Earnings Call Transcript - SABR Q2 2021

Operator, Operator

Good morning and welcome to the Sabre Second Quarter 2021 Earnings Conference Call. My name is Josh, 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 Crissey, Vice President of Investor Relations

Thanks, Josh, and good morning, everyone. Thank you for joining us for our second 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 and recovery trends, benefits from commercial and strategic arrangements, expected revenue, cost and expenses, cost savings, margins 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 first quarter 2021 10-Q and 2020 Form 10-K. Throughout today's call, we will also be presenting certain non-GAAP financial measures. All references during today's call to EBITDA, operating loss and EPS have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on our website at investors.sabre.com. Participating with me are Sean Menke, our Chief Executive Officer; and Doug Barnett, our Chief Financial Officer. Dave Shirk, our President of Travel Solutions; and Scott Wilson, our President of Hospitality Solutions, will be available for Q&A after the prepared remarks. With that, I'll turn the call over to Sean.

Sean Menke, CEO

Thanks, Kevin. Good morning, everyone, and thank you for joining us today. I'd like to start by thanking all my Sabre teammates around the world for their ongoing dedication to serving our customers, our shareholders and one another. This has been a challenging period, and I couldn't be prouder of what they have been able to accomplish. Specifically, I'd like to acknowledge my colleagues across our offices in India and Singapore as they continue to work resiliently despite ongoing challenges from COVID-19. In fact, our Bangalore office was recently certified by the Great Place to Work Institute as an organization that builds a High-Trust, High-Performance Culture. Congratulations to Sabre India on a job well done. As we have done in prior quarters, on the next slides, I will walk you through the impact of COVID-19 on specific bookings, passengers boarded, or PBs, and hospitality CRS transaction trends. The takeaway is that the travel environment is beginning to improve at a faster pace versus the winter and early spring, led by growth in our largest region. As we reach the pivotal turning point in the recovery, we also gained commercial momentum and announced major new passenger service systems, or PSS, wins. We feel competitively well positioned as we progress on the important work related to our technology transformation and expect to benefit from the anticipated continued travel recovery. Turning to Slide 4. Travel volume trends continued to improve across Distribution, IT Solutions and Hospitality Solutions. In fact, the recovery accelerated significantly in the second quarter and showed the strongest sequential improvement since Q3 of 2020. As has been the case since the start of the recovery, hotel CRS transactions are leading, down 22% in July versus 2019. IT Solutions, Passenger Boarded and Distribution gross bookings are also stronger, down 38% and 59%, respectively, in July versus 2019. As you can see, some of the strong recovery trends in June regressed in July due to the impact of the Delta and other COVID-19 variants in some parts of the world. As we have learned, increases in COVID-19 case counts have correlated with a near-term impact on bookings. The promising news is that as case counts and travel restrictions subside, the underlying travel demand trends remain encouraging, and we believe the overall recovery arc remains positive. We are sometimes asked about the reason for the differences in the rate of recovery between Passengers Boarded and Distribution bookings. The answer is that it is primarily reflective of the type of travel recovering fastest, and that's leisure travel. A higher percentage of leisure passengers booked directly on Airline.com websites than do corporate customers. Consequently, these leisure travelers are captured in our SabreSonic and Radixx PB data, but not in our Distribution bookings. Importantly, this does not reflect a change in customer behavior; it is merely a reflection of the type of travel recovering faster. Turning to Slide 5. The chart on the left shows weekly GDS industry net air bookings by region. The positive standout regions are North America, led by the United States, and Latin America. Asia Pacific bookings remain significantly depressed. As we have discussed in past calls, we believe there is pent-up demand to travel, but conditions need to be met from this demand to be realized as bookings, notably safety and convenience. Passengers need to feel safe onboard planes and at their destinations. Vaccination levels moving higher have had a direct correlation with traveler confidence as evidenced by the booking of vaccination trends in the United States. This is shown