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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to the Sabre First Quarter 2018 Earnings Conference Call. Please note that today's call is being recorded and is also being broadcast live over the Internet on the Sabre corporate website. This broadcast is the property of Sabre. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of the company is strictly prohibited.
I will now turn the call over to the Senior Vice President of Corporate Communications and Investor Relations, Mr. Barry Sievert. Please go ahead.
Thank you, Melanie, and good morning everyone. Thanks for joining us for our first quarter 2018 earnings call. This morning we issued an earnings release which is available on our website at investors.sabre.com. The slide presentation which accompanies today's prepared remarks is also available during this call on the Sabre IR webpage.
A replay of today's call along with the slide presentation will be available on our website beginning this afternoon. Throughout today's call we will be presenting certain non-GAAP financial measures which have been adjusted to exclude certain items. All references during today's call to EBITDA, operating income, EPS and net income have been adjusted for these 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.
We would like to advise you that our comments contain forward-looking statements. These statements include among others disclosures of our guidance, including revenue, EBITDA, operating income, net income, EPS, cash flow and capital expenditures. Our expected segment results, the effects of changes in accounting standards and U.S. tax reform, the effects of new or renewed agreements, products and implementations, our expectations of industry trends and various other forward-looking statements regarding our business.
These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's call. Information containing the risks and uncertainties that could affect our financial results is contained in our SEC filings including our 2017 Form 10-K.
Participating with me on today's call are Sean Menke, our President and Chief Executive Officer; Rick Simonson, Executive Vice President and Chief Financial Officer; and Chris Nester, our Treasurer and SVP of Finance. Sean will start us off and provide a review of our strategic and commercial performance and outlook. Rick will offer additional perspective on our financial results and the forward outlook. We will then open the call to your questions.
With that I'll turn the call over to Sean.
Thanks, Barry, and good morning everyone. I'm really glad that you've taken the time to join us today to hear more about our progress and financial results for the first quarter. As you might imagine, I'm pretty excited about the kickoff to the year, good financial results for the quarter and improved expectations for the balance of the year.
Not visible to you but something we have talk about quite a bit is the enormous progress on our stability and product health initiatives. The tone and content of our conversations with customers has greatly improved and is squarely focused on our strategy, products and their needs.
We kicked off the year with significant time spent articulating our strategy and roadmap. It started off with our employees at our Global Leadership Summit where we brought together over 1,000 employees in January.
We then brought together you, our investors, as well as analysts that cover us and had our Investor Day that you were able to understand our strategy and focus and get to meet new members of the management team. And then finally we had our Sabre Technology Exchange just a few weeks ago, where we brought together essentially customers from all parts of our business, both from the Hospitality Solutions, Airline Solutions and Travel Network to talk about all the great things that are going on at Sabre.
We will provide more detail on our prepared remarks. But before we do that, I do want to offer a sincere thank you to my team members throughout the world. Their collective hard work and effort over the past year has been a major contributor to our solid kickoff to the year. I've always believed that strong focus, discipline and execution of a defined strategy and roadmap will pay positive dividends over time.
We have made some tough decisions over the past year but our rigor and accountability are paying off. Thanks to the foundation we laid in 2017, we began this year from a solid position and we see momentum gaining.
As a leading technology provider, we are partnering closely with our customers to reimagine the business of travel across retailing, distribution and fulfillment. Our cloud-first, microservices-enabled technology strategy is resonating with our customers and our accelerated innovations are delivering appreciable value.
We are off to a strong start with solid revenue growth across the business in the first quarter. The macro global travel environment was supportive. This combined with new business wins and implementations drove strong booking growth in Travel Network, a solid increase in passengers boarded on a consistent carrier basis in Airline Solutions and continued robust hotel transactions in Hospitality Solutions.
We are progressing well against our prioritized initiatives that are measured, tracked and owned by our leaders and believe we are well positioned to deliver strong full year financial results. Because of this we are increasing our full year guidance.
Now, let's look at our performance in the first quarter. We delivered on revenue growth in Q1, strong growth in Travel Network driven by supported booking environment, the completion of the Flight Centre migration Asia-Pacific, as well as the conversion of other new agency deals that were signed in 2017.
Stronger than expected growth in Airline Solutions with solid passengers boarded growth on a consistent carrier basis, new implementations and the timing of renewals in the quarter; and finally growth in Hospitality Solutions revenue driven by strong growth in SynXis software and services revenue.
While operating income declined slightly, free cash flow was well above a year ago levels, all-in a solid quarter. This combined with the momentum we see leads us to increase our financial expectations for the year.
Our progress to-date provides clear evidence of three things. First, Travel Network and the GDS business model continued to deliver value for customers on both sides of the marketplace. Second, Airline Solutions' leading portfolio of solutions, our focused investments and partnership with the industry are laying the foundation for the stronger growth that we expect in the years' ahead. Third, Hospitality Solutions is expanding its leadership with innovative new capabilities and increasing scale in the two big addressable markets of independent hoteliers and the large global enterprise brands.
In Travel Network, carriers of all types and sizes continue to look to our GDS for efficient and high value distribution, and we believe full content agreements remain as relevant as ever as the industry continues to evolve.
We recently signed long-term GDS renewals with United Airlines in North America as well as Aeroflot in EMEA. We're also pleased to announce Lion Air, the second largest low-cost carrier in Asia-Pacific with over 20% growth in passengers boarded in the first quarter signed its first GDS agreement with us. This new agreement includes GDS exclusivity for Sabre in their home market of Indonesia.
As mentioned, we completed the first – we completed the Flight Centre conversion in the first quarter with slightly under 1,400 locations across Australia and New Zealand, now live on our industry leading new Sabre Red Workspace. Among other conversions in the second quarter, we also fully implemented Travelgenio, the second largest OTA in Spain.
At Airline Solutions, we expanded our technology footprint at a number of existing customers in the quarter while executing on major implementations. Etihad, Air China and Virgin Australia all signed agreements for additional Sabre solutions in the quarter. And we signed key renewals at several airlines including Saudi Arabian.
Importantly, along numerous implementations in the quarter, we successfully completed the first phase of our SabreSonic reservation system at LATAM and remain on track to complete the implementation by mid-year. And just a few days ago, we successfully completed Alaska Airlines and Virgin America's SabreSonic reservation system integration.
At Hospitality Solutions, we continue to extend our lead with new wins in the quarter that included Next Hotels and Resorts and Laila Hotels and Resorts while expanding our technology footprint across multiple other hoteliers.
We completed numerous implementations in the quarter including the successful migration of Wyndham brands, American, Howard Johnson's, Travelodge to our SynXis central reservation system. We expect to continue to migrate additional Wyndham Hotel Group brands to our CRS throughout the remainder of 2018.
At Sabre, our business is solid, momentum is strengthening and our message is gaining traction as we are reimagining the business of travel in order to deliver measurable value to our customers and to deepen and expand our competitive advantages. Our breadth and depth across travel provides us with deep understanding of the travel throughout the travel lifecycle.
