EQUITIES•28TH MAR, 22The stocks set to fly as travel takes off...

EQUITIES•28TH MAR, 22

The stocks set to fly as travel takes off again

DOMINIC ROSE

Montgomery Lucent Investment Management

Webjet

Webjet is another highly levered play on a travel sector recovery, particularly Australian domestic leisure through the Webjet B2C online airline ticketing business and international leisure via the WebBeds B2B hotel digital ‘bed bank’ business. Similar to Flight Centre, when borders closed Webjet was forced into an emergency capital raise ($275 million equity raise in April 2020 plus a number of subsequent convertible bond issues) to refund tickets and keep the lights on. With the balance sheet strengthened, Management’s attention then turned towards restructuring the business and building a platform for enhanced growth with a particular focus on the WebBeds segment. WebBeds is looking to take advantage of the changed competitive landscape and become the number one travel wholesaler globally (currently number two). The strategy involves targeting a greater share of a larger market opportunity and structurally reducing fixed costs to extend the business’ cost leadership advantage and drive higher profitability. Channel expansion, diversifying into previously untapped domestic markets and materially increasing North American penetration expand the addressable market opportunity. Management is also targeting a structural 20% reduction in the Group’s overall cost base at scale, mainly from WebBeds where cost initiatives involve streamlining the technology stack, leveraging data analytics and simplifying processes across the business. Additionally, Webjet, which commanded a 50% share of domestic online bookings pre-pandemic, is aiming to outperform the market recovery by 1.5x as the structural migration towards online accelerates and underpinned by superior technology.

Commentary from U.S. airlines at a recent broker conference paints a positive picture for the travel sector recovery. Delta Airlines said revenue has recovered to around 78 per cent of 2019 levels with system cash sales now above pre-pandemic levels at 87 per cent restored flight capacity. United Airlines pointed towards first-quarter revenue being 81 per cent of pre-pandemic levels with forward bookings for both leisure and corporate just 2 per cent below FY19. American Airlines also updated its forecasts, now expecting first-quarter revenue to be within 82 per cent of pre-COVID levels with capacity around 90 per cent. The airline experienced two days this month with revenues 15 per cent higher than any other day in the company’s history.