Sabre Corp  (NASDAQ: SABR) Q1 2020 Earnings Call Transcript

Sabre Corp  (SABR) Q1 2020 earnings call dated May 08, 2020

Corporate Participants:

Kevin Crissey — Vice President of Investor Relations

Sean Menke — President & Chief Executive Officer

Doug Barnett — Chief Financial Officer

Dave Shirk — President, Travel Solutions

Analysts:

Ashish Sabadra — — Analyst

Mark Moerdler — Bernstein — Analyst

Josh Baer — Morgan Stanley — Analyst

Jed Kelly — Oppenheimer — Analyst

Presentation:

Operator

Good morning, and welcome to the Sabre First Quarter 2020 Earnings Conference Call. [Operator Instructions] 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 expressed written consent of the company is strictly prohibited.

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

Thank you, Whitney, and good morning, everyone. Thanks for joining us for our first quarter 2020 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 and industry trends, cost savings and liquidity, among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today’s conference call. More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 8-K filed on April 13, 2020, and our 2019 Form 10-K. Throughout today’s call, we will 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 President and Chief Executive Officer; and Doug Barnett, Executive Vice President and Chief Financial Officer. Dave Shirk, our Executive Vice President and President of Travel Solutions, will be available for Q&A after the prepared remarks. Today’s call will focus primarily on COVID-19. Sean will provide perspectives on its impact on global travel trends and our business. Doug will review the cost and liquidity actions we’ve taken in response. We’ll then open the call to your questions.

With that, I’ll turn the call over to Sean.

Sean Menke — President & Chief Executive Officer

Thanks, Kevin. Good morning, everyone, and thank you for joining us today. Before I start, I’d like to recognize that although today’s call will focus on the financial implications of the COVID-19 pandemic on our business, this is a human health crisis with severe impact to families and individuals around the world. We are all experiencing dramatic changes to our daily lives and regular routines. Nothing is more important to us than the health and safety of our employees, customers and the communities where we live and work. I’d like to sincerely thank my Sabre teammates who have made great sacrifices in this incredibly challenging environment. Our Sabre offices around the globe have been closed for a number of weeks now as we practice social distancing. Before Doug takes you through our financial results, I’ll begin by discussing the unprecedented impact of COVID-19 on the global travel industry and provide detail on the decline in bookings and travel trends since its outbreak. Next, I will describe the actions we have taken in response to this challenge. Then I will describe the impact these actions will have on our technology investments. Finally, I’ll share why we believe Sabre is resilient and well positioned for a post-crisis environment. The COVID-19 pandemic, as we all know, is an unprecedented challenge facing the entire travel industry. Since its initial onset in late 2019, the outbreak has caused a sharp decline in industry bookings.

As we exited the quarter in March, effectively 0 new bookings and the impact of cancellations resulted in a negative bookings environment on a net basis. Total GDS industry air bookings declined by 10% and 25% and 113% in January, February and March on a net basis, with the industry down 49% for the first quarter of 2020. All regions were impacted on a similar level. This is what was reported by the total global GDS industry and factors in no exclusions. Sabre’s new air bookings declined by 8%, 17% and 70% in January, February and March, respectively. On a net basis, including the impact of cancellations, Sabre’s air bookings declined by 9%, 23% and 111% for the same months. Based on the weekly industry trends we’ve been monitoring since COVID-19’s outbreak, it appears the decline in net air bookings peaked in late March across all regions. Data through April suggest the industry bookings decline was still exacerbated by cancellations. Drilling into daily trends. Cancellation activity peaked towards late March as COVID-19 restrictions went into place around the globe. This was concurrent with the very sharp decline in new bookings made. Since late March, Sabre’s new air bookings have declined to less than 100,000 daily or down by more than 90% versus a pre-crisis 2019 average of roughly 1.5 million daily bookings. As of mid-April, we believe we have seen a normalization in cancellation rates. We believe we have flushed out most of the cancellation activity with respect to previously made bookings.

