Sabre Corp (SABR) Q1 2021 Earnings Call Transcript

Image source: The Motley Fool.

Sabre Corp (SABR)
Q1 2021 Earnings Call
May 4, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Sabre First Quarter 2021 Earnings Conference Call. My name is Lashana, and I will be your operator. As a reminder, please note, today's call is being recorded. I will now turn the call over to the Vice President of Investor Relations, Kevin Crissey. Please go ahead, sir.

Kevin William Crissey -- Vice President of Investor Relations

Thanks, and good morning, everyone. Thank you for joining us for our first quarter 2021 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, depreciation and amortization, capital expenditures, 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 2020 Form 10-K. Throughout today's call, we will be -- 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 E. Menke -- President, Chief Executive Officer & Director

Thanks, Kevin. Good morning, everyone, and thank you for joining us today. Before we get into the details and trends from the first quarter, I'd like to take a moment to highlight a few items. First, I'm very pleased to welcome Phyllis Newhouse and Wendi Sturgis as newly elected independent directors to our Board. Phyllis and Wendi brings significant technology and cybersecurity expertise and we look forward to their perspectives and support over the coming years.

On behalf of the Sabre Board and leadership team, I'd also like to thank Joe Osnoss, Judy Odom, Renee James and John Siciliano, who retired from our Board last week. Their counsel and guidance over the years has been extremely valuable. Second, I'd like to personally congratulate four current Sabre team members: Traci Mercer, Senior Vice President, Product segment; Amy Green, Vice President, Global Business Systems; Emma Wilson, Vice President, Marketing; and Corrie DeCamp, Senior Vice President, Program Management, for being named among the Top 50 Women in Travel by the Global Business Travel Association.

I'd also like our Sabre teammates in India to know our thoughts and prayers are with them as they navigate through the impact of the COVID-19 crisis. And finally, I'd like to thank all of my Sabre teammates around the world for their service to our customers, shareholders and each other as we all navigate this pandemic. Turning to Slide 4. As we have done in prior quarters, on the next slides, I will walk you through specific booking, passengers boarded or PBs, and hospitality CRS transaction trends, but I will start with a bigger picture perspective.

Global travel trends continue to be reflective of COVID-19 case counts, cumulative and daily vaccination rates and regional travel restrictions. In the United States, part of our largest region, we are encouraged by the accelerating pace of daily vaccine doses administered as well as the recent bullish demand comments and capacity plans made by U.S. airline executives. We have seen this confidence reflected in our North American booking recovery. As expected, international markets vary significantly and collectively have been slower to rebound than U.S. domestic travel, including in regions in which vaccine distribution remains slow and daily cases remain high.

As Doug will discuss in more detail shortly, this has resulted in a more pronounced rotation in our booking mix. To give further perspective on our largest region, North America represents 55% of our GDS bookings in 2019. As of April 30, about 29% of the total U.S. population has been fully vaccinated and about 45% has received at least one dose of COVID-19 vaccine. Since our Q4 earnings call, the daily vaccination rate has increased by one million vaccines daily from about 1.7 million in February to 2.7 million per day in April. U.S. travel trends have picked up on this momentum. Our North American gross air bookings, which reflect new demand, have recovered to nearly 50% of 2019 levels over the last two weeks of April. On this chart, you can better see the pronounced rotation and regional booking mix toward North America. In the first two months of the year, our North American gross bookings were down 72% versus the same time frame in 2019, whereas the rest of the world was down about 84%. By April, the gap widened, with North American gross bookings recovery accelerating to down 53% and the rest of the world down 77% versus 2019 levels.

Looking ahead, we expect U.S. domestic travel to continue to lead the recovery as the vaccination rollout progresses and reported COVID-19 cases continue to decline. We have already seen an improvement in leisure bookings and have begun seeing green shoots in U.S. business travel with our large TMC customers. We expect European and APAC markets to recover more slowly due to greater fragmentation, tighter travel restrictions, slower vaccination rates and new variant strains.

However, based on what we have seen in the U.S. and these region gains -- and as each region gain confidence from increasing vaccination rates, we expect booking activity to follow. We remain confident there is pent-up demand for global travel and that global travel will recover. Turning to Slide 5. Industry air net bookings showed sequential improvement over the first part of this -- of the first year -- of this year, with strong sequential improvements in March and April. As compared to 2019 in January, GDS industry net air bookings were down 82% and February and March were down 77% and 71%, respectively. April was down 70%, slightly ahead of March. Our largest region, North America improved the most with a seven percentage point quarter-over-quarter recovery and the positive trend continued into April.