on the chart on the right. Today, we believe the greatest inhibitor to global travel recovery are the ongoing and changing travel restrictions throughout the world. As travel restrictions have relaxed or been removed, we have begun to see significant improvement. For example, following the recent announcement by the Canadian government to loosen travel restrictions, total GDS booking recovery in Canada improved by 29 percentage points from down 90% in April to down 61% in July versus the same period in 2019. Similar to last quarter, U.S. domestic leisure travel leading the recovery had a negative impact on our Distribution revenue per booking. We expect increasing global vaccination rates and the removal of or reduction in travel restrictions, as illustrated by the recent changes by the Canadian government, will be a catalyst for improvement in corporate and international travel, which we believe would move our distribution revenue per booking back towards 2019 levels. We have already begun seeing green shoots in corporate travel, particularly in the United States. In July, North American bookings recovery at our top TMCs improved by 20 percentage points versus April and is now nearly 50% of 2019 levels. Globally, we have seen the most meaningful improvements in the materials, government, utilities and real estate sectors. Industries that have been slower to recover but are starting to gain momentum are consulting, IT and financials. These are all encouraging signs. As it relates to international travel, we are beginning to see some additional international markets open. We outlined the positive trends we are seeing in Canada, which is opening for nonessential travel for fully vaccinated travelers from the United States on August 9 and other countries starting September 7. However, we are also seeing some travel restrictions put in place in Europe and APAC in response to the Delta and other COVID-19 variants. Because of these puts and takes, we think volatility and recovery trends across EMEA and APAC are likely over the next several months. The faster recovery in the U.S. domestic leisure travel has also impacted advance purchase trends. The North American average advance purchase window has actually lengthened 3 to 4 days over recent months compared to 2019, exiting June at about 37 days. This change relates to leisure bookings, and we believe it is a healthy sign reflecting traveler confidence. We have yet to see advance purchase trends return to normal in the APAC region, where the average advance purchase exiting June was 20 days versus 29 days in 2019. Turning to Slide 6. In June, Sabre's net air bookings were down 49% versus 2019, a sequential improvement of 17 percentage points versus March. Our bookings recovery outpaced the overall GDS industry in the quarter by 5 percentage points because North America, which has shown the strongest recovery, is our largest region. In July, total industry bookings were down 61% versus 2019 levels, a bit weaker than the June results due to the impact of the COVID-19 variant. Turning to Slide 7. We remain very active commercially in each of our business lines. We signed or renewed nearly 650 agreements in the quarter across Distribution and IT Solutions and many more in Hospitality Solutions. Some of the notable logos are depicted on this slide. In Distribution, we added several airlines to our GDS, including Bamboo in Vietnam, Windrose in the Ukraine. We also renewed agreements with several carriers, including Virgin Australia, Aegean Airlines and Icelandair. In July, we announced that we launched the full integration of Southwest Airlines' air content within the Sabre system, making it easier for travel management companies and corporations to shop, book and service Southwest flights on behalf of their business travelers. This milestone not only greatly expands Southwest's reach into the business travel segment, but Sabre's travel agency and corporate customers will experience the increased efficiency, productivity and cost savings that come from booking Southwest through our agency point-of-sale, Sabre Red 360, and our corporate booking solution, GetThere. On the agency side, we expanded our footprint with Polani Travel Group, one of the leading travel companies in the U.K. We also renewed many other agency agreements across both the corporate and leisure segment, with notable renewals at online travel agencies Etraveli in Sweden and MisterFly in France and U.S.