Travel agency bullish on high bookings
Guscic said the company was cash flow positive, the online booking site was profitable throughout the year and its hotel bed division was in the black in the second half.
“It’s been a remarkable rebound and the outlook for the future is very positive for the business,” he said. The Australian Financial Review.
“We are in a much better position than six months ago.”
Shares in Webjet surged following an emergency pandemic fundraiser, and its wildly fluctuating stock price fell 19¢ to $5.60 in trading Thursday.
RBC Capital Markets analyst Wei-Weng Chen said the result was better than expected, but divisional performance fell short of some market expectations and business costs were worse than expected.
Those costs reached $15.6 million, which Webjet blamed on the return to higher wages after pandemic cuts and increased insurance premiums. For the next fiscal year, he projected $19 million in business costs.
Citigroup analyst Samuel Seow said positives included strong operating cash flow and hotel room booking volumes in North America surpassing pre-pandemic levels, providing a ” new leg of growth after recovery”.
But he expressed caution about a potential mismatch between travel business and earnings.
Back in the air
Webjet is stuck with booking estimates rising to pre-COVID levels between October this year and March next year. However, he declined to provide a profit forecast for the year.
Still, the notes at the end of the accounts showed management’s latest guidance pointed to a recovery in pre-COVID earnings before interest, tax, depreciation and amortization in 2024.
“The international fulfillment rate for airline reservations is well below 50% at the moment, so it would be premature for us to say that we will return to full profitability this year,” Mr. Guscic said.
One issue that caught analysts’ attention was that Webjet said it expected a $10 million to $12 million impact from reductions in volume bonuses – called waivers – and commissions on international travel. Airlines have reduced these payments during the pandemic, sparking debate among travel agencies such as Corporate Travel Management and Flight Center over the extent of the impact.
Webjet said its margins – measuring revenue against total transactions flowing through its business – would eventually be between 9% and 10% for its booking site. That margin was close to 11% in the years before the pandemic, although it was also boosted by another company that Webjet had since shut down.
Ord Minnett senior research analyst John O’Shea told clients that Webjet was a small player in the overall size of Australia’s outbound travel market. “If this is the impact of lower commissions on Webjet, imagine the impact on Flight Centre, Helloworld, etc?” he said.
Website bookings were up 79% from the prior year, but remained at around 42% of pre-COVID levels as the omicron virus variant dampened travel volumes.
Guscic said cost savings were being realized at Webjet as business conditions improved. The hotel bed division, in which Webjet acted as a middleman between hotels with rooms and groups such as travel agents, aimed to be 20% more efficient at scale.
Transactions in the U.S. hotel market were double pre-pandemic levels, he said. “The vast majority of this growth is new customers that we picked up after the pandemic,” he said.
This reflects some of Webjet’s rivals that have failed during the pandemic, as well as its focus on the U.S. domestic travel market, he said.
Russia’s invasion of Ukraine hurt Webjet’s Nordic markets, which were the best performing areas before COVID-19. Mr Guscic said other European regions were largely unaffected.
“We are back to pre-pandemic levels without Sweden and Norway contributing substantially to this growth,” he said. That meant other markets had outperformed, he said, so any recovery in the northern regions would be an additional boost.
Executive compensation also returned, including Mr. Guscic’s statutory compensation rising from $2.4 million to $3.9 million. This includes potential long-term equity incentives worth $2.5 million. No executive received any short-term bonuses.
Mr. Guscic defended the compensation in the face of receiving government subsidies. Government grants had “enabled us to maintain a higher level of employment than would have been possible” while long-term incentives encouraged Webjet employees to excel, he said.