Other regions were largely flat quarter-over-quarter and into April. On Slide 6, you can see this effect more clearly using weekly data by region. Positive trends continue to accelerate in North America. EMEA and APAC continue to lag behind the global average. Latin America, which had been showing a strong recovery over the winter, showed signs of improvement again in late April after a dip in the early spring. Slide seven shows Sabre's volume metrics for air gross bookings, passengers boarded and hotel gross CRS transactions. After a slowdown in January, all metrics have trended in a positive direction with U.S. domestic leisure travel driving much of the improvement. Hotel CRS transactions continue to lead the recovery and reached over 70% of 2019 levels in April.

Turning to Slide 8. We continue to be very active commercially in all lines of business. In distribution, we've added several airlines to our GDS, including Sky Up in the Ukraine and EGO Airways in Italy. We also renewed agreements with carriers, including WestJet and Frontier. On the agency side, we added several new agencies, including Cleartrip, the largest OTA in the Middle East; Kiwi.com, Europe's fastest-growing OTA; and Omega, one of the largest business management companies in the U.S. We also renewed agencies, including Kanoo Travel, the largest travel company in the Middle East; and Travelgenio, one of Europe's largest OTAS.

Travelgenio is also implementing Sabre Virtual Payments. On the IT Solutions side, we've completed implementations of SabreSonic with the Sky in Zambia. We also added a couple of new Radixx customers, including U.S. start-up Avelo Airlines. Air India Express and Avelo Airlines, each renewed their Radixx agreements. Avelo also added Market Intelligence and other operations-related products. We also had some key renewals in our operations portfolio, including Flight Plan Manager with Spirit Airlines, Crew Control with Jet2.com and Crew Manager went live with JAL. In hospitality, in addition to the traction with enterprise hoteliers announced last quarter, we continue to be very active in the community segment with many new deals and renewals signed. Despite the effects of COVID-19, we have a healthy sales pipeline and are well positioned to capture new opportunities.

Turning to Slide 9. We have talked about the importance of strategic initiatives to enable Sabre to capture opportunities created by evolving travel trends and to increase shareholder value. Let me now update you on the commercial activity that demonstrates our progress against these initiatives this quarter. First, personalized offers. We are moving aggressively to create new IT capabilities, methods and intelligence to allow suppliers, such as airlines, to deliver more customer-centric personalized offers. Examples of momentum in this area in Q1 include LATAM Airlines going live with dynamic pricing in key markets.

We successfully migrated JetBlue, Binter and ASKY to Revenue Optimizer, our revenue management tool that enables airlines to set optimal price points, availability and provides real-time data to better support decision-making and performance analysis. Additionally, phase one of our Sabre Smart Retail Engine remains on track for rollout this spring. As a reminder, we expect Sabre Smart Retail Engine to enable airlines to deliver personalized offers to their customers and better serve the needs of today's travelers while unlocking more value per passenger boarded. The second, the future of distribution and NDC. Airlines have been investing to differentiate their brands in a number of ways, including notably with ancillary products.

Although this practice has created more choices for travelers, it has also created a challenge. While it is easy for consumers to determine the cost of travel, it has become more difficult to understand what the related travel experience will be. This quarter, we announced a new industry-first airline storefront to help solve this problem. The new storefront provides digital shelves that organize airlines offerings to support product differentiation and provide more merchandising opportunities for airlines, while allowing efficient comparison shopping for travel buyers based on the total value of the offer. Delta Air Lines is one of the carriers who helped collaborate on the development of our new airline storefront.

Yesterday, we announced a new value-based multiyear distribution agreement with Delta. This represents an industry-first model that we believe will create value for the travel ecosystem. In terms of NDC progress, this quarter, we achieved IATA Level four certification as an IT provider after previously reaching that certification milestone as an NDC aggregator. This certification confirms our technical ability to support a set of criteria related to full offer and order management capabilities. We also expanded access to NDC offers from Singapore Airlines to more than 25 agency locations.

