leisure side of the equation or be it on the business side of the equation, is it going to take time? Yes. Is there going to be some probably fundamental change relative to people and how they think about it because of the financial constraints specificon corporations? Probably.

But again, I am the optimist. And it goes back to why we continue to drive forward relative to what we need to do because I'm looking at this that, everything that we have been doing over the last couple of years is more important in two and three years from now. Tech transformation, things that we're doing to continue to extend the runway and that's why I am so positive about this organization.

Neil Steer -- Redburn Partners -- Analyst

Okay.

Dave Shirk -- President, Travel Solutions

Yeah, maybe...sorry. Neil, Just to add to Sean's comment and back to your original point to maybe even provide more focus and color. One of the conversations that we're having is exactly how critical the GDS is actually going to be to that recovery, especially for corporate travel because duty of care has now taken on an entirely different level of importance. And so where it may not have been just table stakes and not really thought of, it's now a very active conversation. And the way in which ultimately the TMCs and corporations play into that path, I think you're going to see that become a larger and important part of the overall situation.

Neil Steer -- Redburn Partners -- Analyst

Okay, that's great. Thanks again so much for the detail, guys. It's really appreciated.

Sean Menke -- President and Chief Executive Officer

Yes. Take care, Neil.

Dave Shirk -- President, Travel Solutions

Thanks, Neil.

Operator

Thank you. Our next question comes from Ashish Sabadra from Deutsche Bank. Your line is open.

Ashish Sabadra -- Deutsche Bank -- Analyst

Thanks for taking my question. I just wanted to clarify a prior question asked by Neil on the GDS agreement, specifically on the Southwest decision. I was wondering if it's possible to provide any color on that front?

Dave Shirk -- President, Travel Solutions

Sure, Ashish. Let me just kind of walk through that. So I'd say, first and foremost Southwest is a very important customer to Sabre. As you heard in some of the comments that Sean and Doug talked through this past quarter, they further expanded the use of one of our most important IT solutions, Intelligence Exchange and some activity that we have under way with them. Today and from the current contract that's in place this was one of the lowest feature distribution offerings that Sabre has and as a result, it actually was pretty inconsequential to us in terms of our North American bookings.

Our understanding and in the dialog that the teams have been having for the past several months is that Southwest wants to increase their share of corporate customers. And as you are well aware, we have strong market share with the largest corporations and TMCs in North America. And our goal is always to find a balance in the marketplace between the airlines and the travel agents and how relevant content for all of that serves all parties. And so we continue to strike deals, as you heard us talk about with United Airlines and Emirates and Finnair and many others. And we are open and continue to be open to reengaging negotiations when Southwest is ready. And we believe that ultimately there'll be a path to reach a new GDS agreement with them some point in the future.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's very helpful color, thanks. And good to hear about the new wins in the Airline PSS solution. Maybe just if you can talk about how the conversations are going with other airlines? And then, maybe a just quick clarification, I mean you just talked about a $40 million PB win. I just wanted to confirm that wasn't a SabreSonic customer? Thanks.

Dave Shirk -- President, Travel Solutions

Yeah, maybe on the first point on their $40 million PB win, to our research and the best of our understanding that that's not any Sabre competitive takeaway. So don't believe that has a relevancy there. As far as the other wins, we've been talking for some time. I just kind of walked through a couple of these. If you're not deeply familiar with Jetstar Pacific, now Pacific Airlines, that was a joint venture between Vietnam Airlines and Qantas. Jetstar Pacific was one of the fastest growing airlines over the last several years. It was at a 25% CAGAR in terms of its growth rate. They finished 2019 at $6 million PBs. Vietnam Airlines even with COVID plans to double the fleet size over the next couple of years.

So for me, and for the team, I'm very, very proud of the work the team put into that was a competitive takeaway. Part of that renewal cycle we've talked about of available PBs that are out there. So very substantial in terms of it. If it weren't for COVID, I think we'd probably see a lot more focus and attention to it. So that's one piece. The other one that -- that we talked about was ASKY. ASKY is an affiliate in Africa, very, very -- it's the fastest growing in West Africa, commuter airline that sits there. Again, that was a competitive win and take away. We believe that will also serve well in a post-COVID recovery cycle.

And then the last one, with our Radixx acquisition we see the LCC space recovering faster. We see activity up positively in the LCC space and looking at various solutions. We have an arrangement with Skymark Airlines, which is one of the better up and coming growth players in Japan. We were doing international, the renewal expansion took over domestic, that is $8 million PBs addition domestically, growing at a decent CAGAR growth rate around it, so again very positive in terms of a competitive takeaway in that situation as well.

So as far as the landscape, Ashish, of the others, we feel good about these wins and we tend to try to build on them and as we continue to say, as the portfolio has gotten healthier as we've transitioned our technology more and more around the retailing, distribution and fulfillment cycle and gotten very, very focused on our strategic initiatives. I think it's putting the portfolio in a place that obviously it is competitive in the market. So can't predict with COVID what that'll do to decisions but we are active and there are active pursuits that are under way as we speak.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's very helpful color. Thank you. Thanks.

Operator

Thank you. Our next question comes from Jed Kelly from Oppenheimer. Your line is open.

Jed Kelly -- Oppenheimer & Co. Inc. -- Analyst

Great. Thanks for taking my question. I guess, Sean, I mean as you talk to all the industry participants, your airline partners, what sort of the way we should be thinking 2021 as a baseline in terms of bookings as a percentage of 2019? I guess what's the baseline assumption if we kind of have decent vaccine or therapeutic distribution by the middle of 2021?

