Sabre Corp (SABR) 2001 Q1 法說會逐字稿

Good morning and welcome to the Sabre Holdings Corporation conference call to discuss the results of the first quarter 2001 analysts and investor conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given to follow at that time. If any one should require assistance during the call, please press * followed by the 0 on your touchtone phone. As a reminder, this conference is being recorded and being broadcast live over the Internet. I would now like to turn the call over to Ms. Karen Fugate, Director of Investor Relations for Sabre. Ms. Fugate, you may begin.

Good morning, everyone. Thank you for joining us today. I am here with William J. Hannigan, our Chairman, President and CEO, and Jeffery Jackson, our CFO. Bill is going to review the business highlights for the quarter and Jack will review our first quarter results for 2001. Before we get started, I would like to remind all of you that some of our comments on matters such as our forecasted growth on revenue, earnings, bookings, operating margins and cash flow, the EDS transaction, or other potential contracts or business, and trend information will constitute forward-looking statements. These matters are, of course, subject to a number of factors that could cause actual results to differ materially from our expectations. These factors are described in the Risk Factors section of the company's most recent Form 10-K filings with the SEC. The company undertakes no obligations to publicly update or advise any forward-looking statements. Now, I will turn the call over to Bill.

Thank you Karen, and thank you all for joining us. Sabre had an excellent first quarter. We met our growth goals for both revenue and earnings and we are especially pleased with the growth of Sabre's online companies, with travelocity.com reporting profitability and get their building momentum in trip volumes. We continued to take aggressive actions during the quarter to position the company for growth, including announcing the agreement to divest our airline infrastructure outsourcing business, about 25% of revenues, and a small percentage of earnings. Now, I would like to briefly go over Sabre's first quarter's highlights, and Jeff, of course, will get into more detail in a moment. I would like to first point out a change in how we are going to now discuss results. Given the impending divestiture of the infrastructure outsourcing business EDS, we have begun reporting financial performance in both continuing operations and discontinued operations. Overall, Sabre's consolidated revenue has been 17% over the first quarter of 2000, meeting projections of greater than 15% growth. This overall revenue increase is largely attributable to 20% year-over-year growth in continuing operations. Looking more closely at continuing operations, we had strong revenue growth in the travel marketing and distribution business despite weakness in bookings growth during the quarter. Travelocity continued to see substantial growth in transactions and advertising revenues, and announced net profitability a quarter ahead of projections. We are also pleased that our earnings finished at the high end of the expected range, $.0.64 per share on a fully diluted basis or 10% growth year-over-year. Net earnings growth was just under 13% for the quarter. These results keep us on track for meeting full-year revenue and earnings growth targets of greater than 20%. In addition to strong financial results, we also had several key initiatives that I would like to highlight. Most recently, we announced the purchase of the Sabre Pacific travel distribution business from _____ 00:03:31, a distribution alliance of Qantas, Air New Zealand, and Ansett Airlines. This purchase positions us to boost market share in this region and we expect approximately $10-12 million indirect bookings will shift to direct bookings as a result of this transaction, contributing to our revenue and earnings growth outlook for the remainder of the year. Second, we signed agreements with five air carriers, American Transair, Gulf Air, Hawaiian Airlines, National Airlines, and US Airways to provide a cobranded version of the Sabre Virtually There Web Site to their customers. The agreements enable each carrier to broaden the scope of their customer service initiatives by offering realtime itinerary, travel information, and destination content. Third, GetThere announced a new corporate customer service organization and a program to boost adoption of the product. This new initiative will target existing corporate customers and will help them in improving adoption of GetThere throughout their organizations. Companies are increasingly recognizing the value regarding cost savings of policy-based online booking tools, especially as they are revisiting their travel budgets. In fact, five of GetThere's top 10 customers have mandated the use of GetThere in the past quarter. These mandates increase adoption very rapidly. For example, one customer went from 20% adoption to more than 70% adoption in a matter of weeks. We also added more than 70 companies to our customer list in Q1, taking our total list of blue-chip clients to approximately 880. And finally, the most significant strategic move in the quarter was clearly the signing of several agreements with the EDS that position Sabre for stronger growth and higher margins over the near and long term. Briefly, the agreements include the following: First, the divestiture of our airline infrastructure outsourcing business EDS for total consideration of approximately $778 million. Second, a 10-year outsourcing services agreement with the EDS to manage our IT systems. We expect this contract to generate significant savings over our current IT spend. And third, a 10-year commercial agreement to jointly market Sabre's leading travel industry software products and EDS' full spectrum of technology services, giving both companies access to new customers. As we stated earlier, we fully expect our transaction with EDS to close during the second quarter. In summary, the first quarter has been very positive, from a financial perspective and in executing on our strategy. And now, I will turn the call over to Jeff for a more in-depth review of Sabre's financials.