Eligible agencies can now not only shop and book Singapore's NDC offers, but also void, refund and exchange NDC orders. Additionally, this quarter, we announced the launch of NDC offers from Qantas to travel agencies in Australia and New Zealand, with plans to expand to agencies and other regions over time. Finally, NDC content can now be booked through our corporate online booking tool, GetThere. Low-cost carrier growth. We talked on previous earnings call about the investment we are making in the low-cost carrier segment and how we are expanding the capabilities of Radixx to increase sales opportunities in this fast-growing leisure segment of travel. This quarter, we made important progress in this pursuit, including the integration of SabreSonic inventory for availability into Radixx. This improves Radixx's ability to scale to larger airlines.

We continue to view the LCC segment as an important growth avenue for Sabre. Hospitality Solutions growth. We continue to grow our Central Reservation Systems business. As a reminder, our CRS is industry-leading and serves more than 42,000 hotels, resorts and chains across nearly 200 countries and territories. SynXis' Central Reservations allows hoteliers to distribute rates and inventory to more than 400 online channels across the world, including all major GDS systems as well as hundreds of online travel agencies. Last quarter, we signed two new enterprise wins, representing over 1,600 hotel properties across 54 countries, with the majority coming from Louvre. This quarter, we made progress in support of these new enterprise CRS deployments in our Hospitality Solutions business generally, including setting up Google Cloud environments in two of our four global regions.

We are optimistic about the growth outlook for our Hospitality Solutions business as hoteliers are increasingly turning to Sabre to broaden their distribution and reach to drive incremental revenue opportunities. And finally, our technology transformation. I'm excited about the progress we are making in our tech transformation. This quarter, we moved Travel Solutions' Agency Air Shopping to Google Cloud. We believe running our future Air Shopping growth on GCP is important in a post-COVID-19 recovery because of its scalability and lower cost. This was one of our three major technology milestones for 2021, with the other two being moving at least 15% of our midrange workload and transitioning Hospitality Solutions CRS to the Google Cloud Platform.

These milestones are on track. Additionally, in Q1, we created a GCP region only about 30 miles from our existing data center in Tulsa, operated by DXC. This close proximity, combined with high bandwidth linkage, is expected to create an extremely low latency connection to simplify migrations of capacity from DXC to the Google Cloud. Finally, we successfully offloaded some compute heavy mainframe capabilities, including display inventory for most airlines and schedule changes for the majority of non-hosted airlines. As we continue to migrate compute from the mainframe, we expect to realize further savings. In conclusion, despite the challenges presented by the pandemic, we are making essential technology investments, developing innovative new products and advancing strategic initiatives and seeing commercial success. We believe Sabre is well positioned competitively as the travel environment rebounds.

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

Douglas Elliott Barnett -- Executive Vice President & Chief Financial Officer

Thanks, Sean, and good morning, everyone. As expected, the COVID-19 pandemic continued to weigh heavily on our results in Q1. Revenue was down 50% in the quarter, totaling $327 million versus $659 million in Q1 of last year. Versus last year, distribution revenue in the quarter was down 62% to $152 million. Our distribution bookings were down 55% year-over-year in the quarter, with air bookings down 52% and lodging, ground and sea bookings down 72%. Gross air bookings were down 80% and 73% year-over-year in January and February, respectively, and up 4% year-over-year in March.

We report bookings on a net basis, meaning net of cancellations. Net air bookings were down 79% and 69% year-over-year in January and February and up 409% year-over-year in March as cancellations were exceptionally high in March last year. We believe comparisons to 2019 may provide more useful information. Compared to 2019, gross air bookings were down 82%, 77% and 69% in January, February and March, and net air bookings were down 81%, 76% and 66% in those same months. As expected, domestic leisure bookings have recovered faster than both international leisure and corporate bookings and represented 50% of our total bookings this quarter.

Domestic leisure bookings are our lowest booking fee segment. Now that cancellation activity has normalized, the impact of this mix shift on our average booking fee can be more easily seen. We expect a negative mix impact on our average booking fee to persist until international and corporate bookings make a more meaningful recovery. Our IT Solutions revenue was down 36% year-over-year, with passengers boarded down 55% on the quarter. As a reminder, IT solutions has a higher percentage of revenue not tied to travel volumes than Distribution and Hospitality Solutions. Hospitality Solutions revenue was down 29%, with a 16% decline in CRS transactions. Because our property mix, particularly in the enterprise segment, is less dependent on city centers and conference venues, we continue to see relative outperformance in our Central Reservation System transactions versus distribution bookings and passengers boarded.

