Wotif has delivered a 14% increase in net profit to a record A$58m in a relatively upbeat result. However there are some long-term issues confronting Australia’s largest online travel agent, especially its poor performance in Asia, which was supposed to be a growth engine for the company.

Instead, Asian revenue has fallen for three consecutive years, with performance significantly deteriorating over the past year. Meanwhile, the total number of room nights sold by Wotif in financial year 11/12 – a key performance benchmark – is less than two years ago.

For Wotif in 11/12, net profit was up A$7m over the previous financial year, transaction values increased 5%, revenue grew 5%, and operating profit was up 11%.

“The standout in our result has been the strong performance of Wotif’s flight offering, which is still in its infancy,” MD Robbie Cooke said. Total flight sales grew 30% to $110m, 9% of transactions by value.

“Mobile was another big feature this year with our mobile site and recently launched app for iPhone accounting for 14% of site visits and, more, importantly 9% of room nights sold.”

Looking ahead, Mr Cooke said the Australian holiday market will remain soft as the trend for Australian’s to head overseas continues.

Evidence of domestic softness can be seen in Wotif’s total room night sales, which grew just 1% over 10/11 to 7.04m.

That is still behind the 09/10 figure of 7.12m.

Compounding this issue is the poor performance of Wotif in Asia, where it acquired the Asia Web Direct (AWD) business for $34m in February, 2008, beating out other suitors including Expedia.

Revenue from Asia for Wotif peaked in the 08/09 financial year at A$15.525m and has been falling ever since with the sharpest falls being recorded in the 12 months to June 30, 2012.

• 08/09 $15.525m

• 09/10 $14.518m (-6.5%)

• 10/11 $13.657m (-6%)

• 11/12 $11.781m (-13.7%)

This is of real concern because there have been numerous attempts to turn the Asian business around over the past couple of years.

These include revamps of the AWD sites, Asiawebdirect.com and Latestays.com, and a management restructure that saw long-term Wotif executive Matthew Varley replace the Thai incumbent toward the end of 2010.

But the slide has not just continued, it has doubled in speed in the past 12 months.

This is despite the fact that most Asian holiday markets, including the key destination of Thailand, have reported stronger visitations over the past year.

And while there is no question discounted room rate, especially in Thailand, played a major role in the early revenue declines, that’s no excuse for the poor performance in 11/12.

During 11/12 Wotif reported that its average Asian room rate was virtually identical to the previous year: A$85.25 v. A$85.26 in 10/11.

Even more perplexing is the fact that Wotif reported that AWD website visits increased 16% during 11/12.

The obvious takeout here is that website booking conversion rates went backwards.

Maybe there’s more to the story, I’m not sure, but it’s clear that Wotif is struggling beyond Australian shores and this is a major long-term issue for the company.

Growth is everything in the online world and sooner or later domestic markets cannot provide it any longer – for evidence look no further than experience of US companies such as Expedia, Priceline, Orbitz and Travelocity.

The foundation income for these companies is being generated at home but all the growth is coming from abroad.

Wotif is aware of that, and the AWD acquisition was a logical step toward international expansion.

However, it just hasn’t worked out the way Wotif had originally planned. Not yet, anyway.

ends

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