Good story from the Courier Mail.Wotif EBITA $19.6 Million. Can...

Good story from the Courier Mail.

Wotif EBITA $19.6 Million. Can that be right?

Travel.com.au with lastminute were first into this category yet stuffed it up and Wotif to their credit have kicked an almighty goal.

What could have been with tvl .....


KEY challenge ... the increasing use of Internet distribution by airlines is a major worry for travel retailers.


Dark days for travel industry
The way we travel has changed, and that's hurting some key sectors of the tourism and travel industry, as Anthony Marx reports
05nov05

ALMOST five million Australians will head overseas for their holidays this year, enticed by a stronger dollar and plenty of cheap package deals.

That's a 9.9 per cent jump over last year and robust increases are expected to continue through 2014, according to the latest government estimates. The numbers are up more than 30 per cent on 2000 levels.

But all is not well with Australia's $56 billion domestic travel and tourism sector.

Travel growth within the country is flat and forecast to remain so over the next 10 years. Accommodation nights are actually expected to dip 3.3 per cent this year and only recover to less than 1 per cent annually.

The mixed picture is indicative of an industry in transition, as traditional travel retailers such as Flight Centre struggle to cope with dwindling commissions and rising costs while a growing number of travellers gladly book direct over the Internet.

It's no accident that Flight Centre's decline – illustrated by last month's announcement of a 21 per cent fall in first-quarter pre-tax profit and a plunge in its share price – coincides with the rise of online services such as last-minute accommodation booking agency Wotif.com.

The changes come as domestic tourism industries brace for falling yields and a slowdown in the number of overseas visitors, particularly from Japan.

The Federal Government's Tourism Forecasting Committee last month predicted that the number of Japanese visitors to Australia through 2014 would fall 9 per cent. Tourism Australia is so worried they have approved a $13 million marketing campaign to attract more Japanese travellers, who inject more than $2 billion into the sector every year.

At the same time, Queensland tourism authorities are making overtures to the growing middle classes of China and India with a $3 million campaign over the next three years. Chinese visitor numbers to Queensland increased nearly 16 per cent in the year to June.

But a prominent analyst warned at a recent conference on the Gold Coast that tourism's share of the economy is falling and has not bounced back from multiple setbacks since the September 11 terrorist attacks in 2001.

Geoff Carmody, a consultant and co-founder of Access Economics, described the recovery since then as "pretty anaemic".

"Five years after the Olympic Games in Sydney, inbound visitor numbers are now only about 2 per cent to 9 per cent higher. Moreover, numbers appear recently to have dropped off," Mr Carmody said.

"Australia-wide, accommodation yields are finally above the 2000 Olympics levels but that's before adjusting for inflation.

"Accommodation performance is little better than flat-lining. Domestic tourism spending overall is down."

Mr Carmody also warned that higher oil prices would dampen travel growth and the great hopes focused on the growth of Chinese tourism might be disappointed.

Tourism operators needed to focus on increasing yields instead of growth and making investments in better quality rather than additional capacity, he said.

The shifting landscape has played havoc with Flight Centre, which says it is fighting back on multiple fronts and has forecast $150 million to $200 million in online sales over the next 12 months.

That could amount to a significant part of its revenue, which grew 13 per cent last year to $899 million even as net profits fell 17 per cent to $67.9 million because of increased costs and narrower margins.

But the embattled Brisbane-based company has offered no profit guidance for the current year and has even cast doubt on reaching its stated goal of growing total transaction value by 15 per cent to $8 billion.

With the firm's share price plummeting from $18.90 a year ago to yesterday's close of $10.50 (it peaked at more than $28 in 2002), several market analysts believe the firm's business model may be broken.

Citigroup said bluntly that Flight Centre's travails "reinforces our view that the traditional agency business remains in structural decline".

"The rising popularity of low-cost airlines, non-commissionable surcharge increases, online distribution growth and the group's slowness in developing its own online productivity tools have hampered its recent trading performance," a Citigroup research report said.

"We continue to believe the transition required from essentially being a retailer to a technology distribution company will not be easy, as structural change in the industry is only going to increase . . . The increasing use of internet distribution by airlines is the key challenge facing Flight Centre, in our view.

"A trend that is only likely to increase with the number of low-cost carriers growing almost daily."

Flight Centre, which has a presence in nine countries but generates the bulk of its revenue in Australia, increased sales staff by 11 per cent last year and will surpass 1000 outlets this year.

Some analysts wonder if that traditional growth strategy make sense in an era of increased online booking.

"Over the next five years, much of the growth in the travel sector is likely to be captured by online sales. Traditional bricks and mortar travel agencies are expected to grow at a substantially slower rate," ABN Amro Morgans noted recently.

Ravi Ravinder, a senior tourism lecturer at the University of Technology in Sydney, says Australia is already oversupplied with 3700 travel agencies and those intending to prosper will have to develop a specialty niche to stand out.

"Travel agents do three things. They provide information and advice and process bookings. Both the information and the bookings can be done online. Where the travel agents have some advantage over the online service is the advice and tailoring of the product to their needs. That's what a retail travel agent can use as their strength," Mr Ravinder says.

That advice will be particularly helpful when a client intends to fly to a new or unknown destination, has a complicated itinerary across multiple countries, seeks personalised service or simply wants to avoid the hassles of organising a trip, he says.

In contrast to the troubles bedevilling the traditional travel outlet, several online tourism businesses have prospered. Few have been more successful than Wotif.com, the last-minute room booking service launched in Brisbane five years ago by entrepreneur Graeme Wood with just $500,000 in start-up capital.

Mr Wood says there is a vast untapped market that allows travellers to pay a discounted rate for rooms in hotels, serviced apartments and other accommodation which otherwise would have remained empty over the next two weeks.

Wotif.com, which takes a commission on each room booked, expects a 35 per cent jump in revenue to more than $250 million this year. The company plans a public float in the first half of next year and some analysts believe it could be worth up to $500 million.

Nearly 100,000 bookings are made every month through Wotif.com, which declared earnings before interest and tax last year of $19.6 million. That's up from just $2.2 million in 2002.

Mr Wood said recently that Wotif.com's growth will spike an extra 20 per cent because of a policy allowing customers to make bookings 28 days in advance instead of just 14.

While several of Wotif competitors have struggled to become profitable, all are tapping into a growth market since just 7 per cent of Australia's accommodation industry generates its business on the web. Bookings for all accommodation websites jumped 60 per cent last year and increased use of high-speed broadband service will only accelerate the growth.

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