EBITDA and operating income were negative in Q1, reflecting the impact of the COVID-19 pandemic. The year-over-year decline in revenue was partially offset by declines in Travel Solutions incentive expense and Hospitality Solutions transaction fees due to lower volumes, headcount expense due to the ongoing benefit from cost savings initiatives we previously implemented and technology expenses due to a lower transaction volume environment. Additionally, our provision for expected credit losses, which impacts SG&A, decreased by $39 million versus the prior year quarter. Net income and EPS were also negative in the quarter. Year-over-year, the declines were driven by the factors impacting operating results as well as increased interest and lower tax benefit. In addition, free cash flow was a negative $204 million in Q1. As we mentioned on our last quarterly call, we expect Q1 free cash flow to be the lowest of any quarter in 2021.

This is primarily due to the timing of large working capital items that will have offsetting benefits over the rest of the year, as well as $8 million in severance. We ended the quarter with a cash balance of $1.3 billion and have no significant near-term uses of cash. Turning to Slide 11. In response to a retuned comment letter from the SEC regarding our calculation of adjusted EBITDA, we are no longer excluding amortization of upfront incentive consideration from our adjusted EBITDA calculation. We believe this change will provide enhanced transparency and facilitate analysis of our company. This change has no impact on revenue, adjusted operating income, adjusted EPS or free cash flow. We will continue to break out amortization of upfront incentives in the operating section of our cash flow statement.

As a reminder, in the GDS industry, travel agency incentives are typically paid over time with bookings as well as upfront contract exception or renewal. In the latter case, typically, there is a related customer volume commitment. From an accounting perspective, these upfront cash incentive payments are amortized over the life of the contract. Amortization of upfront incentive consideration was $78 million in 2018, $83 million in 2019 and $75 million in 2020. Over the medium term, we expect annual amortization of upfront incentive consideration to be between $50 and $79. Turning to Slide 12. As we have previously discussed, we began migrating our systems to the cloud and transition to full adoption and maturity of agile development methods, resulting in a decrease in the percentage of our technology spend eligible for capitalization under U.S. GAAP. In 2018, we capitalized 24% of our total technology spend; in 2019, we capitalized 9%; and in 2020, just 5%.

This shift in capitalization mix temporarily burdened our P&L with both the increased portion of technology spend that is expensed in current periods, plus the depreciation and amortization from previous capitalization. Going forward, we expect our capitalization rate to remain at 5% or below. Therefore, we expect our capex to remain low or to range between $50 million and $90 million annually over the next five years. Because of this, we are seeing our depreciation and amortization expense fall. We expect annual D&A to fall from about $200 million in 2021 to $110 million by 2025, which would provide earnings leverage over the medium term.

With that, I'll turn it back to Sean.

Sean E. Menke -- President, Chief Executive Officer & Director

Thanks, Doug. Despite the pandemic, we have continued to make critical investments, including in our products and our technology migration. With the $200 million annual cost reductions we've already made, if revenue returns to 2019 levels, we'd expect to have a five percentage point higher EBITDA margin, all else equal. We continue to expect our annual cost savings to increase to $275 million by 2024, which would further increase our margins, again, assuming all else equal. As travel demand returns, we expect to be positioned with larger addressable opportunities, more advanced innovative products and faster sales cycle and product deployments. I'll end by once again thanking my Sabre teammates around the world for their dedication and hard work.

And with that, operator, I'd like to open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] You have a question from the line of Jed Kelly with Oppenheimer.

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

Great. Thanks for taking my questions and appreciate it. guess, a couple of ones. I guess the first one is for you, Sean. I saw the Delta announcement yesterday. So can you just help us understand like how an announcement like Delta, how we'll actually see that translate into the financials, sort of like on the revenue line?

Sean E. Menke -- President, Chief Executive Officer & Director

Yes. It's a very good question, Jed. And it goes back to some of the things that we have been trying to do in the marketplace, and that is with the technology enhancements in what we're doing in products is how do we help airlines sell the products and services the way that they want, meaning if it's a branded fares or selling ancillaries, it's the capability of doing that. And that's what the storefront allows us to do that, be it Delta Air Lines, American Airlines, whoever is there, it's very similar to -- if you go to an Airline.com and you see how the branded fares are laid out, it's that.