-based travel consolidator, GTT. In IT Solutions, we had a number of important customer wins and renewals. This includes new wins for SabreSonic, our full-service airline reservation system, with a certain unnamed large carrier and also SCAT Airlines in Kazakhstan. We are excited that these wins are expected to bring nearly 40 million incremental passengers boarded based on 2019 levels to the SabreSonic platform. This is on a base of over 740 million passengers boarded in 2019. The signed multiyear agreement we have for our full-service passenger service system for the unnamed carrier is expected to help our new customer advance its strategic growth plans. This large airline will also leverage other key Sabre products, including next-generation offer management, revenue optimization, digital workspace, intelligence exchange and others. We are really excited to expand our partnership with the airline and proud to be its trusted technology partner. We will have additional detail to share with you soon. Clearly, Sabre is winning in a marketplace that is very active right now. We believe these competitive takeaways are proof points that our technology solutions and strategy are resonating with airlines around the world. We are also gaining commercial momentum across other areas of our IT solutions portfolio. For example, Dynamic Availability continues to gain traction, including with new revenue share pricing agreements with Alaska and Air Serbia. At both Alaska and Lion Air, some of our largest SabreSonic customers, we signed long-term PSS renewals and expanded our footprint of solutions. In Hospitality, I'm pleased to highlight new SynXis Central Reservations Systems agreement with Curator Hotels & Resort Collection, Onomo Hotels, the largest African hotel provider in the mid-range segment. We signed a number of renewals, including with Mandarin Oriental, Noble House and others. The outlook in Hospitality remains strong. And as I noted, reservation growth has led the recovery. Our incoming project work is now above 2019 levels, driven primarily by North America and Latin America. This implementation work sets the foundation for higher transaction volumes in the future. Turning to technology. We previously identified three key technology milestones for 2021. As a reminder, the milestones are: to deploy Travel Solutions air shopping in Google Cloud Platform; the second is to transition Hospitality Solutions CRS into GCP with a global footprint; and finally, migrate 15% of our mid-range workloads to Google Cloud Platform. I'm pleased to say these milestones are all on schedule. Let me take a moment and briefly provide more details. We previously announced that air shopping for agencies is running in GCP production. We now have 100% of shopping for airlines in GCP production and are in the process of decommissioning the hardware previously used for this service in our Texas data centers. At this point, all Sabre air shopping is running in public cloud environments. In Hospitality, SynXis CRS is running in production for Louvre, one of our new enterprise hotel wins in our European GCP regions. We have further SynXis cutovers to GCP planned for the fall. Finally, we are continuing to make progress building Google Cloud foundation in support of our mid-range workload migration. We have several GCP regions with full availability in North America and already have regions with limited availability in Europe. We have also completed the integration of many Google platform services, including Google Kubernetes engine and Spanner database. We remain excited about our strategic partnership with Google and believe it provides us with an important competitive advantage. We're continuing to develop Sabre Travel AI in partnership with Google and other initiatives under our innovation framework. With respect to Sabre Travel AI specifically, we are already seeing promising results across early customer-like simulations. Some initial proof points we have seen include: accuracy improvements with market intelligence to improve forecast of future travel demand; conversion increases with Sabre Smart Retail Engine, which enables personalized offers to be generated at the right price; and significant run time reduction with crew management, which enables us to produce better results while reducing compute costs and footprint. Finally, there is one other topic I would like to address before turning it over to Doug. In June, American Airlines filed a breach of contract lawsuit against Sabre related to the release of our new airline storefront and our new value-based incentive model with agencies. We believe this lawsuit is without merit and designed with one purpose: to stifle innovation in the travel marketplace. And we plan to vigorously defend ourselves in the lawsuit. We remain on a path to create a new marketplace for personalized travel, which includes a shift in the way we view the future of travel and how we operate. To fulfill our vision and to deliver the innovation and solutions that customers want, we remain committed to our strategic initiatives to evolve our business and create a next-generation marketplace that will better align with the future needs of our travel partners. And with that, I'd like to hand the call over to Doug at this point.

