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Sabre Corp (SABR)
Q3Â 2020 Earnings Call
Nov 6, 2020, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Sabre Third Quarter 2020 Earnings Conference Call. My name is Victor, and I will 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 of Investor Relations
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.sabre.com. A slide presentation, which accompanies today's prepared remarks, is also available during this call on the Sabre Investor Relations 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, 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.sabre.com. Participating with me are Sean Menke, our Chief Executive Officer; and Doug Barnett, our Chief Financial Officer. Dave Shirk, 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.
Sean Menke -- President, Chief Executive Officer
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 effort. 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 and allowed our team to focus on controlling what we can and using the unprecedented time to challenge traditional thinking, advanced 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 cost 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 the 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 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 both Sabre's gross and net air bookings outperformed 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 improvement 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 eight 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 nine, 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 flatten and reverse due to new resurgence of COVID-19 cases and reimplemented travel restrictions in the region. It is clear that 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%. Over the last five decades, average annual growth has been 3.8% at its lowest and 8.6% 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 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 a Fly Gangwon and Air Premia 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 BID Travel, the largest travel agency network in Southern Africa. We also signed incremental conversions with Royal Travel in UK, Berg-Hansen in Norway and AlFursan [Phonetic] in the Middle East.
Finally, we signed other key renewals in the quarter, such as Travelstore, 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 the Radixx product family, we are already seeing positive movement even despite COVID. In Q3, we signed a new Radixx agreement with Vietravel, a major tour operator in Vietnam that launched its own flight operations. Vietravel is a third airline in Vietnam using Sabre capabilities.
To help our customers navigate through COVID-19, we launched Radixx TouchlessGo, a complete no-touch check-in 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 Proration Engine for Southwest Airlines, which allows airlines to see real-time revenue earnings for each segment in a multi-leg segment. This is a significant improvement versus the historical norm of seeing segment profitability seven to 30 days later in accounting rollup. 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-sized 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 cost 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 investing 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 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 PSS 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 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 toward 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.
Douglas Barnett -- Chief Financial Officer
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%, 83%, and 81% in July, August, and September, respectively. We report bookings on a net basis, meaning net of cancellations. Net bookings were down 91%, 87%, and 81% in those same months. Consequently, our distribution revenue in the quarter was down 84% to $105 million. In terms of future cancellations exposure, we have recognized $30 million in revenue from 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 was 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 revenue -- excuse me, 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 will 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 formerly 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 in 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 and year-to-date 2019 and 2020 in our earnings materials and in the Sabre historical XL file posted on our IR website at investors.sabre.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 nonvolume-related cost savings per year compared to 2019. Of this, approximately $175 million in saves 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 majority to be realized in 2024 and beyond. Incremental to these figures are anticipated savings from 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.
Although we hope this isn't the case and 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 use 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.
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.
Sean Menke -- President, Chief Executive Officer
Thanks, Doug. In summary, we remain focused on the future, are 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.
Questions and Answers:
Operator
[Operator Instructions] And our first question will come from the line of Mark Moerdler from Bernstein Research. You may begin.
Mark Moerdler -- Bernstein Research -- Analyst
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 onetime items impacting cash in Q3. And now there's another $90 million impact in Q4. Can you give us any sense of what you now currently see, obviously, in terms of other onetime items or timing changes in terms of cash impact for 2021 and beyond? And then a follow-up.
Sean Menke -- President, Chief Executive Officer
Yes, 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 cost 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.
Mark Moerdler -- Bernstein Research -- Analyst
So, we shouldn't expect any specific specialty items that's at this point, right?
Sean Menke -- President, Chief Executive Officer
That's correct.
Mark Moerdler -- Bernstein Research -- Analyst
Okay. And then can you give us any color on travel agency failure rates?
Sean Menke -- President, Chief Executive Officer
Yes, Mark, I mean, what we've seen so far, 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 furloughs that have taken place. What we have seen is some level of consolidation, M&A taking place with CTM, 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.
Mark Moerdler -- Bernstein Research -- Analyst
Perfect. I really do appreciate. I'm sure there's lots of other questions. Thank you.
Sean Menke -- President, Chief Executive Officer
Yes, thank you, Mark.
Operator
Thank you. Our next question will come from the line of Ashish Sabadra from Deutsche Bank. You may begin.
Ashish Sabadra -- Deutsche Bank -- Analyst
Thanks for taking my question and let me echo the good -- the strong -- sorry, the improvement that we're 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 on the positive side, the increased managed care.
So, Sean, maybe if you can take to ball and give your thoughts on what you think about the corporate travel, particularly on the disintermediation front. But also, if you have done any research in the past, talking about what percentage of the corporate bookings was managed and how the duty of emphasis post the pandemic potentially shift more volume to the GDS? Thanks.
Sean Menke -- President, Chief Executive Officer
Yes. Thanks, Ashish for that question. So, let me just touch upon the way that we look at this. And again, I go back in history a little bit, just in my number of years in the business and go back to 9/11, go during the period relative to the economic essentially a 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.
Now, as you look at it, it did, there was a rebound that took place. No doubt that we're seeing a more of a significant impact in what's taking place. If you do a breakdown of what we're looking, we want 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, 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 we are an organization that I have thousands of employees that travel around the world, and you mentioned this, and it's 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 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, and again, living through this a couple of different times. There is no doubt in my mind that we have seen 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.
Ashish Sabadra -- Deutsche Bank -- Analyst
Thanks Sean, that was very helpful color. And then just moving on to 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 people 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? Sorry, for so many questions?
Sean Menke -- President, Chief Executive Officer
Yeah. Thanks, Ashish. I mean, first and foremost, I think we're already doing great things with the products. And I think this is just going to pull all us even further into opportunities to continue to accelerate wins in the future because it's really aligning to what the marketplace needs to do. 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 and 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. 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 we'll get-we'll be able to share more with this, but this is essentially a fair logics replacement in what was taking place there. And we believe it is what we consider to be Gen three, 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.