Although new bookings remain severely depressed, net booking activity improved in April versus the end of March. In the first quarter of 2020, declines in passengers boarded and new hotel central reservation system transactions did not happen as fast as the decline in new air bookings. However, the declines in all three of our metrics, Travel Network air bookings, Airline Solutions passengers boarded and hospitalities Hospitality Solutions CRS transactions converged at the high 90s towards the end of March and remained at this level through April. The future impact of COVID-19 is still unknown, and the travel environment remains highly uncertain. Air carriers announced second quarter capacity plans indicate continued declines across all regions. Based on data from OAG, global capacity in April declined approximately 70% year-over-year. Looking to May. North America total scheduled capacity is currently down over 75% with American, United and Delta down 75% to over 80%. EMEA is down 75% with Lufthansa, IAG and Air France KLM all down over 90%. Latin America is down over 80% with Avianca, GOL and LATAM all down over 90%. And in Asia Pacific, Air Asia, Cathay Pacific and Qantas are all down over 90%.The numbers I just reported are scheduled capacity levels. Operated capacity is even lower than marketing schedules filed.

We expect significant schedule reductions in June and beyond. It is important to note that many airlines around the world are still selling a marketing schedule that isn’t too different from last year. But the closer we get to the actual travel period, we see marketing and operating schedules being reduced. This strategy allows airlines to sell and consolidate into fewer flights. Because we are a mission-critical technology provider to the travel industry, our top priority is to be there for our customers both now and when the business environment improves. Given the current uncertainty in the travel environment, our current focus is on long-term liquidity. We have and will continue to take actions to align our cost structure to demand both near term and in 2021. Importantly, our cash position and aggressive, but thoughtful management of the business, affords us the flexibility to continue advancing technology capabilities to meet demands. Let me summarize the cost actions we have taken to date. In early Q1, our immediate response to COVID-19 was the implementation of a hiring freeze, elimination of pay increases, restriction of employee travel and reduction in consulting spend. As the impact of the virus continued to spread globally and bookings fell dramatically in mid- to late March, we announced cost savings and initiatives expected to result in $200 million savings in 2020.

This includes pay reductions for U.S. salaried employees, suspension of the 401(k) match, voluntary retirement, voluntary separations and various pay reductions around the globe. I am very grateful and proud of my colleagues around the world who have participated in these programs. In mid-April, we announced plans to reduce 2020 costs by an additional $125 million, including the very difficult decision to furlough 1/3 of our global workforce. To my teammates around the world currently on furlough, I understand how difficult this is for you and your families. We will continue to work with rigor and resiliency to ensure we are an even stronger company in the future. Because 2/3 of our cost structure is variable, it provides protection. It also provides the ability to take further actions, although we hope they will not be needed. Next, let me summarize the actions we have taken to enhance our liquidity position. In mid-March, we suspended our dividend and share repurchases effective after the March 30, 2020, payment. We also drew down on a revolver of $375 million. On April 17, we raised $1.1 billion of incremental capital through upsized senior secured and exchangeable notes offerings.

Doug will share more detail, but with $1.1 billion capital raise, $325 million cost-savings initiatives and other actions, we believe our current liquidity is sufficient for more than one and half years even in a 0-booking, no-travel scenario. In addition, effective May 1, 2020, Sabre and Farelogix agreed to terminate the Farelogix acquisition agreement. One question we are often asked is how the cost reductions we are making impact the business, including our previously announced incremental technology investments. Let me walk you through some of what we will and won’t change as a result of our cost-savings initiatives. To be clear, we are still proceeding with our technology transformation and transition to Google Cloud. Our technology transformation is expected to lower cost, accelerate innovation and provide competitive differentiation. We continued to expect approximately $100 million in annual cost savings by 2024, when we expect the technology transformation to be largely completed. Our partnership with Google is off to a great start, and I couldn’t be happier with the collaboration so far. We are already executing on the innovation framework we have in place with Google.