Thanks, Bill. Now I would like to go in some more detail on our financial performance for the quarter, and then I will talk a little bit about our views for the second quarter and our full-year outlook. The results I review will exclude some special items that we recorded in the first quarter, which consists of US Airways' options amortization of $13.6 million, goodwill amortization, integration, and stock compensation expense which totals $70 million and is related to acquisitions we made throughout the year 2000, and a $1.4 million net gain related to Travelocity's hotel reservations network clients. As Bill mentioned, we had strong revenue growth this quarter despite slower bookings growth. On a consolidated basis, including both continuing and discontinued operations, Sabre's revenues grew 17% over the year-ago quarter. The continuing operations revenue, including core travel marketing and distribution, Travelocity.com, GetThere, and airline solutions in most emerging business grew 20%, while revenues from discontinued operations were 9% over the same period a year ago. Consolidated EPS was $0.64 for the quarter, an increase of 10%. EPS from continuing operations was $0.47, and from discontinued operations was $0.17 per share. Now, I will go into revenue in a little greater detail. The travel marketing and distribution business had revenues of $467 million; that is a growth of 11.8% for the quarter. This growth was driven primarily by an increase in booking fees on February 1, a slight increase in bookings, gains in market share, and growth in the other revenue line of 23%. Travelocity.com performed very well this quarter and announced profitability one quarter ahead of projection. Revenues grew to $72.9 million of a 169.6% from a year ago. And on a ProForma basis, they grew a 104%. The GetThere business had revenues of $11 million in the first quarter, a 649% increase from last year's first quarter. On a ProForma basis, revenues for GetThere increased 28%. The Airline Solutions an emerging segment, which includes the software solutions, and reservations, multi-host businesses that remained after the EDS transactions, grew 9.5%. This growth is primarily attributable to an increase in software development for numerous airlines and growth in passengers boarded in the multi-host business. Revenue in the discontinued business totalled $181 million, reflecting a growth of 9.4% this quarter. This growth is primarily due to an increase in custom applications development work with our existing customers. And now, I would like to take a few minutes to look at some of the details supporting financial results for the quarter. First, let me turn my attention to bookings. The slowing economy has indeed had an impact on industry travel volumes and our bookings. As many of you are aware, incomes of the top nine US carriers were down 0.4% for the first quarter of 2000. Data indicates that business travel has declined faster than leisure travel, as you would have expected. The lack of growth in travel has impacted our booking volumes, but due to strong growth in our online distribution channels, growth in non-air, and international bookings and gains in market share, our total booking volumes were not impacted as negatively as the overall market. For all the booking process for the quarter were a $125.5 million that is an increase of 0.8% over the first quarter of 2000. US bookings growth was 0.1%, while international growth was 1.9%. Non-Air bookings were up 13.4% while air bookings declined 0.3% for the quarter. It is also worth noting that the year ago quarter was an unusually strong bookings quarter due to the increased travel right after the Anniversary of Y2-K. Now, let us look at bookings by channel. Booking through the traditional travel agency channels hold at a $114.7 million, a decline of 3.3%. This decline is partially attributable to the decline in business travel bookings throughout the US and international and the result of the economic downturn. Also, because sabre holds the high percentage of share in the larger travel agencies that have heavier corporate mix, a decline in business traveling impact our bookings more significantly in this channel. Sabre online consumer booking saw $10.1 million that is a increase of 82.8% for the quarter and its leisure travel has not slowed as much as business travels Sabre's online bookings continued to show strong growth. Sabre's online corporate channel booking saw $648,000 that is a growth of 140.9% versus a year ago quarter. Corporate online growth continues at a strong pace as adoption rates continue to accelerate. Now for an update on our market share. We ended last year with over 39% market share worldwide, a slight gain over the 1999. Data thus far for the first quarter 2001 indicates that Sabre's global travel market share has improved slightly versus the