Now from an economic perspective, the thing that we have talked about is how do we align the interests specifically airlines and what we're doing with technology, that as we advance our tech -- as we advance technology capabilities that if we're helping them sell higher yield tickets, we will actually get more revenue for that. So it really is driving in that vein, Jed, of how do we make sure that technology is being looked at as valuable. And in doing so, we can drive more revenue into the future.

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

And we're seeing Expedia make a big push here with the marketing and the advertising. I mean, can -- does that benefit the OTAs, which I think are going to drive a lot of volume over the next 18 months? How is that going to be integrated?

David J. Shirk -- Executive Vice President & President of Travel Solutions

Jed, this is Dave Shirk. The answer would be, it can. The technology itself is based, first and foremost, on -- with the airline storefront capability that we talked about, which essentially is a digital shelf technology. That has a set of APIs. And all of our customers and all of our agencies will have access to that as part of the process. So if they choose to use the technology and continue on the journey of some of these retailing pieces that Sean was referring to, absolutely we could take advantage of the situation.

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

All right. And then just one more for me. Can you talk about the pipeline for solution contracts over the next 18 months and how your Google Cloud contract is going to help you get some wins?

David J. Shirk -- Executive Vice President & President of Travel Solutions

Yes. Jed, again, it's Dave. So on the pipeline part of your question, we continue to be invited into conversations. We continue to have activity that is occurring. Our LCC efforts, I would say, are probably the strongest. You might have seen a Wall Street Journal article the other day that 90-plus LCCs are being launched globally. We hope to take advantage of that situation. Secondly, on the full-service side and just globally, in general, these things tend to stop, start, stop, start, because of the pandemic situation and various resources. But we are actively engaged in as you saw in the transaction activity a couple of quarters ago with our ASKY win and our Pacific Airlines wins. Those were examples of that activity and that pipeline structure moving forward.

Sean E. Menke -- President, Chief Executive Officer & Director

And Jed, this is Sean. I'll take the question on Google. And let me put it in this perspective because we talked about when we did the deal, do you have the cloud economics, do you have the technology transformation, do you have the integration of the data analytics, AI, ML capabilities and then the innovation framework. But if you take it into your question on sort of the financial impact, think of it this way, is when we look at expanding margins, that's really through a lower cost of the infrastructure and what we're doing.

So it's lower unit cost of compute, and that's why we keep talking about this because that does drive the cost savings that we're willing to do. The other thing that it's doing is just lower infrastructure requirements that allows us to, again, save money. The other piece of it that I -- that we talk to and talk about internally is just really driving efficiency on the tech transformation and product development on the labor cost side of the equation because it allows us just to become more efficient. So again, you're finding the cost savings. Flipping into the revenue side, I sort of look at it a couple of different ways.

Think about us integrating Google technology with existing revenue streams that we have out there today. So when we talk about smart retailing engine that allows us to combine that with what we have right now, and it allows us, from our perspective, to be a lot more competitive for new business going forward, both in the full-service carrier side of the equation, but also on the low-cost carrier side of the equation. Again, you can think about travel AI the same way as we can take those data analytics capabilities and begin to put it into things that we're doing on the operating side or the commercial side.

The other thing that we're doing is when we're focused, in partnership with Google, is how do we combine Sabre plus Google tech to open up new revenue streams. And right now, I think we have probably 5, 6, seven different things that are going on as it relates to those opportunities that we'll want to talk about into the future. And then the other piece of it is really just the partnering and co-development of new products that we think can be transformational in the marketplace. So it's not like there's just going to be this big bang, you create a new product that goes out and there's a revenue stream, a lot of what's happening right now are enhancement of our capabilities that are going to allow us to be more competitive in the marketplace, and we actually believe position us ahead of our competition.

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

Thank you.

Operator

You have a question from the line of Matthew Broome with Mizuho.

Matthew Fraser Broome -- Mizuho Securities USA LLC -- Analyst

Thanks very much. Hi, Sean and Doug. Does the relative sort of geographic strength in the U.S., does that affect your sort of tactical investment allocation decisions, particularly in terms of your go-to-market assets? Thanks very much. Hi, Sean and Doug. Does the relative sort of geographic strength in the U.S., does that affect your sort of tactical investment allocation decisions, particularly in terms of your go-to-market assets?