There's enormous potential for technology platform at the center of the business of travel to enable the fragmented pieces of travelers' journey to come together. Given our unique position, we are committed to lead the industry in the development of next generation retailing, distribution and fulfillment.
Leveraging technologies like AI and machine learning, we believe that data we process and store can be used to create unique offers that reflect real-time market dynamics and customer preferences, opening up new revenue opportunities and cost savings for our customers including through NDC-enabled offerings.
NDC-enabled solutions can unlock product differentiation, quicker time to market, access to rich content and consistent shopping experience across all channels for airlines. We are partnering closely with our airline customers to bring this promise to reality and grow the revenue pie across the ecosystem.
Along with these efforts at our Sabre Technology Exchange in April we unveiled our Digital Airline Commercial Platform with capabilities unlike anything else available today. This new innovation will begin rolling out in Q4 of this year, will be in the industry for the end-to-end intelligence personalized retailing and fulfillment platform. This unique solution features deeper integration and significant capability enhancements to our SabreSonic reservation system and AirVision commercial products including NDC-enabled offer and order management.
This innovation will combine the benefits of ultrafast shopping and microservices hub in an omni-channel experience to leverage data driven insights that dynamically and intelligently market airline products across all channels, enable the fulfillment of the resulting order and deliver a personalized customer experience, meaning our airline customers will have a unique edge to truly differentiate in today's competitive environment.
At Travel Network, we are in the midst of a major initiative to upgrade our travel agency customers worldwide through our competitive, powerful new desktop, the new Sabre Red Workspace. Combined with our leading shopping capabilities, Sabre Red Workspace enables data driven insights from Sabre widgets and APIs to help agents find the right product for customers as well as enhanced options to increase revenue through cross-sell and upsell capabilities.
The intuitive workflow and consumer grade interface significantly reduce training time for new agents allowing new hires to reach levels of productivity that used to take years of experience and training.
Also announced at Sabre Technology Exchange was the launch of our Hospitality Solutions SynXis Property Hub property management solution and next generation updates to ours SynXis Booking Engine and Voice Agent solutions.
Hoteliers are searching for scalable ways to transform the guest experience through technology. Our brand new SynXis Property Hub significantly improves how hotel properties run their day-to-day operation and leverage unique integrated capabilities across the entire SynXis platform in a customer-centric, mobile-optimized design.
Our next generation SynXis Booking Engine uses dynamic personalization to make it easier for travelers to find what they're looking for by display offers and content that is informed by their booking behavior.
At our Investor Day in March, we discussed our plan to complete the evolution of our technology infrastructure, an architecture to accelerate the advancement of our global travel platform. With years of work already behind us and most of our product portfolio already operating on open systems and deployed in the cloud or cloud-ready, we are well on our way.
As part of our strategy to move to the cloud as the primary platform for our services, today, we announced a multiyear global enterprise agreement with Amazon Web Services as one of our strategic cloud partners. Multiple products from across our business are already hosted on the Amazon cloud. Building on this success, this new agreement deepens our strategic partnership to support our accelerated migration to the cloud as Sabre's primary operating environment.
We expect our shift to a cloud-first infrastructure will yield significant benefits to us and our customers. We will benefit from increased flexibility and reduced operating cost, while the customer should see enhanced performance, stability, security and time to market benefits for new functionality.
Not only does this new agreement give us preferred pricing in line with the expectations we discussed at Investor Day, but also includes a significant investment by AWS Professional Services and training to support our continued transition. This is recognition by AWS of Sabre's global leadership position in a fast-growing travel technology space. We look forward to continuing to share our progress over the quarters and years to come.
With that, I'll turn the call over to Rick to get into more of the financial details. Rick?
Thanks, Sean. Let's move to the reportable segments. In Q1, Travel Network revenue increased 9% driven by strong bookings growth and an increase in average booking fee due to favorable customer pricing and positive mix including the impact of 20% bookings growth in Asia-Pacific, a higher value region.
Travel Network operating income was impacted by growth in incentive expense including an unfavorable comparison versus a $16 million incentive contract reversal in the year ago period, as well as increased technology operating costs and higher depreciation and amortization.
Bookings growth of 6% reflects the supportive macro environment and the benefit of the completion of the Flight Centre migration as well as the conversion of other new agency deals signed in 2017. For the first quarter, bookings growth was supported by an increase of 20% in Asia-Pacific driven by the Flight Centre migration and strong market growth. Bookings also increased 3% in North America, 2% in Europe, Middle East, Africa and were relatively flat in Latin America. Global bookings share improved 20 basis points in the first quarter to 36.9%.
At Airline Solutions, revenue increased 7%. Within SabreSonic we saw solid passengers boarded growth on a consistent carrier basis. AirVision and AirCentre commercial and operations solutions revenue increased double-digits due to new implementations and earlier than anticipated timing of renewals. We do not expect to see this level of growth in Airline Solutions to continue over the balance of the year, but we're pleased with the first quarter.
In the quarter, the net impact of adopting revenue accounting standard ASC 606 was relatively neutral as the impact from revenue timing of renewals and new implementations largely offset the gross revenue reduction driven by the adoption of the new standard.
Airline Solutions operating income growth of 56% was supported by benefits from the cost reduction and business alignment program initiated in August 2017 as well as a favorable comparison versus higher service level agreement or SLA expenses in the year ago period.
Airline Solutions operating margin expanded nearly 5 points to 14.9%. Passengers boarded declined in the first quarter due to the midyear 2017 roll-off of Southwest. Passengers boarded on a consistent carrier basis increased 6% in the quarter.
At Hospitality Solutions revenue increased 6% in the quarter. We had strong CRS transactions. That drove mid-teens growth in ours SynXis software and services revenue. This was partially offset by a decline in project-based digital marketing services revenue. Want to emphasize, we continue to expect full year Hospitality revenue growth in the mid-teens.
Hospitality Solutions operating income growth was supported by benefits of increasing scale and from cost reduction and business alignment programs initiated in August of last year.
In Q1, we generated free cash flow of $130 million, a significant increase versus prior year and ahead of expectations. Contributing to free cash flow was a decline in capital expenditures of $24 million year-over-year as our cloud and other initiatives drove a rotation of cost from CapEx to OpEx, and as the business becomes less capital intensive as a percentage of revenue.
Additionally, Q1 free cash flow growth was positively impact by the timing of a $40 million DXC payment that was paid in Q1 last year but will be paid in Q2 this year as well as receipt of $29 million as the second and final installment of insurance reimbursement settlements related to old litigation. This receipt was incorporated in our original guidance expectations for free cash flow for the year.
Our cash flow supported the continuing strengthening of our balance sheet. We ended the quarter with leverage at 2.9 times. In the quarter, we returned $39 million to shareholders through our regular quarterly dividend.