first quarter of 2000. While we continue to be very optimistic of our market share gains going forward, we do not expect our market share improvement in North America to be as strong as the exceptional growth of 3.3 share points that we gained from 2000. Our acquisition of Sabre Pacific positions us to improve market share in that region. We continue to defend and grow our position in Latin America and grow share in Europe. Total travel trips transactions or trips, which were booked through GetThere, were $1.4 million for the quarter; an increase of nearly 103% while corporate trips for GetThere improved over 193%. GetThere continues to add large Corporation to its customer bases, which including EDS, Ernst & Young, Lockheed-Martin, Nestle, Panasonic, TRW, and Union Pacific, to just name a few. GetThere's core focus however, continues to be on customer service and adoption growth among our existing customers. Adoption rate among our top customers continue to improve. Race among our ten largest customers were about 33% in overall adoption was at 9.1%. Virtually they achieved a 10.6% monthly site growth rate. During the first quarter, unique business to this site exceeded $3.8 million and on March 12 reached the peak of 104,000 unique visitors in the single day. And as Bill mentioned, several Airlines has signed up with Virtually There, and they are bringing the potential for $90 million additional customers to this side. Now, let me turn my comments on expenses. Expenses for continuing operations grew 19.0% for the quarter. Expenses grew primarily due to growth in data processing expense associated with the significant growth in online travel distribution and a continued increase in travel agency-customer incentive expenses. However, growth in the incentives this quarter was somewhat lower than previous quarters and part due to the variability of this expense line to booking volume. Overall, we have made significant progress on control of both expenses and are realizing the saving we anticipated in our cost cutting plans announced last year. Cost financial continued to be our large focus, as we look our additional opportunities keep cost down. Now, I would like to provide some additional information on the operating income and margin. Total company operating income for the quarter was $151 million, an increase of 27.6% over last year. Operating margin was 20% for the overall business, an increase of 1.7 points. Operating income from continuing operations was a $115 million, growth of 22%. Operating margins from continuing operations were 20.1%, an increase of 0.4 points over the first quarter of 2000. This improvement is largely attributable to the improvement in Travelocity's margin and flat margin in the ____00:14:22. Net interest expense increased year-over-year by $13.5 million. Our debt balance at the end of the first quarter 2001 was $859 million. About $315 million of that is associated with the special dividend paid to Sabre shareholders prior to the spinoff from AMR Corporation in March 2000 and about $500 million related to our acquisition of GetThere. We plan to pay down about $517 in debt following the close of our transaction with the EDS at the end of the second quarter for interest savings of approximately $28 million in 2001 and $ 48 million thereafter. Before, we open up the lines for questions; I would like to talk briefly about our outlook for the rest of the year. As Bill mentioned, our first quarter results put us on track to achieve our previously stated financial growth. However, with bookings a big driver of our overall financial performance, we have taken a very close look at the impact for our business. The economic decline continues to hamper booking volumes growth. Our analysis shows that holding other variables constant, even if bookings growth is flat for the rest of the year, which we do not expect, we anticipate that are still be able to achieve our revenue and earnings growth targets of greater than 20%. This is due to several factors including growth in non-bookings-related revenues and businesses, pricing actions, operating earnings improvement in Travelocity.com and GetThere, reduced interest expenses associated with our pay-down of debt, improvement in certain variable cost, one example of which is customer incentive and expenses that are tied to bookings volumes, savings from the outsourcing agreement with EDS, and strong expense management. For the second quarter, we expect revenue growth from continuing operations to be in the high team with consolidated earnings targets in the range of 10-13%. In summary, I would like to say we are very pleased with our financial performance for the quarter, particularly as we are able to hit our revenue and earnings target despite lower than expected bookings growth. Now, I would like to turn it back to the operator for questions.