Sean Menke -- President and Chief Executive Officer

Yeah so, Jed, I hope you're doing well. I mean that -- in fairness, it's sort of a wild guess. The reason I'm going to be very cautious in the response here is there was -- the back half of 2020, I think if you go back to June, there is a level of capacity that was being added into the marketplace. We were seeing bookings improve and then we see an outbreak in more cases and we see airlines begin to pull their horns in, in what's taking place.

The one thing that I would share Jed, in the way that I look at, and this is with my conversations with a number of executives that I think they've gotten very good at the ability of adding and pulling capacity. So when you do see a level of comfort taking place relative to people traveling, they will have the wherewithal to get the capacity back in the marketplace quickly. So, anything that I would state Jed, would probably be wrong so I'm not going to state anything.

Jed Kelly -- Oppenheimer & Co. Inc. -- Analyst

Okay. And then last week on their call, Expedia mentioned how they're taking the time from lower volumes to improve their air product. Are you assisting with them and just as the OTAs are obviously going to become a more important part of your business over the next 18 to 24 months. I mean, how can you partner with them to one, stimulate leisure demand and two, improve the product?

Dave Shirk -- President, Travel Solutions

Yeah, Jed, this is Dave. Yeah, we -- Expedia is an important partner. We obviously have very active discussions with them. Working through they use a number of services and APIs and just like with any of our customers right now, I've been surprised at the quantity candidly of conversations among furloughs and changes globally of them wanting to understand how and what kind of additional retailing and services and value differentiation that they can find in enhancing their shopping experience.

And so we have shown them some things that they could do. We've worked with them on some things that they could take advantage of. And I think to Sean's crystal ball comment, we'll continue to put them in a position that they can hopefully take advantage of some of these things over the course of the next several quarters.

Jed Kelly -- Oppenheimer & Co. Inc. -- Analyst

That's helpful and then just one more. I guess, as -- in the next couple of years I think companies are going to be trying to save money on T&E expenses and one option would be, you would think is, to take more of the T&E internal with different software solutions. So is there an opportunity for you to sort of partner with some of these more self-serviced players that potentially could pop up as companies look to, a, want to get their employees probably, I agree with you Sean, wanting to see actual human-human connection to build real relationships. But is there a way for you to partner more with these self-serviced platforms? Thank you.

Sean Menke -- President and Chief Executive Officer

Yeah. I'll kick off and then I'll pass it to Dave. I think the important thing, this really does get into the technology, it really does get into the APIs and things that we're developing. It allows us to work with a lot of different organizations out there. And I think, as we look at this and this is what we don't know yet Jed, is how does the marketplace really transform and when you look at the position that we're in right now. It's one, that we're capable of helping essentially the GDS market, which is the two-sided market on our airline and hotel customers and selling into through agencies.

The other thing that's very important is what we're doing on the IT side, both on the Airline IT as well as the Hospitality IT and in doing that -- and this is what I keep talking about and this is why we talk about retailing, distribution and fulfillment, it all comes together is what it boils down to. And that's why the organizational change underneath, Dave, specifically on the airline agency side is really important because with that technology it allows you to look at all the players that you're talking about and be able to support them in different forms.

Dave, I don't know if you have anything to add.

Dave Shirk -- President, Travel Solutions

Yeah, I guess Jed, the only other thing I would say to add to what Sean said is, we -- you've heard me talk about this before. We've had a mission to kind of transform the portfolio, make more API-based consumption available. The team likes to refer to it as making sure that you can merchandise whatever your wares are on the store shelf in the way that you'd like to see them. We have made huge progress in making that possible and worked with a lot of our customers and channel partners to do that. That mission is still there and it's still part of what I think differentiates us as we look. It’s part of the reason why I'm pretty -- Sean said I'm pretty happy with the progress the team has made.

It's just unfortunate we're in the COVID cycle because of some of the share gains we've had up to-date, the tech transformation continues to power ahead and people are taking advantage and using and working with us on that to help the portfolio. We've had the cross-sell and up-sell to make those capabilities as you've seen in past quarters available again with IX and other AirVision-based capability sets that are being taken advantage of right now by customers, even in the COVID cycle. Some competitive takeaways have been really positive and then our expansion in the LCC space. Those are all good positives that we feel will serve us well to do it then.

And the last point would be our Google and DXC partnership and the innovation framework we have with Google that continues to move forward and we look forward to things in the quarters ahead that we can share with you guys on that front as well.

Jed Kelly -- Oppenheimer & Co. Inc. -- Analyst

All right. Appreciate all the color and Sean, I'm an optimist just like you.

Sean Menke -- President and Chief Executive Officer

All right, Jed. Thanks. Take care of yourself.

Dave Shirk -- President, Travel Solutions

Be safe.

Operator

Thank you. And that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to Sean Menke for any closing remark.

Sean Menke -- President and Chief Executive Officer

Great, thank you, Crystal. I appreciate everybody taking the time to listen to get the update on what's happening here at Sabre. We are dealing with a number of headwinds like a number of different organizations around the world but as you can tell, we've been making a lot of progress and I couldn't be prouder of the Sabre team throughout the world. So thank you very much.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Kevin Crissey -- Vice President, Investor Relations

Sean Menke -- President and Chief Executive Officer

Doug Barnett -- Chief Financial Officer

Dave Shirk -- President, Travel Solutions

John King -- Bank of America Merrill Lynch -- Analyst

Mark Moerdler -- Bernstein Research -- Analyst

Neil Steer -- Redburn Partners -- Analyst

Ashish Sabadra -- Deutsche Bank -- Analyst

Jed Kelly -- Oppenheimer & Co. Inc. -- Analyst

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