Today, I am pleased to announce we have entered into a new commercial agreement for Sabre to provide availability data APIs for consumption by Google’s flight search products. We are delaying our billing systems upgrade and our full-service property management system in participation with Accor, primarily due to Accor’s furlough of 75% of their workforce. We continue to advance NDC-related projects with our current set of actively engaged airline, agency and corporate partners. We have made progress and reached important milestones over the last several months. However, certain incremental investments in NDC have been slowed down as many of our customers redirect their focus on financial and operational priorities. Each one of these projects is important to Sabre’s future, and we expect to return to them after we have a better insight on industry-wide recovery. To state the obvious, we do not know when travel demand will recover or what the travel industry will look like on the other side of this crisis. We are fortunate that we have access to global data in a realtime and are monitoring the significant insight this gives us for early indications of improvements throughout the world. Previous industry downturns suggest travel demand is unlikely to return to 2019 levels for at least several years.

Customers need to feel comfortable in restaurants, on trains and airports and on planes. The timing for this level of comfort in crowded places may vary around the world. We are hoping for the best, but as I have described, planning for the worst. We suspect leisure travel will return more quickly than corporate travel as companies carefully consider their duty of care to employees and as leisure travelers are tempted by lower fares and room rates. Travelers may stay closer to their home market where they better understand the health of risk. The North American market may remain the most stable given its relative precrisis strength, but even North American carriers are retrenching significantly. Ultimately, we expect a smaller travel market for some time and are positioning Sabre for this new reality. We are confident the strength of our liquidity position, flexible cost structure, long-standing customer relationships and experienced management team will allow Sabre to endure this period for period of prolonged uncertainty.

And with that, I’d like to hand it over to Doug.

Doug Barnett — Chief Financial Officer

Thanks, Sean, and hello, everyone. Before I begin, I’d like to acknowledge this is a difficult time. Our thoughts are with those around the world impacted by the COVID-19 pandemic. We are in a time of unprecedented disruption to the travel industry. As Sean mentioned, the latest IATA projection is a 55% reduction in passenger revenue in 2020. Approximately 15% of our revenue is not tied to travel volumes, which partially mitigates exposure we have to COVID-19’s impact on travel. However, our first quarter results were significantly impacted by the pandemic. In the first quarter, revenue was down 37%. Travel Network bookings were down 45%. Remember, we report bookings on a net basis, which means net of cancellations. In the quarter, new air bookings were down 32%. But there was significant cancellation activity as COVID-19 restrictions were put in place. As of quarter end, we have recognized $105 million of revenue from bookings not yet departed and have a cancellation reserve of $44 million on our balance sheet. We believe we had peaked cancellation rates at the end of March and have flushed through most of the initial incremental COVID-19 cancellation activity as of mid-April. Remember that about half of our cancellation risk is offset by reductions in incentive payments. First quarter EBITDA was positive. It was down significantly year-over-year.

Our cost-savings initiatives were not announced until mid-March, so we expect most of the savings will be recognized over the balance of the year. After depreciation and amortization and interest expense, we had an operating loss and negative EPS in the quarter. Finally, we generated positive free cash flow of $12 million in the quarter. Our normal course earnings results slides are in the appendix of our earnings presentation, which is available on our IR web page. Let me provide some clarity on our cost structure. 2/3 of our cost structure is variable, which provides protection in a downside scenario. Based on 2019 results, our variable costs are comprised of: approximately $1.3 billion of Travel Network incentive expenses, which are variable and tied to bookings volumes; approximately $250 million in semi-variable technology hosting costs; and approximately $500 million in headcount-related and other costs, including R&D labor. This is where our cost-savings initiative is targeted. Only 1/3 or $1 billion based on 2019 results is fixed. This includes critical headcount, including maintenance, R&D labor and fixed technology hosting costs. A high proportion of variable cost affords us the ability to take further actions if needed. In response to COVID-19, we announced a $200 million cost-savings initiative in March. In April, we increased the scope and are now targeting $325 million in total cost savings in 2020.