Thank you. We will now begin the question and answer section. If you have a question, you will need to push the #1 on your touchtone phone. You will hear an acknowledgment that you have been placed in queue. If your question has been answered, and you wish to be removed from the queue, please press the pound sign. Your questions will be queued in the order that they are received. If you are using a speakerphone, please pickup the handset before pressing the numbers. Once again, if there are any questions press the #1 on your touchtone phone. One moment please. Dennis Telzrow of Hoak Breedlove Wesneski & Co.

Gentlemen, a good quarter in a tough environment. A couple of quick questions, I think I read you right, you said that the guidance in the second quarters up 10-13% that is on a consolidated cell will include the discontinued operations?

Yes.

Then in the second half of the year, we will have the EDS asset business sold, so the guidance on the year is that, I am trying to understand in how we mix the, kind of, apples and oranges there?

We will have the EDS business sold by the end of the second quarter and so, which we will see in the financial statement beginning in the third quarter is what is today called continuing operation. And so our guidance is really of blend of dollars as it is today, as it will be in the second quarter, then continuing operations in the third and fourth quarter.

Most restatements for every other quarter, will that be in the information when on the EDS transactions done?

A couple of things Dennis. We will fall on 8-K, which will ProForma for the year 2000; that is going to come out later today or tomorrow. We will have more detail really in the 10-Q comparing quarter-over-quarter for continuing operations and that will be also the case in the second quarter. So, you see annual restages if you will, on the discontinuing and the continuing operations filed later today in the 8-K and then Karen, Mark and I will talk to more of the quarterly comparison information in our conversation in the AGM of the Sabre's edge and in the 10-Q.

One last question. Did there was any comment on the improvement in the nature of the loss there?

Well. It is really a combination of revenue growth that we talked about and a very strong post acquisition expense management by ________00:19:22 and his team really capturing the synergies that we have planned for in the integration of the purchase very quickly, in fact a little bit ahead of schedule.

So do you have the loss for GetThere or is it not out for the quarter?

We will have that Dennis in the Sabre's edge and in the Q.

Thank you very much.

Thanks.

This is Bill Hannigan, really reiterating what we just said on GetThere. Get There is right on target and we will talk about, you know, the adoption rates for our largest client. We have had a significant acceleration of our top ten clients versus ours 39% adoption and when you look at the overall base, which was in the three's, you know, a year ago today, if not in the nine's, and you also saw the add of approximately 74 new customers in Q1 taking us to just out of 900 clients. Also on the question on results, certainly we talk about greater than 20% revenue and earnings, and Jeff also talked about some of our contingency planning, we are working at the various variables, but that 20-20 include the outsourcing business in our results for five or six months of this year. So, I am certain in the second half, we will have the best of our slower border.

Greg Gould from Goldman Sachs.

A couple of questions. First one on the bookings trend, can you give us some perspective as to what you are saying so far in April and others? We fully have a couple of weeks here, but qualitatively are we seeing a pickup relative to the month of March, and then the second question goes to Jeff, can you elaborate on the other revenue within TMD, why was it so strong and what is your outlook there, what are the things that are allowing us to grow in the 20% plus range?

Greg, this is Bill. A couple of comments. We are very early in April, you may have noticed, as a matter of fact, one of the largest carriers in US reports several markets on sale just this morning. Indication is that as many as 20,000 markets have gone on sale, also our customer's airlines specifically are talking about adding capacity. We have certainly seen that the average fares, especially on the leisure side has gone down over the last couple of weeks, and we have our own data to confirm to that. My point is that has happened in the past and we have talked about it in the past. That is a logical response by our customers to increase their load factors and, for Sabre that is good news since we get paid on a per transaction basis. On the other income question, we certainly have, Dillon Communications for instance, has been a driver in Hamburg, Germany on the new product side, Promos parts, JV revenues. I have with us Scott Elvis, Senior VP from our travel marketing and distribution. Mr. Scott Elvis you want to give an example of either Principal Sales Manager or Compensation Manager.

Sir, we are seeing a lot more of our hoteliers particularly pushing, advertising, out through our distribution channels, specifically through our agency point of sales where they can innovate their messages right into the transaction flow. So, we are seeing a real big uptake in our hotel advertising through this system, real good growth over the first quarter, which we expect will continue as we are trying to support their business. This is slowly downgoing into the year here.

Next on the other revenue growth in Q1, I believe it is faster than what you reported in Q4 last year, is that correct? And, do you expect this 20% plus growth to continue into Q2?

On the later part of your question and I think that is correct, in the former.

Hi Greg, this is not a massive number, but, you know, as those growth rate is continuing to be a significant part of our overall Sabre story.

Great, thank you.

Thanks Greg.

Jim Kissane from Bear Streams.