Sean E. Menke -- President, Chief Executive Officer & Director

It hasn't really changed a lot. Again, I think we're looking at this sort of in two phases, right? It's -- we're in the recovery phase right now, and this is sort of the lumpiness that we're seeing and what's taking place. As we think long term, it really does go back to the initiatives that I was talking about because that is global in nature and be it in the United States, similar to what we just talked about with Delta Air Lines, there's airlines around the world that are trying to do that. Delta is really doing that really through ATPCo. Others are doing it through NDC. But it really hasn't changed the way that we think about it. It's very focused on where we think things are going to be long-term as we get to the backside of COVID-19 and recovery is really taking place.

Matthew Fraser Broome -- Mizuho Securities USA LLC -- Analyst

Got it. And Hospitality Solutions continues to lead the recovery. Do you have any update on your plans to implement a full-service PMS system?

Sean E. Menke -- President, Chief Executive Officer & Director

Yes. I'll let Scott answer that question for you.

Scott Albert Wilson -- President of Sabre Hospitality Solutions

Hi, Good morning. Yes, this is Scott. One of the things that we continue to believe is that a fully integrated Hospitality Solutions set built on a public cloud is going to be a winning proposition. Hoteliers are looking for a seamless and efficient way to drive more business in the market that has to include a full-service PMS, and we're very much committed to doing that. Keep in mind, we do have a very robust property management system in place today. We continue to invest in that and we continue to drive that product further into the market and upmarket. So very much, that continues to be a strategic focus for us. We think that's going to be a key part of our strategy.

Matthew Fraser Broome -- Mizuho Securities USA LLC -- Analyst

Perfect. And maybe if I could just squeeze one last one in. And just curious if you have any updates in terms of your internal realignment and how that's progressing.

Sean E. Menke -- President, Chief Executive Officer & Director

Yes. I mean the team has done a really good job. If you go back to the actions that we took in 2020, the vast majority of that was done under Dave Shirk in the Travel Solutions organization. We're fully integrated into that new structure. Part of it, probably, really more on the back half of the year was getting people in new seats and getting alignment. But what I would tell you right now is I think the teams are doing well. We got the savings that we were looking for. So job well done by the team.

Matthew Fraser Broome -- Mizuho Securities USA LLC -- Analyst

Good to hear. Thanks very much

Sean E. Menke -- President, Chief Executive Officer & Director

Thank you.

Operator

You have a question from the line of Josh Baer with Morgan Stanley.

Joshua Phillip Baer -- Morgan Stanley -- Analyst

Thanks. For the question, mine has two. One on the hospitality side. Just wondering with -- thinking back to all the enterprise wins and announcements over the last year, just wondering like where we are on implementations and timing of when we see some of that momentum impact revenue?

Scott Albert Wilson -- President of Sabre Hospitality Solutions

Josh, let me start by just mentioning the Louvre deal that we announced last quarter. We actually worked with them for a few months before we announced a deal to talk about how quickly we wanted to get that implemented. In fact, we don't talk as much about tech transformation on the hospitality side, but do keep in mind, we're going through the same transformation. Our first version or instance of our CRS platform on the Google Cloud will be a Europe instance and it goes live this quarter.

We're doing that so we actually can start to migrate their properties onto our Google instance of CRS this summer and into the fall to be complete next year. So you take that and a number of the other things that we have in the pipeline, we think we're going to start having a pretty steady stream of growth in the enterprise space over the next six to 24 months.

Sean E. Menke -- President, Chief Executive Officer & Director

And I would have one comment just on that. It does go back to the partnership with Google, specifically in the cloud -- on the cloud is our ability to essentially have landing zones in regions around the world and the reduction in latency as well as redundancy is so important to these customers. And again, Louvre is an example of that partnership being important for us to be able to think about things a little bit differently.

Joshua Phillip Baer -- Morgan Stanley -- Analyst

Great. And I did have a few on free cash flow and breakeven. Wondering if you have an update to the demand threshold to breakeven versus 2019 travel demand that we've gotten in the last couple of quarters?

Douglas Elliott Barnett -- Executive Vice President & Chief Financial Officer

Yes. Nothing has changed vis-a-vis those thresholds. Still, it's 50 -- it's going to range between 56% and 67% of 2019 levels. And obviously, those goal posts all depend on mix.

Joshua Phillip Baer -- Morgan Stanley -- Analyst

Right. And this quarter, if -- are you able to provide any additional context on the large working capital items that you've called out that are weighing on free cash flow? Just wondering like how big of an impact those were and as we go through the year, if there's any insight into the seasonality of that and the impact on free cash flow?