As you've seen, we've raised and increased our 2018 full year guidance today. This is based on strong first quarter, continuing travel transaction growth across our global customer base and our expectations for sustained momentum over the balance of the year. For the full year we are increasing our revenue guidance by $75 million. We expect revenue of $3.76 billion to $3.84 billion or 4% to 7% growth.
At Travel Network, we expect stronger full year revenue growth of between 6% and 8% above our initial guidance of 4% to 6%. The revenue increase is driven by expectations for bookings to increase 5% to 7%. This is all supported by a strong global macro environment, new agency conversions, the completion of Flight Centre conversion in Asia-Pacific as well as revised expectations for approximately 1% average booking fee growth on a full year basis versus our previous expectation for flat booking fee growth.
The second quarter is off to a good start with strong bookings performances throughout April. With a strong Q1 at Airline Solutions, we expect improvement in revenue growth from previous expectations. Previously, we expected a mid-single digit decline in revenue. Now we expect a low-single digit decline for the full year.
The adoption of new revenue recognition guidance ASC 606 impacts our Airline Solutions reporting as we previously disclosed. Our refined full year estimated impact based on Q1 actuals is as follows: We see a reduction of full year revenue of $30 million to $40 million or approximately $35 million at the midpoint, which is partially offset by expectations for upside of approximately $10 million driven by upfront revenue recognition for renewals and new implementations of solutions affected by ASC 606. This results in a $25 million estimated net reduction in revenue recognition which is lower than our previous disclosed estimate of $40 million. So reflecting all of the business and accounting ins and outs, we expect Airline Solutions revenue to decline mid-single digits in the second quarter.
At Hospitality Solutions, we continue to expect full year revenue growth in the mid-teens, fully recognizing Q1 revenue growth was a bit lower than expected for the reasons I mentioned.
So turning back to Sabre consolidated level, we are increasing our expectations for full year adjusted EBITDA by $20 million to between $1.075 billion and $1.115 billion for full year; adjusted operating income of $15 million increase to between $665 million and $705 million.
As we pointed out on our last earnings call and in our Investor Day, we're increasingly rotating more of our total investment dollars from CapEx to OpEx. Primary drivers of this rotation are: accelerating deployment of our private and public cloud environments and productive investment and enhancements for stability, security and particularly GDPR compliance here in the early part of the year. This continuing rotation dampens the flow through from the top line revenue growth to EBIT and operating income.
We expect depreciation and amortization of approximately $410 million, interest of approximately $155 million and an effective tax rate of approximately 24% for the full year. This results in updated adjusted net income guidance of approximately $385 million to $425 million, and adjusted EPS guidance of $1.39 to $1.53.
We continue to expect capital intensity as a percent of revenue to decline and are lowering our full year CapEx forecast by $15 million, resulting in a range of $290 million to $310 million.
Our increased earnings outlook and decline in CapEx expectations result in an increase in the full year free cash flow outlook to approximately $425 million, representing a $35 million improvement versus previous expectations and year-over-year growth of approximately 18%. In terms of quarterly cadence, we expect free cash flow to be a bit lower in Q2 and closer to the Q1 run rate in Q3 and Q4.
Sean, back to you for closing remarks.
Great. Thanks, Rick. As earlier discussed, I'm pleased with how we kicked off the year as you can hear. I challenged our team to reimagine the business of travel and I want to commend them once again for their hard work and commitment that is driving tangible results for this company. Together, we are accelerating innovation and unlocking value for our customers.
We are progressing well against the prioritized initiatives we introduced at Investor Day. These results provide a strong start for us to build off of over the balance of the year. I want to once again thank all of you for joining us today.
And at this time, we'd like to go ahead and open up the call for your questions. Melanie?
Thank you. We'll take our first question from Mark Moerdler with Bernstein Research.
Thank you very much and congrats on the quarter. Can I – two part question. First part, can you give us a bit more color on what offerings are you planning to move to AWS? How much of the overall data center requirements are going to move to being running in the cloud on a – over a longer horizon? And then a quick follow-up.
Yes. Hey, Mark. This is Rick. On AWS, again, it's one of our providers. It's a non-exclusive agreement but a very strategic one. We had started with them of moving some of our product from our Hospitality into the AWS cloud. We continue to rotate those solutions that are cloud-ready open systems increasingly to AWS understanding we complement that by our data centers, our co-locations where we have already moved all our shopping into those two data centers that are located in North Texas here.
So, again, this is a continuation of rotation from out of small Sabre-managed data centers and increasingly from the DXC data centers in Tulsa to virtual or private cloud or public cloud operations. AWS is just the first step in that rotation and it spans applications across Hospitality, Airline Solutions and the Travel Network. We got a very clear plan of what data centers we'll continue to shut down and what applications we'll continue to rotate to AWS and other partners to come.
Beautiful. Thank you. And then as a follow-up, with the shift to cloud providers in general, optically how should we think about CapEx going forward? Should we figure directionally it's going to continue to creep down as workloads move or future growth?
Absolutely. Absolutely. And that's – as we talked at the end of the year and we spoke a lot in our Investor Day and again as a percentage of revenue, the CapEx is going down from closer to nine to into the eights and lower as we talked about before. And that's the primary driver there. You know you get all the benefits of – we can have continuous availability by the way we set-up and deploy across the different locations. It saves capital there in terms of what you need for capacity. We use on-demand capacity for peak, for applications that might have very different intensity of usage during the day, during the week, during the quarter and the year. So you get all of those benefits and we're already starting to recognize that.
Beautiful. Thank you.
And we'll go next to Matthew Broome with Cowen and Company.
Thanks for taking my call. So it sounds like you now expect to get a bit more Travel Network pricing in the year. Can you speak to the sort of competitive landscape during the quarter and I guess across all through your business segments, if that's possible?
Yeah, Matthew. This is Rick. On Travel Network, we said about flat pricing this year. We're raising that by a percentage. There's a number of drivers there. One is the mix of growth in the regions I talked about specifically in first quarter you see the strong APAC growth which is a higher margin market. We expect to see continued higher than average growth out of APAC. So that contributes, first and foremost our mix. And we have gotten benefit from some of the rotation that's going on with some of the legacy carriers in the European market on pricing.
Okay, great. And I guess AirVision, that's right, AirVision and AirCentre saw some nice real acceleration in the quarter. Is this...
Yeah.
...largely a factor of lapping sort of easier comps? Or are you actually seeing sort of a more meaningful inflection demand for these products?
Well, remember, as we've talked there's good demand for our products in AirCentre and AirVision. And we've talked about that of demand of – on a consistent basis teens growth in AirCentre and AirVision. We're having the difficult comparisons of lapping on our central reservations from the exit of Southwest, as you're well aware. But AirVision, AirCentre very strong on our operation suite, the demand for those products.