Douglas Barnett, CFO

Thanks, Sean, and good morning, everyone. As expected, the COVID-19 pandemic continued to weigh heavily on our results in Q2. However, our results came in at the top end of our revenue expectation and exceeded the EBITDA expectation provided in our recently filed Form 8-K. The second quarter showed significant financial improvement versus Q2 of 2020 when the COVID-19 pandemic caused an unprecedented disruption in global travel. Total revenue was $420 million, a significant improvement versus revenue of $83 million in Q2 last year, due to continued gradual recovery in global air, hotel and other travel bookings. Distribution revenue totaled $218 million, an improvement versus revenue of negative $48 million in Q2 of 2020. Recall that in Q2 2020, we were operating in a 0 gross bookings environment and had significant cancellations activity that resulted in net negative bookings. Our Distribution bookings totaled $57 million in the quarter compared to 2019, which we believe is a more useful comparison than 2020. Net air bookings were down 65%, 62% and 49% in April, May and June and down 59% in the second quarter as a whole. As noted, domestic leisure bookings recovered faster than both international leisure and corporate bookings and represented 50% of our total bookings in the second 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 in our Q1 and Q2 results. 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 totaled $155 million in the quarter, an improvement versus revenue of $104 million last year. Passengers boarded totaled 104 million, down 43% versus the second quarter of 2019. The second quarter benefited from some upfront revenue recognition due to new implementations that went live in the quarter. Because the installation of licenses to our customers were completed ahead of schedule, we came in at the top end of our previous revenue guidance. And because this revenue has high flow-through to EBITDA, we exceeded our previous EBITDA guidance. This benefit is nothing new for the IT Solutions business, but it is magnified in this lower volume environment. We do not expect a similar benefit in Q3. Hospitality Solutions revenue totaled $51 million, an improvement versus revenue of $29 million in Q2 of 2020. Central Reservation System transactions totaled 24 million in the quarter, down 17% versus 2019. EBITDA showed meaningful year-over-year improvement but was negative in the quarter, reflecting the continued impact of COVID-19 pandemic. The significant year-over-year improvement in revenue in the quarter was partially offset by increased Travel Solutions incentives expense and Hospitality Solutions transaction fees due to higher volumes. Recall in the second quarter of 2020, temporary cost measures such as furloughs, salary reductions and suspension of certain employee benefits were put in place to partially mitigate the unprecedented impact of COVID-19 pandemic on the business. Accordingly, labor and professional service expenses also increased compared to the prior year quarter. In the third quarter of 2020, our longer-term cost-saving actions were put in place, including the renegotiation of our DXC contract and reduction of about 15% of our workforce. Exiting this June, our head count was down approximately 20% versus 2019 year-end. Operating income, net income and EPS also all showed improvement versus the prior year quarter. As expected, our cash burn rate improved sequentially versus Q1. Free cash flow was negative $152 million in the second quarter versus free cash flow of negative $204 million last quarter. Looking ahead to the third quarter, we expect our revenue to largely be a function of travel volumes and bookings mix. The variable components of our cost structure, including incentives, are expected to move in line with volumes. We expect our technology and selling and general administrative costs to increase sequentially in the third quarter, primarily due to lower capitalization rate; increased hosting costs from higher volumes, including shopping; investments in business systems; and labor inflation. Now turning to Slide 9. As you are no doubt aware, we took quick decisive actions to raise additional liquidity at the onset of the COVID-19 pandemic. We closed on a series of transactions over the last 15 months to bolster liquidity and maintain flexibility. Most recently, our July refinancing eliminated certain restrictive financial covenants and further extended our debt maturity profile with a pro forma average maturity of over 4 years. We did this while keeping our weighted average cost of debt flat and therefore expect our annual interest expense to remain unchanged at $260 million. After this refinancing effort, all our debt now matures in 2024 and beyond. Finally, we ended the quarter with a cash balance of $1.1 billion and have no significant near-term uses of cash. Before I turn it back to Sean, let me remind you of Sabre's investment case. We believe Sabre is positioned for long-term strength. Travel and booking trends continue to show meaningful improvement. We are continuing to make measurable progress in achieving our strategic initiatives. We have long-standing customer relationships. We expect high incremental margins during the travel recovery after the fixed cost base is covered. We expect operating leverage over the medium term. We have no near-term significant uses of cash and have extended our debt maturities. And finally, with our important technology transformation, we are positioning the company for an expected larger revenue opportunity and lower costs. With that, let me turn the call back to Sean.

Sean Menke, CEO

Thank you, Doug. In conclusion, the bookings environment has improved, and we are gaining traction with new commercial wins, including major PSS deals. We are making progress on our technology transformation and partnership with Google. As travel demand returns, we expect to be well-positioned for larger opportunities, more advanced and innovative products, and quicker sales cycles and deployments. I want to once again thank my Sabre teammates around the world for their dedication and hard work. Now, operator, we would like to take questions.

Operator, Operator

Our first question comes from Mark Moerdler with Bernstein Research.

Mark Moerdler, Analyst

Congratulations on the good quarter and a bit of a beat. So two questions, if you don't mind. Last year, you significantly cut costs with many of the cost cuts being permanent. Can you give us an update on how you're tracking to the prior expectations? Are you having to retire more, spend more? Are you tracking in line? Any color I would appreciate, and then a follow-up for Doug.

Sean Menke, CEO

Sure. No, as I mentioned in my prepared remarks, Mark, we originally cut 15% of our head count. We're now running 20% below our head count. So all those cost savings are still locked in.

Mark Moerdler, Analyst

Excellent. That's easy. Doug, there's some variability with certain costs hit as we've seen in the past. Are there any specific expenses or payments expected in Q3 that would impact the trajectory of improving cash? Should we instead model that cash will improve in line with revenue in the different travel components? Or is there anything that we should be cognizant of in advance?

Douglas Barnett, CFO

There's nothing unusual from a cash outflow standpoint in Q3 that I would highlight, no.

Operator, Operator

Our next question comes from Matthew Broome with Mizuho Securities.

Matthew Broome, Analyst

So firstly, just in terms of the average revenue per booking segment metric. Just based on the recent mix that you've been seeing, I mean, is that expected to remain sort of relatively stable in the near term? Or how should we think about that?