Douglas Elliott Barnett -- Executive Vice President & Chief Financial Officer

We haven't given any guidance on the value of it, but I can tell you that there'll be a meaningful reduction in the use of free cash flow as we move through the balance of the year.

Joshua Phillip Baer -- Morgan Stanley -- Analyst

Great. Thanks.

Operator

[Operator Instructions] You have a question from the line of Neil Steer with Redburn.

Neil Steer -- Redburn (Europe) Limited -- Analyst

Hi, Thanks for taking the question. It seems from the data that you've given us that the -- sort of the blended reservation fee was probably down around about 25%, something of that order. Can you firstly comment on that? And is that totally a mix effect? Or has there been any underlying sort of price pressure that's crept through as deals have been renegotiated? Thanks.

Douglas Elliott Barnett -- Executive Vice President & Chief Financial Officer

No, all a mix effect. That's what it is.

Neil Steer -- Redburn (Europe) Limited -- Analyst

Okay. And then in response to one of the earlier questions, you mentioned that, obviously, with the Delta contract that you announced the other day, that the reservation fee you get is actually tied in some way to the upsell of the ancillaries, which is clearly moving toward, obviously, aligning the reservation fees to, I suppose, the value of the tickets. Is this a meaningful change in the strategy? And how do you underpin and make sure that we don't move sort of more significantly to a pricing structure that's related to the value of the tickets that's being sold? Or indeed, is that how you want to take the pricing structure?

Sean E. Menke -- President, Chief Executive Officer & Director

Yes. I mean, if you go back, Neil, this is one thing that we have talked about for a long period of time is you have to look at it from a value-based perspective. And this is a clear step in the direction where we wanted to go because when you're investing in technology, you're trying to differentiate your capabilities versus your competition. And we do believe this is what's taking place and drives to the agreement that we have with Delta Airlines. I would also say the same thing as it relates to the Lufthansa agreement that there are incentives associated with technology advancement that allow them to get to higher yield traffic. So again, this is very much in line with what we want to do because we do believe that aligns the parties across the ecosystem.

Neil Steer -- Redburn (Europe) Limited -- Analyst

Okay. Thanks. And just one final one. On Radixx, obviously, the compromise that you announced to the system last week, can you give us an update on that, please?

David J. Shirk -- Executive Vice President & President of Travel Solutions

Sure, Neil, this is Dave. So we had -- the incident that we talked about, this is our Radixx subsidiary. That particular piece was, as we noted in our public statement, was a malware incident and it affected roughly 20 airlines. Everyone is back live, and that was a progression through that particular process. And we are in active contact with them, working through continued movement forward in the environment that we've now reestablished around that piece of it and some of the changes that we've made to that environment.

Sean E. Menke -- President, Chief Executive Officer & Director

Yes. And you should imagine, Neil, we were very apologetic for what took place. An important thing to note is they operated throughout the impacted time frame, what really was happening was the ability to sell tickets into the future. So again, the teams had worked with the customers to work through what we needed to address.

Neil Steer -- Redburn (Europe) Limited -- Analyst

Thanks very much.

Operator

You have a question from the line of Victor Cheng with Bank of America.

Victor Cheng -- BofA Securities -- Analyst

Thanks for taking my question, three from my side. Telling the smart retail engine that you mentioned, do you have any customers lined up already prelaunch? And then jumping to NDC, obviously, noting the continued progress in certifications and number of deals signed, what percentage of bookings are we expecting in the coming year or so? And should we expect similar economics versus traditional GDS distribution channel, particularly, as you have alluded to just now, the technology in NDC in this case, over time, prove its value for higher yield per seat instead of just being a shift in distribution channel? And just one last one on recovery. You provided a lot of color, regional mix and noted that stronger domestic leisure recovery. But just wondering if you have any color -- a bit more color on potential corporate recovery that you're seeing, particularly in April? Thanks.

David J. Shirk -- Executive Vice President & President of Travel Solutions

So let me start the process, Victor, here. On the Smart Retail Engine, all of our focus on this has been to roll out the set of products in the spring time frame. That continues to move along and is on track. As we noted last quarter, first pieces of some of the alpha and beta pilot work were already taken live in testing at Etihad Airlines. And this quarter, we took further capability sets for pilots that are live and being tested at LATAM in several markets. And so we are optimistic that this particular piece will help in the retailing elements as part of the recovery with airlines.

