Wotif Profit Slumps 18% as Room Nights Fall & Costs Grow

The profit of Australia’s largest online travel agent, Wotif.com, fell 18% to $22.64 million in the six months to Dec 31. The black and white reason is that costs grew faster than revenue, which rose 3.5%, propelled by an increase in commission.

But the underlying issue – the elephant in the room – is that Wotif sold 300,000 fewer room nights than the year before – 3.2 million compared with 3.5 million.

Everything else is window dressing – selling more rooms year on year is what it’s all about.

As for the drop in profit, that was no surprise as it had been flagged late last year.

However, the details provide a neat summary of the issues faced by Wotif, a mature company that’s been struggling for growth over several years.

It also highlights the peril of habitual under-investment in key areas such as IT and marketing.

Current CEO Scott Blume is playing catch-up after years of penny-pinching by predecessor Robbie Cooke, who was no doubt encouraged by a board which saw no threat from major foreign brands such as Booking.com, Agoda.com and Expedia.

This attitude was encapsulated in August 2011 when Chairman Dick McIlwain, announcing a 3.8% fall in profit for the 10/11 financial year, effectively said Wotif’s market leading position was impregnable.

He claimed “the aggressive and exuberant attempts by foreign interlopers to advertise their way into the Australian and New Zealand online accommodation market” had done nothing to increase the “brand position” of these companies.

So confident was Mr McIlwain of Wotif’s market position – despite the profit fall – he said that Wotif.com had decided to pull back on its marketing spend, after initially increasing it in the face of extra competition.

How times have changed. Wotif boosted marketing spend $4.5m to $13.8m during the December half.

“This is a reflection of market conditions, marketing costs related to the launch of Dynamic Packaging and increased marketing on flights,” Mr Blume said.

Flights, incidentally, were a strength, with total turnover up 44% to $90.8m.

Asia was not. Regional room night sales continuing a sharp decline with a 25% fall to 300,000 during the period.

This is a major concern for the company but one Mr Blume did not address in detail during his investor presentation.

He also declined to provide an outlook for the company, which continues to be very profitable, just not like it used to be.

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