Sean Menke, CEO

Yes. I'll start, and I believe Doug has additional insights. We've emphasized that the recovery has primarily been driven by the U.S. market. As we've mentioned, this represents the lowest revenue we generate on a transaction basis. With the Canadian market beginning to open up and the international marketplace expanding, we expect to see improvements in the booking fee. That's why we provided a regional breakdown of bookings. Doug, I'm not sure...

Douglas Barnett, CFO

Yes, as you mentioned, North America has seen a recovery primarily in leisure travel, which is why the booking fee has remained consistent between the first and second quarters. In the first quarter, 50% of our bookings were also leisure. As Sean noted, we anticipate that the booking rate will continue to increase with the resurgence of international and corporate bookings. To remind you, in 2019, the typical mix was about $4.80.

Sean Menke, CEO

Yes. I mean the way that we look at recovery is if you look at it from a mix perspective because you would hope for a more balanced mix, when you look at the mix, it's probably the worst we could get as it relates to the average booking fee. So again, as we see progress and improvement throughout the world, our expectation is that booking fee will move to a higher level.

Matthew Broome, Analyst

Okay. Fair enough. And then just in terms of SabreSonic, congrats on your PSS wins. Could you maybe just talk a little bit about just sort of the competitive process there? And what sort of factors played into the wins for SabreSonic? And then following on from that, just how the current deal pipeline looks for IT Solutions more broadly.

David Shirk, President of Travel Solutions

Sure. This is Dave. So again, we can't go into any detailed specifics around that. But the competitive landscape, it was a highly competitive-based environment and situation as you would expect. In addition to that, our focus over the last couple of years has been around our technology transformation, our move to the cloud, some continued advancements in our inventory system and dynamic-based pricing systems, retailing-based orientation and then our data and analytics. Those are all really key pieces to a digital airline transformation. And we think that, that has positioned us well vis-a-vis the situations that we've talked about today. And we continue to look at the pipeline and drive forward with more competitive-based situations that we're actively involved in.

Operator, Operator

Our next question comes from Jed Kelly with Oppenheimer.

Jed Kelly, Analyst

Great. I guess the first question would be, it seems like with the multitude of different government restrictions, the efficacy of the vaccine, the international travel recovery keeps getting pushed out. How should we think about your ability to manage free cash flow if this is going to be primarily a domestic recovery, at least for the foreseeable future? Just it looks like APAC is not going to come back for 18, 24 months. How are you thinking about managing that, your cash flow?

Sean Menke, CEO

Yes, let me start, and then I'll hand it over to Doug for additional comments. Reflecting on our actions in 2020, we took significant measures to address the uncertainty in the environment, implementing aggressive cost-cutting strategies and restructuring our organization while ensuring we maintained cash on our balance sheet, knowing that recovery would take time. We approached this with realistic expectations regarding the recovery process. Currently, we observe a mixed recovery trajectory. While there is strong pent-up demand for travel to the United States, restrictions still impede this flow. Meanwhile, we're seeing increased travel volumes in Europe and Canada. As for the APAC region, I anticipate a slower recovery there. We've accounted for these dynamics in our planning, which is why I feel confident in our approach to managing through COVID-19. It will be a gradual process. Doug has shared insights concerning our costs, and I'm pleased with our positioning concerning the cost-saving targets we've set for the end of 2023 and into 2024. In summary, it's not a sprint but more of a marathon, and we're committed to managing it effectively, with our team doing an excellent job.

Jed Kelly, Analyst

Okay, that's helpful. You mentioned some PSS wins in your opening remarks. Can you discuss the conversations you are having now regarding your GCP? How is that progressing? Do you believe you are securing more wins? What does the future look like in terms of the pipeline? Any updates on that?

David Shirk, President of Travel Solutions

Yes, the transition to GCP is ongoing, and we are making significant progress. Our air shopping component is fully integrated into the cloud now. We are meeting several milestones we have previously discussed, which are crucial to our overall strategy. Our collaboration with GCP and Google is vital for innovation in retail and distribution. As Sean mentioned earlier, we are continuously testing and learning, applying insights to our current portfolio, which enhances our competitiveness in cross-selling and upselling. This is where our current focus lies, along with the teams and engineering efforts.