What we've done is been working to make sure that we've improved our efficiency of delivering those, narrowing down diversions that they should've talked about in terms of the customer, that helps with customer stability, it helps with quality of that. So that benefits us all throughout our operational efficiency but the demand is absolutely there across AirVision, AirCentre. Intelligence exchanges are lead data and analytics product in AirVision. There's nothing like it on the marketplace. That's a big driver there. And our whole crew suite in AirCentre, again, good demand for that. So we're really pleased with the momentum that we have in that.
We have a lot of ins and outs going on, on the revenue accounting but you shouldn't confuse any of that or the lapping or the comp with the Southwest departure with the fundamental demand for the products in AirCentre and AirVision.
In Hospitality, we had a little bit lower growth than expected in the first quarter. But importantly that was really a function of lower of the project-based kind of episodic digital marketing work. Again that's not the core of our business. It's necessary and a complement to what we offer. But the core transaction growth, it's driven off of our central reservations and will increasingly start to come off of our property management, the SynXis property manager SynXis Hub was very strong in the quarter.
And that's what gives us confidence that through the full year we still expect to see low-teens revenue growth in the Hospitality Solutions business. So, hopefully that gives you little color by the three segments.
Yeah. And I'll add a couple of things because I think it goes back to the work that has taken place within Airline Solutions really over the last year, year-and-a-half and part of it was what we're doing just really from a product health perspective. We've made some changes as it relates to leadership and customer care and delivery, that has been very helpful as we continue to integrate specifically our crew software to different carriers throughout the world. So that continues to move forward.
As Rick stated, the pipeline there is strong. The other thing I want to point out and it was in my comments was really the digital commerce platform, and this goes back to what the team announced during the Sabre Technology Exchange. And this is really beginning to marry what we're talking about relative to the transition in the marketplace because everybody's very interested in PSS deals. And as we travel the world and we're meeting customers around the world and they look at NDC and they look at ways of actually driving more revenue, this is where the rubber sort of hits the road in the transition and part of that is what we're looking at as it relates to dynamic pricing which gets into the fare optimizer which is one of the products we have as well as dynamic availability.
The other is, what we're doing on the digital agent interface because this really allows to drive more exception handling, but probably more importantly allows agents and airport personnel to drive more ancillary sales and how do we actually do that with a better interface that's out there.
The other piece is the offer and order management and that has become fundamental as it relates to looking at NDC and NDC capabilities, how do you look at that offer in order management and that gets rolled into this.
And the last piece that I'll talk about on this is really as we talk about microservices and you look at the multiple components of a PSS, it allows us to make the changes at different points in time that it's just not one big release. We can look at a specific component and make those changes.
So, again, I feel really good about what we're seeing in Airline Solutions. There's more work to be done. But if you look at where we were a year ago and the progress that has been made and essentially how we're bringing all these pieces together, pretty excited about the opportunities as we look into the future.
Very interesting. Thanks and congrats on the results.
We'll go next to Jim Schneider with Goldman Sachs.
Good morning. Thanks for taking my question. It's helpful what you – the discussion around the Travel Network trends. From a macro perspective, do you think that the bookings momentum that we've seen early in the year can kind of sustain itself? And can you remind us of any kind of easier comps we may have seen in the first half of last year that would kind of skew the growth numbers as we look for the balance of the year?
Jim, the bookings is pretty clear. We are off to and the industry is off to a good first quarter. We've seen that continued in April. It's fundamental to our outlook for the year and our – which was strong going into the year and fundamental to the raise that is attributed to the stronger bookings this year.
We're doing our part by making sure we're doing and getting the benefit of the conversions that we worked on in 2017 leading with the product that the new Sabre Red Workstation et cetera. Our continuing growth in Europe, Middle East, Africa market where that's our smallest footprint, so it's pretty simple story. We see a good year forming up on bookings. We're doing our part to make sure that we're getting our fair share of that. And now there aren't any things to really call out in the back half.
Yeah. I mean we continue to watch as everybody does what's happening on the capacity side with carriers throughout the world. The Lion Air thing is important. This is something that we've seen really over the last year that we – I think we signed up 10 to 12 low-cost carriers around the world. Part of it is those that are fast growing and looking for other forms of distribution that becomes more important. So as we look at where we are right now, look at what's taking place, we feel really good about the trends.
And even though you've heard some bits of airlines might trim a little bit capacity, that's really at the edges. There's plenty of capacity to support the growth expectations that we see for this year.
That's encouraging to hear. And then maybe, relative to the Airline Solutions, I know you mentioned some renewals and maybe some other issues that kind of contributed to the strength in Q1. Is that something – they can kind of continue at least into Q2 a little bit? And can you maybe comment on the relative strength of the operations solutions versus central (36:05) please?
Yeah. In terms of the renewals and again there's a big component that in Q1 contributed to upfront loading of revenue of the locally installed software, the license component of that. We've talked about this pretty much at length, the impact of ASC 606. We don't expect that to continue at that rate in Q2. And that's specifically why I called out that Q2 growth rate, where we usually don't do that by revenue segment and so that we can all be aligned to that and overall gave you the updates there.
Makes sense. Thank you.
We'll go next to Ashish Sabadra with Deutsche Bank.
Solid results. Congrats. My question was about the private channel deals in Europe, Air France-KLM moved on to it. I was just wondering if you can talk about what you're seeing in the market and how's that going to influence or how is that going to be impact or be beneficial to Sabre?
Yes, I'll go ahead and tackle this one. I think it's important, because we do get a lot of questions about the agreements and what's going on. And first let's sort of break it up into what we're seeing in the U.S. marketplace, the European marketplace and then touch upon the low cost carriers.
You know in North America, as I just stated in our comments, we just renewed our agreement with the United Airlines, long-term agreement with United Airlines. That's on top of a renewed agreement with Delta Airlines last year. The one thing that I will share as it relates to American Airlines is, we have been in discussions with them and have brought really a cross-section of team members together from American as well as Sabre to assess what is really a win-win agreement that is broad and all encompassing. And that level of engagement between the two organizations has been very productive.
And it's really thinking about the future technology needs (38:05), a lot of the things that we are talking about, as it relates to transformation of the business, it's important to be able to have those discussions with key partners. And that cooperation has, from my point of view, has been good to this point. So you have that context in North America that we have full content agreements and engage with one of our largest partners.
If you look at Europe, it's a little bit different, right? And we've seen three carriers or groups IAG, Lufthansa as well as Air France-KLM. And the one thing that we continue to point out is if you look at over the last year I think we signed essentially 40 full content agreements. So you have a microcosm of changes that are taking place there.
As we look at the marketplace and I think this is – when you look at our share, our share is in that 16% to 17% range in Europe. And the interesting thing that when you look at the profile of our bookings, a little under half of them are really the high yielding international traffic that's out there. And that's really important to international carriers because it's the higher yielding traffic that's out there.