Breaking down the $325 million. $200 million is related to onetime or temporary headcount-related savings. 1/3 of our staff is currently furloughed, and we have also implemented pay reductions and suspense suspended certain benefits. $50 million is related to permanent headcount-related cost savings. This is the expected 2020 benefit, not the annual run rate savings. $50 million is related to technology project delays. As Sean described, outside of our technology transformation and migration to Google Cloud, we have paused investment in the strategic initiatives discussed on our previous earnings call. Finally, $25 million is related to third-party and vendor-spend savings. The expected cost savings resulted from these activities have been included in the liquidity analysis that I will discuss shortly. These are tough actions, but we have the ability to further increase the scope if necessary. I want to thank my Sabre colleagues around the world for their support during this challenging time. In addition to the cost reductions, we have taken several liquidity actions and expect to have significant liquidity to withstand a prolonged downturn. In addition to $325 million in expected 2020 cost savings, we suspended dividends and share repurchases in mid-March, effective after the March 30, 2020, payment of $39 million. For context, we spent $154 million on dividends and $78 million on share repurchases in 2019. We drew down on our revolver in the amount of $375 million.

We raised $1.1 billion from the issuance of senior secured and exchangeable notes. Final pricing was 9.25% on $775 million in senior secured notes due in 2025 and 4% on $345 million exchangeable notes also due in 2025. We although we were in compliance with our Q1 leverage ratio requirements as of March 31, 2020, we believe that a material travel event disruption has occurred. Therefore, we expect our leverage ratio covenant under our amended and restated credit agreement will be suspended. Current carrier capacity forecasts lead to our expectation that this suspension will remain for the balance of the year. Effective May 1, 2020, Sabre and Farelogix agreed to terminate the acquisition agreement. We recorded a termination fee of $46 million in the first quarter, $25 million of which is related to advances already paid and $21 million in aggregate termination fees that have already been paid in the second quarter of 2020. Taking a closer look at our liquidity position. We ended the first quarter with a cash balance of $684 million. We have a cash balance of approximately $1.7 billion pro forma for the following items: $1.1 billion raised in our recent notes offerings, less $30 million in refunds owed to airlines for Q1 cancellations; $52 million in incentive payments delayed from Q1 into Q2; $44 million in cancellation reserve; and the $21 million in termination fees paid to Farelogix in Q2.

We estimate we have total liquidity of approximately $1.5 billion after taking into account minimum cash to operate the business of $150 million. We estimate we have a monthly cash burn rate of approximately $80 million in a 0-bookings environment. This estimate is comprised of: $50 million revenue from the 15% of our revenue not tied to travel volumes; $80 million in fixed costs from our $1 billion in previously described annual fixed costs; $20 million in variable costs, reflecting a decline in Travel Network incentives and semi-variable technology hosting costs as well as the impact of cost savings initiatives; and $30 million in other cash expenditures, which is primarily interest, debt repayment and capex. This all results in our expectations for approximately 18 months of liquidity in a 0-bookings, no-travel environment. Given that we believe we have more than one and half years of liquidity, we do not expect to participate in the CARES Act loan program for the aviation industry. As a reminder, we withdrew the guidance provided on our February earnings call and are not issuing guidance at this time.

With that, I’d like to turn it back to Sean.

Sean Menke — President & Chief Executive Officer

Thanks, Doug, and thank you to our Sabre teammates around the world for their dedication to serving our customers, shareholders and each other during this difficult time. With that, operator, we’d be happy to take questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from the line of Ashish Sabadra.

Ashish Sabadra — — Analyst

Thanks for taking my question. A Quick question on what percentage of your bookings are corporates and international booking? And just if you can any provide any color because the concern is that those might take even longer to recover compared to the leisure bookings. So any color on those terms.

Sean Menke — President & Chief Executive Officer

Ashish, can you restate that question again. You were breaking up quite a bit.

Ashish Sabadra — — Analyst

Sorry about that. Can you Sorry. Sorry about that. I was just wondering what percentage of your bookings are coming from corporate and international bookings because the concern is those might take longer to recover compared to the leisure bookings.