Kevin Crissey -- Vice President of Investor Relations
So Ashish, 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.
Ashish Sabadra -- Deutsche Bank -- Analyst
That's great. Good results once again. Thank you.
Sean Menke -- President, Chief Executive Officer
Thanks, Ashish.
Operator
[Operator Instructions] Our next question will come from the line of Jed Kelly from Oppenheimer. You may begin.
Jed Kelly -- Oppenheimer -- Analyst
Great. Thanks for taking my question. Just giving 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?
Sean Menke -- President, Chief Executive Officer
Yes. Jed, as you recall, last time, at the end of-in the 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 domestic, 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. We got back to the more historical mix of what we had for those categories, it would be 60%. So they have the goalpost somewhere between 60% and 70%.
Jed Kelly -- Oppenheimer -- Analyst
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 view that?
Sean Menke -- President, Chief Executive Officer
Yes, Jed, I think the best way of thinking about this, and it goes back to really just what I walked through on the technology and what that is providing. And we sit in a position that we have to look at airlines, we have to look at hoteliers and how are we helping them create new products that they can sell. And at the same time, we also have to be thinking about OTAs as well as 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 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 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 the number of people are looking for.
Jed Kelly -- Oppenheimer -- Analyst
Got it. And then it's pretty well understood that leisure domestic accommodation is meeting and going to lead the recovery into the first half of next year. Just how do you kind of look at your strategy in your hotel business, hospitality business, around alternative accommodations in those single unit inventory types that are probably going to be in high demand even into next summer.
Sean Menke -- President, Chief Executive Officer
Yes. I think it's-and I think you know this well, Jed, as you cover that sector, I mean a big part of the growth that is taking 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. So 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.
Kevin Crissey -- Vice President of Investor Relations
Yes. 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 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 and corporate balance. And then, Scott, do you want to add anything on the CRS side.
Dave Shirk -- President, Travel Solutions
Yes. Actually, I think the way Sean broke 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, 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.
Jed Kelly -- Oppenheimer -- Analyst
Thank you.
Operator
Thank you. Our next question comes from the line of Josh Baer from Morgan Stanley. You may begin.
Josh Baer -- Morgan Stanley -- Analyst
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 Sabre Travel AI and Smart Retail and adoption of these new innovations? Is it partly still survival mode? Any context would be interesting.
Sean Menke -- President, Chief Executive Officer
Yes. 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 the -- as time goes, there are certain carriers that are definitely pivoting to more of how they're looking at the that have done a lot of good work relative to their balance sheet, their liquidity and what's taking place.
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. The European marketplace, there's definitely been a falloff.
So, what -- the reason I bring it up is we're seeing different carriers think about different things. And what I would say are the carriers to think about really the options or opportunities in the future. 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 color on that?
Dave Shirk -- President, Travel Solutions
Yes. Maybe I'll break it down to LCC and full-service carrier probably a little bit easier to follow, Josh. On the LCC side, the conversation is not changed, is aligned. And frankly, the activity has been 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 we service in each of the regions around the globe. So, we'll continue to take advantage of that, not only with our Radixx 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 relook at routes and what makes sense and what's profitable. Other places where our operations portfolio, we had a number of go-live 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, we had a big rollout of dynamic pricing with Etihad and then the announcement of our Proration Engine with Southwest that got delivered, again, first of its kind innovative answer for them to help understand and take part 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 say, 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 of 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.
Sean Menke -- President, Chief Executive Officer
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 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, 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.
Josh Baer -- Morgan Stanley -- Analyst
Thank you.
Operator
Thank you. Our next question will come from the line of Matthew Broome from Mizuho Securities. You may begin.
Matthew Broome -- Mizuho Securities -- Analyst
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?
Sean Menke -- President, Chief Executive Officer
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, 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, selling through that distribution channel.
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've-we try to healthcare as what has been baked into what Doug has shared.
Matthew Broome -- Mizuho Securities -- Analyst
Okay. Thanks. And, I guess, just in terms of your internal realignment, sort of, how is that process going? Has there been any sort of meaningful sort of challenges or benefits that haven't originally been anticipated? Just any kind of an update there would be would be great. Thanks.
Sean Menke -- President, Chief Executive Officer
Yeah. I think, the first thing that I would state and I'll ask Dave to comment on this is, what I have believed all along relative to aligning what were the former Travel 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 of examples.
Dave Shirk -- President, Travel Solutions
Yeah. I think, 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 health 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 employee population and how well they've responded. And again, I get calls and contact constantly with CEOs and Chief Commercial Officers of our various customer sets or even heads of-member 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.
Matthew Broome -- Mizuho Securities -- Analyst
Okay. Thanks. Thanks, Dave and Sean.
Sean Menke -- President, Chief Executive Officer
Thank you.
Operator
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.
Sean Menke -- President, Chief Executive Officer
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 upped 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 was really based on information that we're capable just because of the seat that we sit in. And so, we've been able to do that really and 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, GCT, 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 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.
Operator
[Operator Closing Remarks]
Duration: 48 minutes
Call participants:
Kevin Crissey -- Vice President of Investor Relations
Sean Menke -- President, Chief Executive Officer
Douglas Barnett -- Chief Financial Officer
Dave Shirk -- President, Travel Solutions
Mark Moerdler -- Bernstein Research -- Analyst
Ashish Sabadra -- Deutsche Bank -- Analyst
Jed Kelly -- Oppenheimer -- Analyst
Josh Baer -- Morgan Stanley -- Analyst
Matthew Broome -- Mizuho Securities -- Analyst