The one thing that – and I don't know if people that are listening actually had read the story in The Company Dime, but it's something that we have talked about as it relates to just understanding history and also understanding sort of the progression of what happens when carriers try to move from indirect to direct. And that article really did point out some of the things that we had stated over the past several months, is that when you look at the first full year post surcharge from Lufthansa you saw about a 10% movement in – a 10 point movement in the indirect to direct. But thereafter it has been relatively flat. And it's something that I've always talk about just based on my experience in doing this with Air Canada is that from a strong point of sale perspective you can actually have movement. But when you look at how you're trying to move bookings in point of sales that are less strong or you're looking at it relative to the alignment with the travel management companies, it becomes a little bit more difficult.
So we'll continue to see how things play out with IAG and Air France-KLM, but it's important. And again I'm going to reference just a little history is that when you do go back to Air Canada and this is information that can be tracked, is that each of these situations is rather unique but Air Canada made a decision in 2006 that they were going to go to the RAC rate PCA (40:34). And at that point in time, the lower fares, which were the Tango-branded fares were actually pulled from the marketplace.
And despite remaining on the PCA, what we saw over a period of time is that Air Canada returned the full content to the GDS. And if you look at GDS share pre that action and then post that action, there's only about a five point movement in what GDS share was. And if you actually look at our bookings, this is Sabre bookings, pre to post, so pre-2006 to what we're seeing right now, we've had about a 50% increase in actually bookings.
So the important thing in all of this is, even though I go through these stats, it's important to note that our customers are looking at ways of driving additional revenue. And when you look at retailing, distribution and fulfillment and how that really ties back to how we're looking at our Travel Network business and how we're looking at Airline Solutions and the enablement, it's to help them find ways of driving that additional revenue to compete in the marketplace.
That's extremely helpful. Maybe just a quick follow-up question on the Hospitality side, we should continue to see some pretty good acceleration in the growth and just want to highlight – if you could highlight what really drives that acceleration in the growth as we go through the year. And then the second point would be just on the prospect pipeline, if you could talk about prospect pipeline for the Hospitality Solutions? Thanks.
Yeah. Sure, Ashish. Fundamental the growth is driven by our global leading footprint and central reservations transactions with the independent hoteliers. As we said, we're the leader there. We've been at this for some time. We have an offering that isn't matched by anybody else. It's a community, SaaS offering a single instance multi-tenant deploying from the cloud. And the market is a long, long way from saturated there. Again, you have hundreds of thousands of hoteliers who are operating 10, 20, 40, 50 properties who are using either ancient legacy software. They're still deployed on-premise in the closet, even. They have variations of local homegrown by people who have developed software for them in the market.
And what they're finding is, is the benefits that we can add in terms of their revenue management is terrific and we can do it in an offering that keeps them current. And we just have a lot of opportunity across the globe in going to sell additional capabilities to existing customers, one, but also just filling in and including in our U.S. market. But as we said, we can continue to grow our mix in Rest of the World, in the fast growing Asia-Pacific market and in the very fractured European market with the independent hoteliers. That's complemented by the growth that we expect to come from the enterprise there.
And I think there, again, as we've talked its episodic there with the central reservation and our limited service property management. These are very big decisions for the top 20 hotelier brands, a little bit more like when airlines are thinking about a reservation system change. But again the important thing is there we're the only offering in the market that's tested, that's scalable, that's quality assured on enterprise grade central reservations and are the only one with a modern kind of current software solutions for property management with our SynXis system. So again, we're in robust discussions with customers there. And as we said, that's going to be part of our growth but the first one was with the independent hoteliers.
And let me add a couple of things because I think it helps in understanding again just referencing back to what we talked about at the Sabre Technology Exchange and what's happening within the Hospitality Solutions group. And this really does get into the new Property Hub. And to build off of what Rick was talking about sort of this siloed piece that's out there is when you look at the deployment of the new PMS system that we'll be rolling out, it's really hosted above the premises, right? So when you look at the branded hoteliers that are out there, that information has essentially on a customer has been isolated to that specific property. This takes it above. It actually can be shared across what's taking place.
The other thing is the alignment. As it relates to the central reservation system as well as the PMS has been rather clunky for all that are out there and this actually brings that all together. And what ends up happening is that if you look historically, there has been a replication that takes place from the CRS to the PMS. What happens now, because we've integrated these as we roll it out, there's a single instance so there's no replication that takes place, so again really good information about customers and being able to use that across different – across the brand hoteliers.
So again it's important to get into some to the real details of what's taking place which gets into where we have conversations with the enterprise as well as the independent hoteliers is understanding what this does for them as they continue to compete in the marketplace for travelers.
Sean, I think with that as people understand how you've talked about how we deploy above the premise and the benefits of that, one, a really important one that's resonating is how effective it is for getting the front desk staff up to speed and the staff on the property.
Again, hotels face a turnover rate of I think, is it about 100% a year or over? And on things that they've before taken months to become proficient with right before they leave. We've really lifted that above to where we get people up and running in a matter of days and weeks by comparison to what used to be many months. And we put it to mobile with the SynXis Property Hub or staff that are working throughout the hotel can work off of their smartphone and iPad any kind of mobile device and be connected into this integrated data that Sean was referring to. So that's a huge thing in terms of training and effectiveness of staff that is high turnover in that business.
Thanks a lot, Sean and Rick and congrats once again on the solid quarter.
We'll go next to Matt Pfau with William Blair. One moment please.
Hello, Matt, are you there?
I apologize, its taking just a moment. And your line is now open.
Hey, guys. Can you hear me now?
Yes.
Okay. Sorry. The – I think the operator had some issues getting me in, but thanks for taking my questions. And wanted to ask a follow-up on the Hospitality segment, so I guess I'm trying to understand the digital marketing services component and I guess why it will impact the first quarter but perhaps not throughout the rest of the year? So are you expecting a rebound? Or was this component of revenue something that was unique to the first quarter?
It was exacerbated in the first quarter. You look at that on a year-over-year and a sequential comp and so we think that will be more mitigated there. Also, we're going through some revamp of that offering and how we're deploying there and taking the learnings of what we're doing to make sure that as much as possible it's complementary to our offerings and more scalable. It's a business that you really put – primarily it's been where you put people at who're experienced in that and understand the vertical deeply and we've been working to find ways to complement that expertise of the digital expert in Hospitality and scale that a bit more.
So in coming into the year, our expectations, we knew that we would have a little bit of this to the comps to fight through and also looking at the ways that we're working to make sure that this is scalable and has the right kind of return. Understanding as we talked before, this is a low return business compared to our transaction, our software and SaaS business, but very much a necessary component to deliver that true offering and total offering to the hoteliers. So, we do expect it to rebound a bit throughout the year here.
Got it. And then just last for me on FX. So do you have the impact on the FX impact on revenue growth rate in the quarter? And then any changes – did FX have any changes to your guidance for the full year? Thanks.
No, Matt. It hasn't been material. And so, no, I don't have the detail on that because it wasn't one of the drivers.