Sean Menke — President & Chief Executive Officer

Yes. If you look at I mean if you go back just historically, the balance of the bookings we had were actually more on the, what I would consider to be in the North American side; international side, making up a smaller percentage of that. If you look at the bookings themselves, I mean, historically, we have a decent amount of the corporate bookings that are in place because of our penetration with TMCs versus what I would consider to be more the OTA side of the equation. As you look at bookings now, as I mentioned, there really are no bookings. So in measurement, relative to what we’re seeing right now, Ashish, what I would share is, and this is very early on in what we’re seeing take place, we are seeing OTA bookings picking up a little bit faster than the corporate booking side of the equation. And I’m talking very, very small numbers as we track really where the trough was and what we’re seeing as it relates to last week’s bookings. And this is on a year-over-year workday-adjusted basis that we’re tracking that.

Doug Barnett — Chief Financial Officer

Yes. Ashish, if you take a look historically, 70% of our bookings come through the TMCS, 30% comes from the OTAs. And obviously, most of the OTA stuff is going to be leisure, and majority of the TMCs is going to be business-related travel.

Ashish Sabadra — — Analyst

Okay. That’s helpful. And just a question on there are concerns about potential bankruptcy risk for agencies or airlines, just given the challenged travel environment. Can you just talk about, is there any potential risk to Sabre because of any bankruptcies at the agencies or airlines?

Sean Menke — President & Chief Executive Officer

Yes. I’m not going to speculate. We get the question a lot. I mean everybody is working through liquidity, managing how do they get additional liquidity and what’s out there, Ashish. It’s very early on in what’s taking place, where I keep driving people back to the actions that we’ve taken because we were very aggressive in what we did early on, one from a cost perspective and then going for liquidity. And in doing that, I am of the belief that there will be a travel ecosystem in the future. I do think it’s going to be a smaller travel ecosystem for a period of time. But we’re positioning ourselves to be able to operate in that environment. And that’s why Doug has been very adamant of talking about the 0-booking environment and the staying power that we have.

Ashish Sabadra — — Analyst

That’s helpful, Sean. And maybe one final question, if I can squeeze in on the Google commercial partnership. So congrats on that. I was wondering if you could provide any color on that front. How should we think about the revenue opportunity there? And is there opportunity for further expansion of that partnership?

Sean Menke — President & Chief Executive Officer

Yes. I’ll kick off, and then I’ll let Dave add a little bit to this. But as we talk about, we felt that there were commercial opportunities that what I would consider to be low-hanging fruit that we could begin to execute. The one thing that we’re doing is really providing availability data information to Google that and this is essentially reaching out to a number of airlines around the world that they’ll be able to use as it relates to Google flight search. So it’s one step in what we hope will continue to be a number of other opportunities that are out there. And Dave, I don’t know if you’d add anything else to that.

Dave Shirk — President, Travel Solutions

Yes. No, I would just echo what Sean said. I mean you got to start somewhere. We had a set of innovation projects that could have commercial benefit. This will kick off probably around the Q3 time period. It’s small in size, but it’s the first step of several that we’re trying to work through with Google. So we’re pretty happy about the progress with them in the early stages of the relationship.

Ashish Sabadra — — Analyst

Thanks, and all the best.

Operator

The next question is from the line of Mark Moerdler.

Mark Moerdler — Bernstein — Analyst

Thank you very much. Let me first start by saying, I hope everyone on the calls stays healthy and safe. And also thank you for the detail you’ve been supplying in today’s earnings. A couple of quick questions, if you don’t mind. Sabre’s GDS air bookings decline was a bit better than the overall industry. Is this U.S. exposure? Or is there some other factors?

Doug Barnett — Chief Financial Officer

It’s primarily going to be U.S. exposure.

Sean Menke — President & Chief Executive Officer

Yes.

Mark Moerdler — Bernstein — Analyst

Okay. So why not participate in the CARES Act?

Doug Barnett — Chief Financial Officer

Yes. So obviously, we realized that we needed some additional liquidity and the mark quite honestly, the markets opened up. It was taking longer than expected to understand what the CARES Act was going to entail and how and what the terms would be that you’d be able to lend under. And quite honestly once we got the public raise done, quite honestly, we wouldn’t be even eligible then for the CARES Act because they are primarily focused on trying to help people have liquidity through the balance of 2020. And obviously, now we have liquidity almost all the way through 2021.

