Webjet has gone cold on the consumer hotels market just a couple of years after declaring the sector would be an engine of higher margin growth for the company, which is heavily dependent on airline bookings.
MD John Guscic told shareholders yesterday that hotels are “no longer a key growth focus due to intense market competition” for the Australian online travel agent and that turnover from the sector is “expected to remain constant”.
Mr Gusicic also adopted the same rhetoric for Asian OTA Zuji, which Webjet bought last year. “Hotels are no longer a strategic focus given the intense competition in that segment,” he said.
He said Zuji’s turnover is growing in the Australian and Singapore markets but its Hong Kong business is struggling.
“Hong Kong is experiencing a difficult market environment,” he said. “Total Turnover Value is expected to be down (with) increased competition hurting margins”.
Since buying Zuji last March, Webjet has sacked 40% of staff, reduced operating costs by 30%, moved Zuji to the Webjet IT platform and cut “200+” unprofitable revenue streams.
As a result of these actions Zuji’s TTV has fallen 40 % to $200m.
Meanwhile in Australia, Mr Guscic said Webjet’s air bookings are up 10% over last year in a flat domestic market which is expected to remain that way.
In terms of marketing, Webjet has switched tack – cutting back on sporting sponsorships, dumping billboards (which has been a major platform for many years) and focusing instead on TV advertising.
Webjet claims its share of the OTA market is increasing since the ads started a few months ago. The company did not comment on total ad spend or what it has been doing online.
In other news, Mr Guscic talked the potential for Webjet to increase its revenue through growing its B2B businesses, which are ironically in the accommodation sector – Lots of Hotels and Sun Hotels.
He said the company is targetting EBITDA growth of 20% per annum from these businesses over the next five year years and is looking at 5% to 10% yearly increase from Webjet and Zuji.
B2B is expected to contribute $5m of a forecast $27m in EBITDA this financial year for Webjet.