Hi Jeff and Bill, I think it is the first time and longtime that you said that incentive payments have not gone up that much? Should we read anything into that or are some of your competitors being a little more rational?

Let me say that they continue to grow faster than revenues, so I won't mislead you, and it is just they grew in fact a little bit less quickly than we would have thought, and part because of small part of these centers are variable related to volume on the revenue side. I think that I will not reach a conclusion necessarily that the market also have becoming entirely rational on that point, so and this is not, I am not standing up and saying this problems has been licked, by any means. But, you know, that is just one of the ways that we can grow our earnings a little bit faster in this kind of economic environment.

Okay. I will just add a little bit to that Jim, when Jeff gave the example of the formula as we look out through the year even with flat bookings growth, certainly there is a link between absolute perspective, incentives and bookings however, we do not have picked into that formula. Any assumption of the rate of growth of incentives would go down.

Great. Obviously, if bookings pickup over the next couple of quarters here, particularly in the second half, based on the fact that you do not have change your numbers here with flat booking assumptions and that seems to be potential significant upside?

Yes that is logical.

Okay. In terms of GetThere, is it actions that you are taking or is it the action that companies that are using GetThere taking to drive utilization. Can you elaborate on that whole thing?

Absolutely. I talked to 40-50 customers did from the last 36 hours, as a matter of fact, just to touch a base and we see how we are doing. Either they are very excited about driving adoption, their adoption rates are very high; these are again very large companies with adoption that is now over 50% that are within the single digits at the back end of 2000, and we are to the point of collaborating on marketing level to be used internally to be travel fares etc. to drive the use to the 80-90% number versus the 50% number as corporations. Not only re-look budgets. Certainly you saw that publically, whether it be end of Q4 or during Q1 but also to get more travel out of their expense budgets.

Excellent great quarter.

David Fogart from Morgan Stanley.

Two quick questions. Could you talk a bit about some of the trends you are seeing overseas, some of the major market overseas in terms of market share gains and perhaps the adoption of the online channel, and then second, if you have any other thoughts on the traditional travel agency channel numbers in the quarter. Whether any other factors beside economic weakness and channel shift, anything perhaps tied to the rate of the new contract coming on stream? Thank you.

If I could ask a clarifying question, David on the new contract coming on stream please?

Yeah! I guess the question just to clarify the 3.3% decline traditional agency numbers; is that entirely tied to the weakness in travel we are seeing the US and the channel shift toward the Internet or there any other company specific factors that would account for that, you know, perhaps a large client coming on stream was a little slower than you thought or some other issue?

The answer to the piece of the question is no. It really is tied to, when you look at the top four travel agencies, certainly they are heavily weighed to the corporate side to tune of 80-90% of their business and there were some, you know, household maids who had actually stopped travel for the last two weeks of March, for instance, trying to improve their results for the quarter. We saw some of that, we heard that from some of our customers. So that is easy to get into apples and oranges comparison because again the heavy weight of the corporate travels for those guys. We expect the continuing shift certainly from fetching more travel agency to online travel agency as we have seen for the last several years and my expectation is as business travel increases that we would be back on that kind of trajectory, which is a couple of points - 2-3 points per year of shift which is what we have seen. As far as International is concerned, David, a couple of items there. The acquisition of Sabre Pacific, we talked about the $10-$12 million in indirect bookings going direct booking for us; that is what the couple of points of growth for Sabre, so pretty meaningful in the revenue perspective, we continue to be in a good situation offshore in Asia Pacific, Europe, and Latin America in 2000. We at least maintain share growth and the one place where we maintained versus grew was in Latin America, we were at the 50% mark; Europe we went from 12% to almost 15% and Europe continues to be an important focus for us on a country by country specific basis and also from the Pan European perspective with Travelocity, for instance, continue to be excited about our Asia Pacific opportunities with Travelocity in Java and A&A and so we talk a little bit about that on the year related call. Travel bookings period offshore were stronger than they were in the US in Q1 and so that is certainly empirical data that shows that as well.

David, we only want to add about the traditional channel was with it. It reminded that we did gain share in the US. We will elaborate on these shares, where we are in the share in the Sabre's Edge. But we gain share on the US and so, that is not a significant factor in that reported number. They point you back to the description that Bill and I talked about the business with pleasure.