Sean Menke — President & Chief Executive Officer

Yes. Mark, as you would imagine, we are working on a number of different things, and we were heavily engaged in conversations. I was at the White House, at the Treasury as well as congressional leaders as this is being drafted. But in doing that, we are looking at what that could potentially be for Sabre then. As Doug has stated, we are also looking at other ways of generating liquidity based on how things were essentially progressing on the government side. As you know, there are just numerous balls that were in the air and they were working through it. We were focused and I’ve learned this from my past, as you work aggressively to focus on your capital and your balance sheet and what you can do because you just don’t know. And we knew that essentially the government at the end of the day was a lender of last resource, and we were going to have to prove we were still going to have to prove that the markets were closed to us. So for us, like I said in my comments is we were very focused on acting aggressively to rightsize the business, putting cash into on the balance sheet and then being prepared to just manage through the situation as we see it right now.

Mark Moerdler — Bernstein — Analyst

Well done. One last question, if you don’t mind. How large was the negative impact of cancellations on revenue in Q1?

Doug Barnett — Chief Financial Officer

How large was it?

Mark Moerdler — Bernstein — Analyst

Yes.

Doug Barnett — Chief Financial Officer

Yes. Well, I mean, you can tell, obviously, there’s approximately 20 million bookings and almost $60 million.

Mark Moerdler — Bernstein — Analyst

Beautiful. $60 million?

Doug Barnett — Chief Financial Officer

$60 million in the month of March.

Mark Moerdler — Bernstein — Analyst

Perfect, thank you. I appreciate it.

Doug Barnett — Chief Financial Officer

All right. Thanks, Mark. Take care.

Operator

Your next question is from the line of Josh Baer.

Josh Baer — Morgan Stanley — Analyst

Hi, thanks for taking the question. When we think about the future of the industry, is there anything you could share on how to think about changes to contracts, pricing, GDS fees, incentive fees, just in light of the current crisis and expecting a smaller travel market in the medium term?

Sean Menke — President & Chief Executive Officer

Yes. At this point in time, I’m not going to speculate. I mean there’s a we’re working with our customers. The one thing that you look at what takes place as it relates to the relationships we have, they’re PB-based, passenger-boarded-based, the booking volume. So when you look at it specifically on the airline and even on the hospitality side, it’s transaction-oriented. So there’s some forgiveness that’s taking place there. On the agency side, it’s the incentive piece of it. But I think we’re just way too early to even speculate on something like that.

Josh Baer — Morgan Stanley — Analyst

Got it. And what I appreciate all the detail on the cost structure and liquidity. I think it’s very helpful and clear. And obviously, you just raised over $1 billion in capital. Wondering one question on that net leverage covenant. I realize you might have a path for several quarters given the year-over-year travel declines. But should investors think about that, that eventually, whether it’s three, six, nine months, you’ll be able to amend or replace that loan or the credit agreement there? Like is it is that a concern to you? Or should it be a concern to equity investors?

Doug Barnett — Chief Financial Officer

Yes. I think you’re probably asking a combination of two questions. Well, let me address the leverage issue. More likely than not with the kind of the capacity outlooks that Sean was alluding to, the leverage suspension will probably go all the way through 2021, more likely than not based on what we think is going to happen. So I don’t think between now and the end of 2021 and may even go into ’22, remember, the maturities of those of the term loan is July of 2022. Obviously, now with the raise behind us and the really good relationship we have with those lending institutions, once we get into the fall and early beginnings of 2021, we’ll turn our attention to refinancing the Term Loan A.

Josh Baer — Morgan Stanley — Analyst

Very helpful, thanks.

Operator

The final question is from the line of Jed Kelly.

Jed Kelly — Oppenheimer — Analyst

Hey, great, thanks for taking my question. Can you hear me okay?

Sean Menke — President & Chief Executive Officer

Yes. We can, Jed. How are you?

Jed Kelly — Oppenheimer — Analyst

I’m doing well. How are you? All right. So yes, just my first question has to do with, as you sort of look at realigning your cost structure over the next two to three years, is there a path to where your medium-term cash flow can get to pre-2019 2019 levels quicker under a lower revenue base?

