“Datalex Report to Address Desmond Loans”

Willie Walsh, a Dublin native and the current director general of the International Air Travel Association (IATA), was in high spirits earlier this week. He had reason to be as he revealed the newest half-yearly forecast for the worldwide airline industry. The past chief executive of Aer Lingus proprietor, International Airlines Group (IAG), declared a projected 10% growth in revenues this year nearing almost $1 trillion (€920 billion). This is a record-breaking figure that is nearly one-fifth higher than levels before the pandemic.

Additionally, the IATA has increased its net earnings prediction for the sector by 19% since its last estimate in December, amounting to $30.5 billion. This is despite the rising wage expenses and the effect of increased interest rates on consumers as well as aircraft fleet financing. While it’s not a record, Walsh emphasised that given the circumstances of the past few years, it is a significant accomplishment, especially considering the industry suffered nearly $180 billion in losses between 2020 and 2021.

Walsh, however, expressed regret that the current profit per passenger is slightly over $6, enough to afford just a single espresso at the JW Marriott Marquis Hotel in Dubai where the IATA annual general meeting was held.

The necessity for airlines to maximise profits from passengers could prove beneficial to Irish travel retail software firm, Datalex. The company has undergone massive restructuring and refocusing after the occurrence of an accounting scandal five years ago.

Under a revival management team headed by tech industry professional Sean Corkery, Datalex transformed from a company creating custom-made and costly systems for airlines to one that basically sells ready-made products. These aim to assist airlines in extracting the most value from customers.

This includes products for airlines managing direct bookings, exerting greater control over sales via online travel platforms, modifying fares for seats and luggage based on variable demand, and offering extras whenever possible. The company has even delved into the artificial intelligence (AI) market, devising a pricing system touted to have superior reasoning abilities that replicate human decision making.

Speaking at a unique investors gathering in London over a year ago, the superior of Datalex stated an anticipated doubling in the company’s revenue, reaching nearly $47 million from 2022 to 2026. Simultaneously, the firm expected an increase in gross profit margin to 55-60%. After Corkery resigned in the latter part of the previous year, Jonathan Rockett, ex-managing director and chief financial officer of Ding, took over.

The presentation on investors day projected an explosive increase from $800 million in 2019 to $3 billion by the close of this decade in the total addressable market for its merchandise. Yet, Datalex, whose client base includes Aer Lingus, EasyJet, JetBlue, and Air China, has constant problems delivering at the expected speed.

In late March of 2023, the company published a relatively brief “trading update,” featuring data more or less aligned with market expectations. Despite entering 2024 with a robust recurring revenue foundation and promising growth in the pipeline, Datalex indicated any surge in transaction-based revenue from fresh clients would probably be postponed until the following year. This development led Dudley Shanley, a Datalex’s corporate broker analyst at Goodbody Stockbrokers, to significantly reduce his revenue forecast for the business this year to $28.4 million.

Robert Isom, the CEO of American Airlines – a non-customer of Datalex – recently cautioned against airlines aggressively attempting to control bookings, drawing on the example of his company posting losses for the first quarter due to alienated corporate travellers and agents. He acknowledged at the annual general meeting that American Airlines moved too fast and that its execution was lacking.

Datalex is yet to schedule its own AGM. Furthermore, investors are awaiting the 2023 annual report that should be published within three weeks – six months post the end of the financial period – to meet the rules for Euronext Growth market.

A representative has announced an impending report release slated for the week starting from June 18th. Analysts and shareholders eagerly anticipate interaction with the novel executive board, which is keen on outlining the 2023 annual review and detailing future prospects and the company’s growth objectives.

Among the new recruits is former Block financial executive Stephen Moloney, who took up the position of chief financial officer in the month of April.

Insiders revealed the pending annual report’s release is due to the company’s €15 million in loan facilities, which originated from magnate Dermot Desmond, the biggest stakeholder with over 40% ownership. The loans, channelled via Desmond’s Tireragh venture, possess an 18% interest and are slated for repayment by 2024’s end.

Due to absence of a secure plan to either prolong the loan term or increase equity to refinance them, the management of Datalex may find it challenging to approve the business as a going concern, effectively meaning it can sustain operations for a minimum of 12 months.

Observers speculate that the company may need an amount equivalent to its current loans to maintain financial stability as earnings from fresh contracts are experiencing significant delays in realising their full potential.

Around the same time last year, company sources revealed a reluctance towards a shares sale due to concerns among current investors about its low share price, which at that point was 54 cent.

At present, the share price has declined further, standing at 46 cent. This makes it overwhelmingly difficult for new investors to posit faith in its growth potential if the company is underfunded. It’s high time that Datalex takes decisive action and amplifies its equity to mitigate the limitations arising from Desmond’s loans.

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