Great. Thanks guys.
And we'll go next to John King with Merrill Lynch.
Yeah. Good morning. Congrats on the quarter from my side. I've got I guess four relatively quick ones. The first one was, the first two in fact are on the guidance. I'm sorry if I missed these but maybe Rick you could talk to it, the free cash flow upgrade. Obviously, the CapEx has been lowered driving some of that. What is the reason for the lower CapEx? Is that something that you decided not to do or just better efficiency?
The second one on the guidance was around the profit flow through. Obviously, it seems that we got $25 million of incremental revenue from ASC 606 accounting change. Presumably that also – did that flow pretty much through to EBITDA and if that's the case obviously the EBITDA rate – in fact the EBITDA is slightly down like-for-like. So maybe just talk about the flow through of incremental revenue into profitability? And then maybe I'll ask the next two after those.
Okay. Yes, free cash flow upgrade. John, yeah, we said, we expect that to increase by to $425 million and that's up from up $35 million from our previous range, primarily driven by the items that I mentioned flow through and the lower capital intensity.
So the CapEx intensity is driven by, as I mentioned, our continuing rotation of products deployed to the cloud and not buying the computers, the servers, to have ready at peak capacities the way that you can buy that – buy the drink is very important. And just getting benefit of scale and the computing power on an actual data processing cost. So those two things help us there.
And then overall, as we've said, our intensity of the total investments that we're putting into technology as a percentage of revenue is being driven down and – above and beyond the rotation that's due to the deployment to cloud. And you're seeing the benefit of that here in the year. And we brought down our CapEx further by $15 million. And now the full year guidance is $305 million to $325 million.
In terms of the flow through, I think your question was on ASC 606, how do we look at this is, ex ASC 606 we had a revenue increase of about $60 million, right, because we had a $15 million less of impact of loss of revenue. So that's (53:16). And then how does that kind of flow down? If you apply kind of a normal gross margin on that 40%, you'd lose $36 million of that flow through.
As we said, the CapEx OpEx rotation put $15 more million in OpEx versus CapEx, so that's an additional lack of flow through, the $15 million. D&A has increased by about $5 million. We have assets quicker into service there and so that gets you pretty close to just a little bit or a flat flow through down to the op inc (53:58). You're correct there, but the point is overall we are reducing our capital intensity as a percentage of the growing revenue. We've increased our revenue even adjusted for ASC 606 based on strong transactional growth across the three businesses. We've increased EPS by $0.05 and we've increased the free cash flow to approximately $425 million or an 18% growth year-on-year.
That's helpful. And then the two final ones were on, first of all on the bookings performance, obviously a good performance. Did you see any impact at all? I was actually expecting some negative impact from Easter. So maybe you could comment on what you saw from that standpoint. And then finally, I think Sean you mentioned the renewal on American Airlines, which is good to hear. Is that also goes for the PSS side or is that just on the Travel Network? Thank you.
Yeah, so Easter was, I don't know, 16, 17 days earlier. It had a point impact of slowdown that goes ahead of Easter. We expect that to recover in the current quarter, so that was the impact in the quarter John.
And then what I announced was a renewal agreement with United Airlines not American. But what I was commenting on is just the engagement with American and what's taking place just as a clarification.
Got it. Thank you for that.
We'll go next to David Togut with Evercore ISI.
Thank you. Good morning. Could you comment on the rate of growth in travel agency incentives in the Travel Network business and compare that to the 9% growth you saw on revenue?
Yeah, David. This is Rick. We had a growth of incentives in the quarter. And again that contributed to the pressure on the margins in the lack of the flow through that I talked about also the negative comp from incentive true-up where we recognized $16 million in the previous years. Those were the two negatives. We got a bit better on price and we had more flow through. So, yes, there's still incentives growing.
But again that's at the rate that we anticipated and we talked about coming into the year. So was there anything different in the dynamics in Q1 on incentives growth? No, absolutely not. And we had a bit more on the favorable side that's why we're able to outperform our expectations in Q1 and supportive of looking at how that dynamics are going to work across the rest of the year able to raise our expectations for both revenue and bookings growth and a little bit of price – net price growth for Travel Network.
If you strip out the ergo item, the $16 million incentive contract reversal in Q1 of 2017, what would be the apples-to-apples growth rate in travel agency incentives year-over-year?
Yeah. We haven't gone through those details and don't generally give out the – by agencies or regions what the incentive growth are. So, I'd prefer not to do that here on this conference call.
Will it be overall level, not by client or region, but overall was travel agency incentive growth higher than revenue in the quarter?
No. It was about even there. So you can see then how we get to the math there. So, no, it's not higher than revenue growth.
Understood. And then could you comment on the pipeline for the Airline Solutions business either demand to buy add-on solutions and/or full outsourcing of IT by airlines?
In the commentary – I'll start and then Sean – as I mentioned, we have very good demand for our AirVision, our AirCentre products that form the basis of what we talked about that we expect adjusting for ASC 606 double-digit increases in the revenue or for those products across the year. We're having to get past – anniversary the loss of Southwest on the reservation side. And that's what contributes to the overall impact in slower sales in the business. So the demand for those products is strong.
On the reservation side, SabreSonic, again, those deals episodic and we have the cutover that we're working on with LATAM. We're bringing on LATAM into the fold with LAN Airways (sic) [LAN Airlines] (58:48). Sean mentioned we've gone through the first phase of that. It's on track and we expect to get the benefit of that in the back of the year.
I think the – maybe Sean you want to again touch on some of the benefits of our new product suite which really gets at that we announced at our Sabre Technology Exchange, that really gets at, at how customers are increasingly looking at taking additional software products and integrating and getting the benefit of what we call the connected airline 2.0.
Yes. I mean I'm just going to reference back to the comments that I had earlier relative to the breakdown when you look at it, we continue to see the strength in the AirCentre side of the equation specifically crew.
One of the things that we have focused on is just improving the deployment and deployment capabilities of our delivery and care group and we have that happen under the new leadership on the AirVision side and merchandising, Intelligence Exchange continue to be very good.
On the PSS side, big part of the conversation has been really the alignment as it relates to what's happening on the distribution side and how do you drive that into the PSS system. And as I walked through just a little bit ago on the details of that, that is essentially the foundation of a number of the conversations that are taking place in the marketplace. And a lot of those components of what we talk about are going to be rolling out in Q4 this year.
So it's probably – what I'm enjoying right now and it's interesting is the level of discussions with airlines around the world on what does NDC mean, how does this actually transition or translate into their capability of driving additional revenue or the opportunity of putting essentially new offers out there. And with that the one thing that I think I would like to highlight or I will highlight is part of this is what I see us as being really a leader and a driver and making sure people completely understand the impact of what this means, not only just on how do you sell a product but also how you fulfill the product which does get into the PSS.