Okay thank a lot. Matthew Fassnacht from J. P Morgan.

Hi everybody. This is Matthew Fassnacht. On the corporate travel market could you give me us an order magnitude. What percent of your bookings is that, or could you give us a description on it?

50ish

And then with the Get There business. I was surprised that the 28% revenue growth, given the 100 plus percent in the activity and transaction growth. Is it pricing pressure or what is it?

Well couple of things. No it is certainly not pricing pressures, as a matter of fact the pricing opportunity is to the other side of that. As a matter of fact, we have talked about in the past that there is a meaningful delta between the GetThere price and the Sabre BTS price, and we will be moving our client base more towards to GetThere price or what we call the trip fee in the back end of the year, and so that rate discrepancy approximately is difference between $3 a trip and $6 a trip, and we will be moving our clients to the $6 per trip level going forward. So the rate opportunity is good news.

Unfortunately Jeff what I think is one is paying $3 right now. But in terms of the 28% growth rate, why was in that hundred in line with some the trip growth?

You are keeping in mind that GetThere is two buckets. One is the corporate earning number, you have two different rates and the second is on the supplier side and certainly part of it is linked directly to the growth rate of the Airline sites of Iraq, which is interesting because it is almost a contradiction to the earlier point. As online grows certainly Airline sites grow, but independent online travel agencies are growing quite rapidly as well and we are certainly seeing that in the results in the sites of Iran.

One last thing Jeff, you had mentioned data center cost driven by Internet, travel agents before you mentioned the insets of cost increase. Is there reason for why you mentioned that before? How big a deal is that and what are you doing in the mitigate that, and when we will expect some kind of reprieve from that?

We continue to engineer the shopping process on the various Sabre platforms for our customers and as we add new online travel agencies, because certainly we have many of the largest Travelocity, Hotwire, Lowestfare.com, cheap tickets, price line coming on, etc. But there are varying degrees of efficiency in the actual programing. So we continue to work that and for instance, we talked about the four Travelocity was as high as 1000 messages per booking when we started the Travelocity, and is now south of 200 messages for booking. Some of our newer customers are not as efficient and we continue to work with them to drive down the DT expended. Keeping in mind that the per head unit cost of data processing is absolutely dropping to the tune of 35%, it is the sheer volume of the new online customers coming on. Glenn Greene from ABN-AMRO

Thanks. The question revolves around the cost savings you expect to get the second half of the year once you have completed the spend after EDS. Right now it looks like you are going to give up about $35 million in operating income a quarter and you are going to get about a $12 million per quarter savings on that interest. Can you elaborate on where the other savings is going to come from?

We talked about significant savings from the outsourcing contract perspective. We have also talked about after we get past the close, getting more specific how old that is. When you look at the cost structure of the business period, we move pretty aggressively in the fall of last year; take $100 million out of the business for a full year impact in a one and that is certainly is important to us as well. The other is the interest cost reduction that you identified is very accurately low. The other category cost is retained overhead where I think we have been pretty forward about the fact that we are going to, there is a disproportion on overhead which will be retained post closing on the transaction, but again we are going to take significant chunk of that out in the back half of this year and then you are going to bigger chunk out next year. I would call the numbers were $19 million in the back after of 2001 and $35 million in 2002.

Do you expect your depreciation expense to go down very much as with the years close.

Yes. There were about 225 to 275 in capital expenditure, which we had forecasted prior to the transaction with the as per O1 to a number in the $85 million. Richard Harrover from JNW Solid men

Hi, Guys. I just wanted to touch back on the international side a little bit. It was little bit slower than I would have thought in terms of the bookings growth. How much of that was just a tuck-in-air versus the international economy starting to stress on the US type slowdown. And then I have another question.

I think the year over year comparison is real important. Jeff talked about that, because Q1 was unusually strong in 2000 as a response to the unusual very slow Q4 especially December, as we dwelled into the Y2-K. That was certainly an important piece of that.

Was Q2 more normal than last year?

Yes.

And then, in terms of GetThere, any update on when it should achieve break-even.

We are sticking with the back end of O2 from an operating earnings perspective.

Great thanks. David Schwartz from Credit Suisse First Boston.