Sean Menke, CEO

Yes. I would add. I think Dave has been a little modest relative to what he and the balance of the team have actually done. If you look at it from a GCP perspective, one of the focuses is, I mean, part of it was essentially being able with volumes and what was taking place, but it was also actually having global capabilities and reducing latency that's happening. If you look at some of the comments that I made as it relates to Sabre AI and how we're taking really those capabilities and beginning to layer them on top of our products, I mean, when you think about crew management and the ability to have run times reduced, for example, that's really important to airlines and what's happening. The ability to find incremental improvements as it relates to forecasting and revenue generation opportunity, that's really important. And then you go back to really the portfolio and what Dave and team have done as it relates to positioning the portfolio, sort of all those aspects are coming together that we have been working on over the past several years that is allowing us to really present sort of a different Sabre with these tools and these capabilities. So I feel really good about them.

Operator, Operator

Our next question comes from Joshua Baer with Morgan Stanley.

Joshua Baer, Analyst

I wanted to double-click on the investments. I think it's clear on the head count side from the earlier questions. I was hoping you could just expand on some of what you're investing in around the business systems that you mentioned and also what you're seeing in labor inflation that you called out, I think, for Q2 and then again looking ahead to Q3.

Douglas Barnett, CFO

Yes. Regarding the business, we've been discussing the implementation of a new billing system called BRIM by SAP and improvements on our new HRIS system, Workday. These will require multi-year investments for the company, but they will yield significant benefits moving forward. This will allow us more flexibility in pricing compared to our current systems. Currently, we are experiencing some labor inflation, and we need to monitor this as the labor market appears to be tightening. We've noticed slight increases in labor costs, and I believe this is a trend we will need to keep an eye on. It's worth noting that we are not alone in facing this situation; many are beginning to feel similar labor pressures.

Sean Menke, CEO

Josh, if I would add to that, probably going back to just the investment pieces. Those have been in the plan relative to what's taking place. As we got into the mid part of this year, that's when the work has really been ramping up. I'd say we really began to ramp up in the second quarter sort of in full steam specifically on brand and what's taking place. On the labor side, part of it as well is we have normal merit increase that takes place. So again, I always focus on where we're planning on landing, and it's really within that trajectory, and Doug and team are doing a good job of managing it.

Joshua Baer, Analyst

That's helpful. And on the business systems, is it like professional services or R&D around integration, like that type of...

Douglas Barnett, CFO

It's going to be mainly third-party professional services that are going to be helping us to do those projects, yes.

Joshua Baer, Analyst

Got it. If I could ask another question, I was curious about the difference between the number of passengers boarded and GDS bookings, which you attributed to the domestic leisure mix as more bookings are made through Airline.com rather than corporate channels. Within the domestic leisure segment, is there any change in behavior you're observing regarding how these travelers are booking flights through Airline.com or GDS compared to 2019?

Douglas Barnett, CFO

No. What we're trying to emphasize is that when you look back, leisure travel has led the way. There has been a lack of direct bookings, and this ties into my previous comments about the unbalanced mix of recovery. As we observe the resurgence of international travel, it will likely be more related to GDS bookings. We don't see anything unusual regarding Airline.com. Our focus is on the gradual return to international and business travel. Importantly, we've noticed an improvement in U.S. business traffic through travel management companies. In the early days of COVID, there were many uncertainties about recovery. However, we are now seeing that as markets reopen and people feel more comfortable due to vaccinations, demand is present. I'm not worried about demand anymore. A year ago, I had concerns about whether demand would return, but now I feel confident about it. The main issue is the market reopening and the return of international and business travel.

Operator, Operator

Our next question comes from Neil Steer with Redburn.

Neil Steer, Analyst

Just a couple of quick ones. I know you're probably very limited as to what you can say, but the American Airlines lawsuit, do you think that would have happened had the Delta solution been fully NDC-compliant? I seem to think that when we spoke last time, it's not actually an NDC-based solution. Is that really the crux of the disagreement on that?

Sean Menke, CEO

Yes, I understand the limitations on what we can discuss. From a broader perspective, over the past few years, we have been engaging with various airlines globally to understand their business evolution needs, which differ among them. Our strategy, including acquisitions and the investments mentioned by Doug and Dave, is centered on advancing our technology in response to customer feedback. From an airline standpoint, we aim to assist them in transitioning towards new offerings, including NDC offers, while evolving the commercial model accordingly. It's also important to consider the travel agencies, as NDC impacts them alongside the airlines. While I must be cautious in my comments, those are some key points.