Look, final question with the reduction in the CapEx outlook to 8% of revenue from 9%, how will you be spending that incremental capital as divided between dividend, buyback, repurchase and acquisitions?
Yeah, David. No different than what we've had in the priority and articulated at our Investor Day. Its first to invest all that you can productively in the organic growth of the business and then we have our dividend which the target range is set. We would expect that to grow with net income. Then we look to share repurchases to offset our modest for a technology company share dilution. Then it's toggle between opportunistic buyback and M&A. And that's right where we are. And we do have excess free cash flow. We continue to return it in the form of dividend. We accelerated some buybacks here in the last few quarters to take advantage of what we saw was a good price and value creation. We'll continue to look to do that. We got our authorization for the multiyear share buyback program and we'll use both programic buyback to execute on the rather small amount that we need to do to offset the dilution and we'll look to then opportunistically deploy there. But again, it's a toggle with select M&A. It's nothing different there.
Understood. Thank you very much.
Good. Thanks.
We'll go next to Abhey Lamba with Mizuho Securities.
Yes. Thank you. This is Parthiv on for Abhey. Most of my questions have been asked. But just with respect to recent technology investments. You talked about this briefly in your prepared remarks, but could you give us an update there how efficiency metrics are trending, anything incremental on that front since the Analyst Day that you'd like to share?
Well, I think – this is Rick, it's just continuation of what we talked about. I think it was really good to share at Investor Day that the majority of our solutions are on open systems. They're either cloud deployed now or cloud-ready. And what we've done is just provide proof points of that continuing deployment of those that are cloud-ready to the cloud and we get the benefit, as we've talked about in terms of operating efficiency, in terms of capacity and how to manage that for peak capacity most efficiently, continuous availability for stability to the customers.
So again we benefit in many different ways the metrics on terms of our – we didn't have service level outages at the level that we did. Previous, we put that emphasis across the network and that's benefiting the data processing costs. Our costs of shopping and how we manage the look to book ratio, all of those are proceeding as we outlined at Investor Day and we're seeing the benefit of that. And that allows us to reduce our CapEx outlook while our revenue grows.
Then specifically partnering with key strategic partners, it was fantastic to announce the AWS partnership here. We've been using them. But importantly as we talk in the announcement there, we really get the benefits of the finest pricing in this agreement which of course is important for our global size. And we have a road plan to scale up with them but it's a nonexclusive agreement. But their reflection of investing to help us with some professional services and implementation and advisory work, I think, is testament to their belief that they're picking to a partner with the travel technology leader on a global basis.
Understood. Thanks for the color, Rick.
And we'll go next to Jed Kelly with Oppenheimer.
Great. Thanks for taking my question. Can you talk about sort of some of the reacceleration you saw in the North American region? Was it driven more by leisure, more by business, or any share gains with the OTAs?
I think we had 3% booking growth in North America and pretty much business as usual. So, there's no color this quarter on that, other than good solid growth, 3%.
Okay.
I mean the one thing that we have seen, I will add one thing. I mean, if we continue to look at just corporate travel, corporate travel continues to improve. If we look at brick-and-mortar just growth on a global basis, it has been good and a lot of that does go back to just the corporate side of the equation, so that continues to be an encouraging sign.
Okay. And then on the mid-teens Hospitality outlook, do you expect that to come more from existing properties or new properties? How should we think about that?
Well, the teens revenue growth supported by this transaction, again, is installed base and growth in the independent hoteliers, primarily.
And we had the continued roll on of the Wyndham properties that will continue to convert throughout the year, right.
So again, same dynamics that we've talked about there, Jed.
All right. And then just one more, I guess, big picture question. You're sort of seeing a lot of this fragmented vacation rental inventory and some of the OTAs try to accelerate this online, but the technology seems pretty fragmented. How do you think about potential acquisitions in the vacation rental space?
Let me talk just broader, relative to bringing that content forward and it's something that we've done on the Hospitality side as it relates to the platform that the team has just rolled out. And as you look at Hospitality and how essentially it is aggregated, it's aggregated a number of different ways and that has been our focus is on how do we pull in, and you could have a same property that has multiple different prices that are out there.
And as we look into the future, it's how do we continue to build off of that and what are the capabilities that we can move content into that platform and one of those options into the future is the space that you had just talked about. So that team continues to look at options of bringing that content forward.
We'll go next to the line of...
Operator?
We'll go next to Brian Essex with Morgan Stanley.
Great. Thank you for taking my question and congrats on the quarter. And just – maybe Sean, real quick question for you. As we look out at the pipeline of, I don't know, I guess, PSS deals into like 2020, 2021, that's when you really start to see a large amount of deals. I mean, there's kind of an air pocket of or a lack of deals over the next year or so, but you really start to see a big ramp in 2020, 2021. Any sense of how you're thinking about that? Are you starting to have conversations with some of those vendors? And is your ability to sit on top of both direct and indirect platforms, I guess, do you think that would give you a meaningful advantage, particularly a good number of these deals, even a few large ones are vendors like pros or in-house or bulletproof (01:08:50) and vendors that don't have both direct and indirect exposure?
Yes. So, when you look, and you're correct, as you look into the future, there's definitely more deals that come up. We are engaged with a number of airlines throughout the world. And part is we've reticulated our strategy as it relates to the fundamentals of retailing, distribution and fulfillment. You have to look at that indirect and direct side.
And the thing that I have always thought about in leading this organization is how do you bring all those together because when you're sitting inside the airline, you have to think about the multiple components of how I am going to sell my products and services, and that's going to be through the indirect and direct channel and how do you make sure that – how do you make sure that when you do that, that the hundreds of millions of dollars that they're investing in product are essentially being put on the shelf properly?
One thing that we are doing, when we look at this and our engagement is how do we make sure that we're looking at it more from a sales perspective of bringing AS and TN (01:09:56) together because we can leverage both sides of what's there.
You then drive into the revenue management piece of this, right, because it becomes very important when you start looking at your availability and how things begin to change, how do you look at it from the revenue optimization side. And again, that is sort of the next step in what happens and then you drive into the PSS itself. So there're just multiple components. And this is where – when we sit with carriers around the world and trying to articulate it to you as well as others is you have to understand each of these facets and how they connect.
And the underlying work that we are doing right now, I am very confident that we are going down the right path to be able to do this, because I sat in this chair for a number of years on the Airline side of the equation, on how do you try to fulfill these things? And we are digging into the root needs and causes that will allow them to essentially sell their products and services the way that they want.
But, this does cause some questions that they have to address at the same time. So again, I think we are at a very interesting point, because it really relies on technology. Technology changes but it unleashes capability for our customers.
And the other flip side of this is, and I don't want to lose sight of this because we have this tendency to talk about more the Airline side of the equation than the Hospitality side; the important piece is how are we driving this all the way to our other partners? And that's on the agency side, because they have to sell those products and services and we can't lose sight of that, that we have to look at that entire value flow of products and services being essentially put up and then sold, be it through the direct channel or the indirect channel and making sure that our agency partners also have the capabilities.