Thanks guys. First of all, congratulations on making it in a tough time. Had a question about the kind of assumption that you are making going forward. It looks like Sabre does appear to be somewhat imminent. But your assumptions based on flat bookings going forward, we are still making the 20-20. You must have some assumptions regarding pricing and some accretion having to do with the EDS that you are closing, and may be some assumptions, which you have about incentive payments and why they are still growing. Can give us some clarity on all over that and to the followup question.

First of all I captured them all. First of all our assumption is not that bookings will remain flat or the bookings will be flat. But we wanted to give a kind of a view of our sensitivity analysis, for lack of better words, on the other three items, I will ask more.

Pricing.

All of the pricing actions that we would take have been taken, except for a little bit on the trip fee side, I get there as far as O1 is concerned. Customer incentives, I stated earlier that our assumption is not that the rate of increase of customer incentives would go down. But this is certainly if bookings are lower, than anticipated incentives would be lower then anticipated as well. EDS would be slightly accretive in O1 and similar to significant savings from the outsourcing deal, the slightly accretive from the asset sale, we are going to get more specific about that after the close.

Okay and so with the incentive payments you are assuming what basically will be some understanding, you said correctly that they would basically be proportionately the same regardless of where bookings go.

Correct.

Then the other question I was going to ask is about orbits. Have you guys, obviously the DOT ruling was not favorable. You guys have any insight on that or any comments and how that might affect what Travelocity and GetThere are going to be doing that in the year?

I have got a couple of comments. Let me start with, our position has never been that orbits should be prohibited from going into business. Certain other organizations consumer protection organizations etc have had have taken that position as they have some low fair airlines. As far as DOT's letter, DOT's letter was not agreeing to help us as quoted in the media, as a matter of fact the letter was pretty specific about serious concerns about incentives and MFN, and I think that is almost at close. DOJ and 23 STAG are continuing their investigations, and coming back on the DOT again, DOT is also talking about monitoring orbits activity in the market and is a matter of fact, there is a specific milestone six months out from there in commercial production date where they will be looking at MFN and market activities etc.

Okay. That is actually all consistent with what I have seen. Do you think that will have any impact on the growth of Travelocity of GetThere?

I think certainly that the orbits is supposedly and we have real competitors there we can compete, and orbit is just one of them. It would be more to the leisure side and my understanding is that there will be more focus on the leisure side than on the business side, may be on the unmanaged business travel side, which is also the speak box of Travelocity. I guess our view is 28 million members up in 5 years ahead and have better search capability, therefore technology in that was proven recently with the topaz, that as a matter of fact would be 182% of time and low pressured categories and so let the games begin.

Okay good enough. Jennifer King from Merrill Lynch.

Thanks. Regarding market show gains you said that you do not really expect to see this incentive gains with shares we have seen in the past. Is that because you think that the shift from traditional to online is slowing a bit, or is there something going on competitive ways in the base travel agency market.

Let me be clear on that Jenny. We saw significant market share gains last year. You think about the North America large travel market, overall we gained over three share points. What we have said is that again being appropriately conservative in our planning or in our external forecasting, I should say, we have not assumed that we would take three share points again this year, but we do believe that we will take approximately a share point and half and are on target to be that.

You have about one and half percent share gain both into the model but there is room for outside.

Approximately.

Okay thanks. Marco Coumardi from MJM Partners.

Hi. I have two unrelated questions. The first question is regarding, I noticed that you brought Travelocity stock or Sabre world Travelocity stock in the quarter. I was wondering if you could discuss the rationality behind that or whether there is something we should look forward too on an ongoing basis?

The first question, and this is Bill, we certainly want to maintain our ownership position in Travelocity and very important as far as our leadership in all distribution channel strategies is concerned. Frankly the buy-back was to offset some of the equity that has been granted to employees to maintain our ownership position.

So that is something that we should look forward to an ongoing basis of the equity share.

I would not necessarily predict that. But it is always something on our radar screen.

The second question is, could you discuss how you are attacking or are you planning on attacking the hotel reservation industry if your world theme is as though the online players are accelerating their position there on a very rapid rate. I was wondering if there is any thing that you have planned or planning to attack that market.

We are absolutely attacking that market, and the Carmotel continue to be faster growers for us than air. Certainly this quarter results showed it. Last year for instance, to give a longer term perspective, air bookings grew at 625% and looking at the theme around table to verify that 6.5%. For us carmotel has more in the range of 15-14%. So we had been very active in that segment and we will continue to be also, certainly that is part of which you said is very good news for us in Travelocity. Travelocity's results for Q1; the numbers were north of, I believe 1 million rooms blocked, which is a very healthy number and an area of focus was in Travelocity as well.