Neil Steer, Analyst

Okay. Just one quick follow-up. Obviously, congratulations on the new significant SabreSonic win. Did you retain over the first half of the year all of the sort of the ongoing SabreSonic customers or were there any lost SabreSonic already customer to be able to bear in mind the modeling going forward?

David Shirk, President of Travel Solutions

Neil, this is Dave. We've retained all the customers through the first half of the year. No change.

Operator, Operator

Our next question comes from Victor Cheng with Bank of America.

Victor Cheng, Analyst

I have two questions. Regarding the new wins in PSS, can you provide any insights on the competitive dynamics, especially concerning the recent wins you announced? What is driving the airlines to make this change in the current environment? Is it mainly for better economics or enhanced functionality? Should we anticipate similar deals in the future? Secondly, on the distribution side, as recovery occurs, particularly in the U.S. domestic market, are you noticing any early indications of gaining market share compared to your competitors?

David Shirk, President of Travel Solutions

So, this is Dave. Let me comment on the competitive dynamic. It's quite similar to what I've mentioned before. We've consistently observed very competitive situations. Our primary focus has been on our technology transformation, which continues to set us apart and build confidence in our endeavors. We've invested significantly in enhancing our retailing and distribution capabilities. As we progress, advancements in retailing and our big data solutions for data and analytics have become increasingly relevant in our discussions. Assisting in the transformation to a more digital airline has also been a key part of our efforts. Additionally, in terms of revenue management and pricing, we've developed various capabilities in our product dynamic availability, which Sean mentioned. This is a significant differentiator, alongside advanced features in our inventory system. While there are always pros and cons in these situations, we are still seeing many positives from our technology transformation and the progress we've made over the past couple of years. Nothing has significantly changed from the past, just a trend of slightly longer cycles due to the current environment and resource constraints from the carriers.

Sean Menke, CEO

Victor, regarding your second question, I want to clarify that our focus is less on market share. The reality is that looking at market share isn't as relevant for us right now due to the recovery's unpredictability, whether by region or between leisure and business travel. We believe that monitoring market share will be volatile for some time as we continue to witness the global recovery unfold.

Victor Cheng, Analyst

And then sorry, just one quick follow-up on the comments around PSS wins. Is that a sign that airlines increasingly have more appetite for IT solutions or that's kind of the timing in terms of the deal coming in?

David Shirk, President of Travel Solutions

I think I have to break it down between full-service carriers and low-cost carriers. On the full-service carrier side, as we've stated in the past, these aren't things that happen frequently. So again, there's no characteristic that that's different than what we've commented on in past quarters. So a smaller basket of activity, as you would see, the appetite isn't just massively changed from that perspective, but there are clear opportunities that are in the marketplace. On the LCC side, this pipeline continues to grow. We continue to see that opportunity. We continue to see LCC carriers trying to take advantage of the environment, especially from the domestic first recovery cycles. And so we've been very active in that particular space as well, and we'll continue to do so with our Radixx portfolio.

Operator, Operator

Our next question comes from Dan Wasiolek with Morningstar.

Dan Wasiolek, Analyst

So a quick question on the business model longer term and how it potentially could evolve. So specifically, do you envision on increasing mix of contracts tied to percent of booking value versus flat fee? And if so, how that might impact the longer-term economics?

David Shirk, President of Travel Solutions

Yes. I think this is part of the evolving landscape that we've been focused on. I think we've been very, very clear around our goals with changing the industry, focusing on retailing, distribution and fulfillment, that we want to align the needs of both the carriers and the distribution agency channel set so that it really is more value-based as we go forward with it. That's not something that's going to change overnight, but it's certainly been our path to try to make things much, much more focused around a percentage of value and incremental benefit that, that particular customer is receiving from us, and so we'll continue to try to drive that. Several of our product sets already lend themselves very well to that. And again, it will be something that will evolve over time in the marketplace.

Dan Wasiolek, Analyst

Okay. Great. And then just one quick follow-up. Any change to, I believe, prior guidance for breakeven free cash flow at 56% to 60% of pre-pandemic levels?

Sean Menke, CEO

No change.

Operator, Operator

And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Menke for any further remarks.

Sean Menke, CEO

Great. Thank you, Josh. Once again, I would like to thank all of those who have participated to hear our second quarter 2021 results. As you can see, I'm very pleased with the progress that we have made. I'm very proud of the organization and look forward to talking to you in the future. Have a good day.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.