And this really does get into Sabre Red Workspace and what we're doing and why we're thinking about the other advancements that need to take place relative to those types of tools.
And is there any way to think about how you're approaching the re-platforming of your infrastructure and what access that's going to give you either to visibility into data or ownership of the data that might help you on the analytics side to provide those insights to each of those channel partners?
Yes. So there's multiple ways you can look at this, right? One gets into the shopping data and understanding essentially what's happening on the shopping side of the equation and we see that just from a base perspective today. I think the more interesting thing as you look into it and I think this is going to become more carrier-specific is, as we look at that base fare and how that has been revenue optimized, that has been pretty much the same for a long period of time.
But when we start getting into the ancillaries, and what carriers can learn – and I also throw this into the Hospitality side of – when you're looking at ancillaries or you're looking at branded products and bringing those together, you have to be able to have movement in those prices to understand the elasticity and that data comes out. And in doing that, it will give them the capability of understanding certain price points and what's going to drive and it does get into actually time and day.
So, again, as you can see, I'm pretty excited about this because it does allow our customers to look at how do you revenue optimize more and it's taking really the skillsets that they already have and how do we expand that into the future.
It's tough. Thank you.
And we'll go next to Adam Hackel with Imperial.
Hey, guys. Thanks for taking the time here. Great start to the year. Question on Alaska with the cutover recently. Obviously, that wasn't really part of the solid first quarter, having just happened. They also announced they Sabre fare as they call it which I swear it sounded like Saber fare (01:13:29), sort of their basic time equivalents. I'm just sort of wondering what sort of factored in on your Airline Solutions guidance for the year for those guys and what's sort of the – how early are we still here in terms of revenue optimizing for those guys?
Hey. So, this is Rick. With the Alaska Virgin, yeah, they came together. They cut the airlines together. They had their last Virgin flight and we are the reservation provider for both of those. And so we handled that with them. It's done very well. I don't believe there are any glitches at all, and so that's terrific. That's in keeping with how we do that.
They did announce what's equivalent to the so called basic economy fares that have been rolled out by United, American and Delta. Alaska announced that. You're right. It allows them to sell in their case the back end of the cabin only at a lower fare without frills to compete with the Frontiers and the Spirits, similar to what the other big three that I mentioned do. I guess one difference that I noticed in there was you can actually make a seat reservation where you can't on the other three, but it has to be in the last rows where on the other three anywhere in the economy cabin you might end up sitting, but you can't make a reservation if you want that lowest fare.
So that's what's happening there. And again, they're a terrific partner for us. And we're pleased that the two of them come together. We did a lot of innovation around the customer experience tools with Virgin when we worked with them. And we look forward to seeing how Alaska and Virgin integrate to those and others of the data and analytics that Sean has referred to here.
And the one thing that's taken place with them too is if you look at actually that the two carriers come together, we continue to see good capacity growth in that 5% to 6% range and sort of expect that going forward.
Great. And just last one for me. Obviously, a lot of news, headlines on the Southwest given that the – unfortunately, the accident they just had a couple of weeks ago and they had to sort of set of their marketing for a couple of weeks after that. And it sounds like that hurt their bookings quite a bit obviously they're the last sort of big guy in the U.S. that's not in the GDSs. Does that give you guys any ammunition just seeing the impact, just having Southwest shut out their marketing for a week or two, the impact on their bookings given they're 100% direct on top of obviously the value you guys bring on the corporate side and so on?
Yeah. I mean, first and foremost, that was an unfortunate situation and we definitely think about the people impacted with that. But if you look at it, Southwest has had a model that has been focused on the direct side of the equation. We've often thought that there's opportunities to expand more in the GDS, but that's one that we'll continue to engage with Southwest. And hopefully over a period of time they would migrate more onto the GDS. But again the model for them has been on the direct side.
Great. Thank you very much guys.
Thanks, Adam.
And we'll go next to Dan Wasiolek with Morningstar.
Good morning, guys. So in your prepared remarks when you talked about gaining momentum with customers specifically in the Red Workspace product where it seems you have a differentiated product there. Are you – have you seen the last couple of months pick up there and request for proposals? Are you talking with increasingly more agents or more agents looking at that product, just kind of any kind of color that you might be able to give on that specific product? Thank you.
Hey. Well, this is Rick. We have a desktop with all of our agents. This is the new version of it, so its actually kind of just rolls out and it is – and we don't have to wait for a request for proposal for instance. So that's a differentiation there but we are going through that in a thoughtful manner. The agencies that are ready in geographies as we've talked about, and we really do believe it sits on top of the Sabre platform and is we believe the most personal and agency friendly, efficient booking tool that we provide.
And again, it's a lot to do with how we can make their workflow most efficient, first and foremost. And then secondly, how we're opening that up to bring the different bundles or unbundled or bundled offerings that airlines want to deliver. So airlines have told us very clear and it's part of our strategy, we want to sell retail brand the way we want to and we want our direct channel to look as much as possible, look and feel like the indirect channel through the GDS.
But, you have to then give up to the realities of how do you fulfill that and how do you meet the needs of the corporate customer, as Sean has pointed out many times. We're the ones that are bridging that. The Sabre Red Workspaces is a key tool there, so we've got good momentum in the rollout of that and we'll continue to get the benefit.
And so you have that piece of it that Rick was talking about which is the existing customers and those that continue to transition over to the Sabre Red Workspace. The other thing that is out there, I think it's to your question is that helping from a pipeline perspective and it is. I mean, we have a lot of engaged conversations throughout the world with different agencies.
The one thing that is very helpful is we've continue to ramp up Flight Centre and now that have essentially Australia and New Zealand on-board, there's a lot of really good stats that are coming out relative to what we keep talking about. And the ability to continue to put information in front of our customers as it relates to the performance and what's taking place, and we have to be sensitive because some of this is Flight Centre information and it's their information. But we're able to really be able to show the capability of what the product does, and in doing that is we continue to add the enhancements as Rick was talking about. I think there's – again, a lot of opportunities to continue to convert customers throughout the world.
So we use that tool to compete for customers we don't have or where we have a minority share and we want to grow it, but the ones that already up and running, well, we'll just convert them.
Okay. Thanks guys and congrats on the strong start to the year.
And with that, we are out of time for questions. I'd like to turn the conference back over to Mr. Menke for any closing remarks.
Great. Thank you very much, Melanie. And I'd like to thank everybody once again for joining us today on our first quarter earnings call. As you can see, we have a lot of really good momentum taking place right now. And I do go back to the amount of work that the team has done over the last year, a lot of foundation work and as you can see based on where we sit today, and what we look into the future, there's a lot great opportunities that we plan to accelerate into. So we look forward to meeting you the upcoming weeks and I again thank you for following Sabre. Have a great day.
And that does
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