In terms of overall penetration of hotel it is relatively well with any way you can increase that rather instead of gradually in a step function fashion?

We are certainly ruling out new tools one that Scott Elvis talked about. There are three powerful hoteliers as far as driving the rocket that see rise. I do not know if I can make another on that, Scott, but I thought, CEO has a couple of larger ones in the last several weeks and we are very active in our discussions and negotiations for the next set of opportunities for us to get going. When you look at the hospitality business, say on how you segment the business, we have very good penetration at the high-end hoteliers from a corporate business market. There is a lot of transient market, drive up markets and we do not participate as much as we are working with the hoteliers now to get into the group space, which is probably about 30% of the overall hotel market group bookings. I think you never had a interest in Passkey and we are working to figure out how we put our system and the Passkey's system together in providing them with technology to start to participate in that 30% of the hospitality market and we believe we will be successful in getting started there this year.

How did you qualify your market share today?

Our market share US hotel comes to Sabre today. It is probably in the 10-15% range I do not know that number exact on top of head.

And the addressee market would be something like 50% or that range.

I expect that would be about right. Particularly if we get into the online space goods, we are seeing, if you talk about the online space earlier, the hospitality bookings in the online space are growing rapidly and we are behind most of those paced out there. We are looking at the larger leisure market that used to be called into __47:20______ or picked up to other channels. On the group business side we also, our meetings are by way. I should say our acquisition is to get there.

Thanks a lot. Andy Lohoff from Ohio Public Info.

Hello. I had two financial questions. First of all what was the revenue growth that has been year over year in the quarter excluding acquisitions, and secondly what was cash flow from operations in the quarter?

I think if you do ProForma adjustment for acquisitions, you would see a slightly lower revenue growth in the 17 that we have recorded by archive, in the high 16. Good sign as see much more earnings growth because of the debt and the losses from GetThere. What was the second question?

Cash flow from operations in the quarter.

Hold on a second. We will get you that number pretty quickly. Net cash flow provided from operations was about $85 million.

Okay does that include the discontinued operations?

Yes.

Okay thank you. Tom Underwood from Legg Mason.

Just a followup on the strong growth in the non-air bookings. I am kind of wondering how they state those are strong since you saw Travelocity rule out HRN on the online side and on the off line side, hotels were reporting similar core but weakness is on the air side. So you saw a drop on the air segments we did not see a drop on non-air. I was wondering where the strait was from.

We have still got a fair amount of growth coming from the online channel in the hotel space, that is because they are growing at such a rapid rate that we are still losing our hotel bookings. The other piece of that is converting fully passive or manual segments into active segments where the agents usually do not have their rates in favor, so they used to call the hotel directly. We are seeing a good number of those bookings now being booked. In the sense, we worked as hard as the hotelier over the past year to get their contract rate into the system.

Okay is the growth coming predominantly from hotels or are you also seeing similar growth on the rental car crews, other non-air segments.

Yes we are seeing similar type growth, although the advantage is still smaller in the car tour crews business.

Great thanks. One more question please. Paul Keung from CIBC world market

Couple of questions first. Did you breakdown your capital spending you mentioned $689 million. Will that be the amount you will be spending around this year.

Paul we will get back to you on that.

Okay, another thing is looking at the airline websites. Before you quite get there, there is a line of saying that business profits will go away over time if airline start going to move the website hosting and customization in house. It is almost you are seeing our experience losing confidence on that ____ share. What is your outlook on that business?

We are on board with negotiations with a couple of large airlines as we speak and we continue to run five of the top seven graded airline websites.

Thanks, we should probably assume that it stays in the share?

Absolutely.

Okay great. Thank you Paul. Thanks for coming. We appreciate your attendance today. Certainly we talked about bookings are not where many expected, but again, I believe that we have been properly conservative in our planning at Sabre to ensure that even with the down turn on the business side that we will deliver to our shareholders in 2001 greater that 20% revenue in earnings growth. Thanks a lot. Have a great day.

Ladies and gentleman this concludes today teleconference. Thank you for participating. You may all disconnect.