19 April 2010

With Ash Firmly On Horizon For Weeks, Should Amadeus Pull IPO?

Amadeus's blockbuster IPO is going to happen next week if the course is maintained. However we should consider whether (or not) the company should pull the IPO due to the unprecedented impact of the Iceland Volcano.

So let's consider what's at stake here. The total European traffic is down at least 60%.

Here are the latest stats of traffic counts (Flights).

# Thurs 15 - 21,000 out of 28,500 flights flown.
# Fri 16 - 11,500 out of 28,500 flights flown.
# Sat 17 - 5,000 out of 22,500 flights flown.
# Sun 18 - 5,000 out of 25,000 flights flown.
# Mon 19 (estimate) - 9,000 out of 28,000 flights flown.

Amadeus is by far the largest European GDS and therefore will be proportionately adversely affected more than the others. Particularly since the most affected countries are UK, DE, Scandinavia, France and Benelux. This affects all of Amadeus's business lines with its 2 leading ones - Airline IT and GDS being the most adversely hit.

From the position I have of looking at various sources of bookings - I can assure you that the number of new bookings have dropped dramatically. At a time when they should be rising for the summer periods.

However I think we need to face the fact that the restoration of flights will be at a significant reduction of traffic to what we assumed before. This too will have a long term impact on Amadeus. The GDS business will suffer accordingly, the IT business will be impacted a lot less. Amadeus's EBITD looks really attractive based on the current footprint of transactions. That is going to take a significant hit until the issue of the Ash is accommodated and we know how things will turn out. This could last for a period of a few weeks or as long as a few years.

At the very least we have lost a week's worth of flights by the time this is over. That is 2% of the gross annual production. Yes the company can absorb that. But if the adverse situation is greater then we could see a significant curtailment of transactions intra TC2 and inter TC1 and TC3 into TC2.

In my opinion, prudence would dictate that Amadeus should postpone their IPO for at least a month until the situation becomes clearer. This would be the wise thing to do.

For Amadeus to proceed at this point would be somewhat foolhardy or very very brave. Either way its a risk that should be examined carefully. If the IPO does proceed then the punters need to factor in the risk that Amadeus's first year results will be off significantly from prior years. Given the significant backing of the financial community as opposed to the general individual investor - lets hope people are making proper and appropriate decisions with regard to risk.

This is my opinion - what is yours?



Anonymous said...

Let us take a step back and reflect on the issues raised in your article. Bookings are usually made 2 to 3 months before departure date so 90% of bookings for the current period have already been made and charged. If these bookingas are cancelled they will of course be reimbursed by GDS (Amadeus included). Airlines will of course apply every method possible to keep passengers from cancelling and will try to get them to reschedule. In the case a passenger (or airline) modifies a bookin then there is no impact on the booking fees. One should also take into account that the area affected by the ash cloud accounts for less than 50% of Amadeus bookings and in view of the faster growth being experienced in APAC, MEA and LATAMit probably represents less than 30% of growth for 2010. What about IT. Well that is a mixed bag. Amadeus only gets paid for it's flagship checkin system when a passenger boards a plane, however it also has a very important webbooking product that much like agency bookings should not be too affected by the chaosas the bookings have already been made. In addition products that allow ticket changing will be in big demand and will also generate revenue (and save airline's staff time). In view of this I suspect that the impact on Amadeus will be small and will be made up for through a strong uplift once the cloud abates. The uplift can be very strong as was seen after the SARS chaso some years back.

Anonymous said...

The crisis will definitly have a negative impact on Amadeus bottom line