IS strong Online Travel Agency profit growth – say 10% or more – a thing of the past in the Australian market? It seems like a reasonable question given the profit plateau that leading players Webjet and Wotif have reached after a decade of impressive growth. However, times have clearly changed.
For this financial year Webjet is predicting a net profit basically the same as 2009/10 – around $10.5m, which was 37% more than 2008/09.
Meanwhile analysts are tipping a flat result from Wotif, somewhere around the $53m after tax profit it recorded in 2009/10 (which was 22% more than the previous year).
A major reason for the change is that while sales growth remains pretty good (Webjet reported a 14% increase in turnover for the March quarter) expenses have surged for both companies, a trend that seems set to continue.
Competition is heating up and a number of well-resourced competitors have emerged, led by Booking.com and Expedia, both of which are very aggressive marketers unafraid of spending big.
It’s very hard to tell, though, if their efforts are taking market share.
Being American companies, they say nothing so their claims of gains and very strong growth cannot be verified.
However, looking at the stunning track record of Booking.com in other markets you’d have to give it the benefit of the doubt.
Expedia is a different beast altogether, one that has been struggling in its own home market (somewhat overwhelmed by the more nimble Priceline.com, parent company of Booking.com) but all the marketing they have been doing here has to have had some impact.
For their part, Wotif.com and Webjet, claim their domination of the accommodation and air markets (respectively) remains undiminished.
That may be the case, for now, but it’s certainly come at an additional cost, and will continue to do so.
On that basis you’d have to say that, yes, strong Online Travel Agency profit growth is a thing of the past in Australia – at least for the incumbents, which are facing a very different operating environment to the one they entered a decade or so ago.
The story may be different, however, for new players without the burden of maturity.