Doug Barnett — Chief Financial Officer

Yes. Obviously, the actions that we’ve taken now, obviously, will help us as we move in 2021. A lot will depend on how fast that market returns, Jed, to be honest with you. Because obviously, that some of the variable costs will kick back in. The incentive payments will kick back in. Some of the variable hosting costs will ought to come back. But I do think that as we enter kind of a “normal recovery,” we’ll we will be in a better cost position than we were coming into out of 2019.

Jed Kelly — Oppenheimer — Analyst

And then as everybody in travel seems to be guiding for a multiyear recovery, is that going to be more dependent on a vaccine science breakthrough? Or do you see that hopefully coming relatively quickly, but it’s just going to be more of an economic drag? I mean how do you kind of look at the pace of the travel recovery?

Sean Menke — President & Chief Executive Officer

Yes. I mean, I think everybody’s got a different opinion on this, Jed. I here’s what I tell my team, and this is what I talk to my family about. “Tell me when you’re ready to go out to a restaurant. Tell me when you’re ready to go to a movie. Tell me when you’re ready to go to a ballpark. Tell me when you’re ready to get on an airplane.” And I think you just got to be somewhat basic at this point in time. Listen, I think everybody believes that there’s a vaccination that would help. But we’re taking this one step at a time right now. And I go back to the actions that we’ve taken that we put ourselves in what I consider to be an enviable position to manage through the crisis.

Jed Kelly — Oppenheimer — Analyst

All right. And then before this, there was sort of some of the airlines, I guess, we’re being confrontational as we would try to drive direct bookings. Does this provide an opportunity for, I guess, more constructive partnerships going forward? And how do you see partnering with airlines evolving in the next three years?

Sean Menke — President & Chief Executive Officer

Yes. Well, I’ll probably just look backwards and just talk about since I’ve really taken over the organization that’s been very focused on constructive relationship with airlines, making sure that as they think about modern-day retailing and being able to do what they want to do that we continue to move forward. And as I look into the future, our strategy and focus and working with our airline customers, our hotel customers as well as our agency customers has not changed at all.

Jed Kelly — Oppenheimer — Analyst

Thank you. And stay safe

Sean Menke — President & Chief Executive Officer

All right, yes, thank you.

Operator

You do have a follow-up question from the line of Josh Baer.

Josh Baer — Morgan Stanley — Analyst

Hi, I just wanted to pop back in on the 15% of revenue not tied to travel volumes, I see in the prepared remarks that in the cash burn, you assume $50 million in revenue from that bucket, which would be on a monthly basis. So that’s $600 million for the year. And like looking at FY 2019, that was about 15% of revenue. So is the assumption that, that is very durable? Or could you I guess could you talk a little bit about the different types of revenue that’s in that 50 15%. Is any of that at risk even though it’s not tied to passenger volume?

Doug Barnett — Chief Financial Officer

Yes, we Yes. Josh, we did take a look at that, and we didn’t really think much of what was at risk. It’s certain things that some of our customers are on a subscription basis. Some of it’s back-office subproducts that we provide to agencies. Some of it some of the work we do in hospitality and the DX side. So we really didn’t think when we took a look at it, we didn’t slip it down a little bit. I think the other thing I want to mention when we talk about the $50 million, just to give you a sense of how conservative it has been, obviously, in some of particularly in the Airline Solutions contracts, there are minimums. We’ve assumed in that $50 million that all minimums are waived. So the airlines don’t even have to comply with their minimum requirements. So I think we’ve taken a conservative approach to that $50 million.

Josh Baer — Morgan Stanley — Analyst

Got it. Great, thank you.

Operator

I am showing no further questions at this time. I would now like to turn the conference back to Sean Menke.

Sean Menke — President & Chief Executive Officer

Great. As always, guys, I like I want to thank you for taking the time to hear the update on what’s taking place here at Sabre. Once again, I want to thank my Sabre team members around the world for everything they’re doing. I really do appreciate it. With that, everybody, please stay safe. Thank you very much.

Operator

[Operator Closing Remarks]