Online retailer Webjet has tweaked its old-fashioned red splash page* in a bid to boost accommodation bookings. In the past there was a single ‘enter’ button in a sea of red. Now there are two options: ‘enter flights’ and ‘enter hotels’. It’s part of the latest attempt by Webjet to diversify its income base, which is dominated by airfare booking fees and commissions. Webjet has had a go at hotels a couple of times in the past – anyone remember ‘Lotsofhotels.com.au’? – but made little impact.
That was despite Chairman David Clarke declaring in 2008 that an agreement with eBay would turn hotel distribution “on its head”. Clarke added: “It is the largest single step that Webjet could make in terms of extending its market footprint into the sale of hotels”.
Clarke, then Managing Director of Webjet, promised he would provide investors “guidance in terms of the likely profit contribution to Webjet’s bottom line” later that year but the information failed to materialize while the eBay relationship went nowhere.
This was recently followed by a push for ‘Book Now Pay Later’ that no longer has any visibility. Tellingly, I can’t recall Webjet ever revealing the contributions that hotel bookings, cars or any other travel or advertising products make to its business. You’d have to assume that’s because they are immaterial.
According to CommSec, booking fees comprise 62% of Webjet’s gross income, airfare commissions 25.4% while ‘other’ (ie: everything else) contributes 12.5%; 99.5% of its business comes from Australia
This could be ignored when airfare booking fee revenue and commissions were growing. But Webjet’s airfare booking business has matured while costs have increased, resulting in little or no profit growth over the past year. Something has to be done to reignite the growth that investors love.
So now new Managing Director John Guscic has picked up the accommodation baton at Webjet, which sources its hotel in ventory from Orbitz, telling The Australian newspaper in an interview this week that: “We think there is a great prize to be won for Webjet in securing more hotel business and that will be our focus.
“We will look later this year at relaunching a more comprehensive hotel solution. It’s going to be a very significant investment in our organisation and we need to make sure we take part in what we see is a very attractive market in which we are under-represented.”
What exactly will happen he wouldn’t say, which leaves me to speculate.
The big question is how will Webjet succeed where it has failed in the past?
Surely radical change in the way Webjet approaches the hotel business is the only answer. But Webjet has for years ignored tough decisions in this sector.
In particular, it chooses to source hotel product through a third party (Orbitz) rather than investing in a direct relationship with the hotels it sells. This is despite having the money to set up its own sales force.
Webjet has had tonnes of cash for years but just sits on it, apart from the odd share buyback, a strategy that keeps a floor under its share price.
The latest accounts for the six months ending December 31, 2010, state Webjet had $31m in cash and no debt.
This kind of conservative behaviour is hard to change, though a little evolution would certainly help the development of this Australian web pioneer, which could face a period of stagnation unless the hotel business takes off.