So we are already engaged in pipeline discussions with folks that are interested in the technology, and we'll give you guys more updates on that piece as we get further into the spring and the fall cycle of that. So that, I think, addresses your first question. On your NDC question, you had a lot of parts there. So let me see if I can maybe take a stab at some of those as we kind of work through that. And then I'll ask for Sean or Doug to maybe comment on the regional and domestic piece in this. So on the NDC piece, as part of the -- your question around percent of bookings and the shift and how we'll see that and what will be the change, etc. Again, first off, NDC transactions are very, very small at this point.

As you can imagine, it's a volume situation that certainly is tied to the pandemic. It's also the case -- we've gone live with Qantas in Singapore, and you can see the outlets and the things that we've done there. But it's still the case the transaction volume is extremely minimal at this particular point in time. I think the other thing that you'll see as part of that, and time will tell as part of the recovery, the majority of airlines that are doing NDC are ones that were very far along before COVID. The vast majority of airlines have paused or completely stopped their NDC activity at this particular point in time because of the pandemic and the resource hit to their organizations and cost containment, etc.

We continue to move the road map along. But as I said, I think it will take some time before we'll really truly be able to understand and answer the question. But I think this is part of why the -- and the -- sorry, the announcement of Delta is so significant because that is also a very advanced retailing effort that's a first of its kind to move that piece out, which I think a number of airlines and agencies will find much easier to begin that journey and find alternatives to how they might think about retailing in the environment that's out there as well. So we're providing a number of avenues for them to kind of head down that particular path. And then as far as the regional domestic.

Sean E. Menke -- President, Chief Executive Officer & Director

Yes, this is Sean. I'll go ahead and take that. And I think part of the way -- and I'll come back to your business specifically. But what we truly have seen, and we're trying to get this in the commentary is everything is based on confidence right now. There's no doubt that is foreseen in the U.S. domestic marketplace when confidence has improved, we're seeing because of vaccine rates are continuing to improve. Testing is good. Things are beginning to reopen that demand is improving, and we've seen it more from the leisure side. As I mentioned in my prepared comments, we are seeing green shoots as it relates to corporate travel. At the beginning of the year, it was down, call it, 90% or so. It's been -- was sort of that way for a period of time.

We've probably seen in the domestic U.S., 15 to 20 point improvement from where we were. So again, that's just part of the confidence and things starting to happen. We do drill it down into the specific sectors and understand certain sectors are moving more than other sectors. But really from the beginning of the year, we're beginning to see some really good movement there. What then happens is you have airlines that add more seats. And that's really what we're seeing in the U.S. marketplace is more seats are being added. So I expand it because this is how we try to think about balance recovery is when we think about international flying. And as Doug talks about, that's where we make more of our money, the margins are higher there. International standards are important as it relates to bilateral discussions between countries.

And we at Sabre, as well as other travel CEOs, have been engaged with the Biden administration on trying to get standards in place, opening up travel corridors or bubbles as you hear it. We have seen Hong Kong, Singapore. We've seen the trans-Tasmanian flight corridor as well as recent announcements in Greece and even going back to the U.K. when they began to outline what they were going to do from opening travel. We see shopping pop, and then we see bookings begin to happen. So we believe the demand is there. And with that, sort of that cycle continues, that capacity will be added back. So again, sort of step-by-step, day-by-day, but that gives you some insight on just what you see in recovery, but also what we're seeing on the business side because it is important.

Operator

And there are no additional questions at this time. I will turn the call back over to Mr. Menke for closing remarks.

Sean E. Menke -- President, Chief Executive Officer & Director

Great. Thank you very much. Once again, I would like to thank my Sabre employees for everything that they continue to do day in and day out. And for the people on the call, investors that are focused on Sabre. Thank you for your focus on the company and look forward to talking to you again.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Kevin William Crissey -- Vice President of Investor Relations

Sean E. Menke -- President, Chief Executive Officer & Director

Douglas Elliott Barnett -- Executive Vice President & Chief Financial Officer

David J. Shirk -- Executive Vice President & President of Travel Solutions

Scott Albert Wilson -- President of Sabre Hospitality Solutions

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

Matthew Fraser Broome -- Mizuho Securities USA LLC -- Analyst

Joshua Phillip Baer -- Morgan Stanley -- Analyst

Neil Steer -- Redburn (Europe) Limited -- Analyst

Victor Cheng -- BofA Securities -- Analyst

More SABR analysis

All earnings call transcripts