Passengers on this jet landing at Sydney are getting a wider choice of online sites to buy fares and hotel bookings. Photo: James Brickwood
It’s every entrepreneur’s nightmare: spend years building up a business, only to have global competitors with deep pockets eat your lunch.
It looks as if that could be happening in online travel, with home-grown businesses Webjet and Wotif forced to issue profit warnings and invest heavily in marketing and technology to stay competitive.
The Australian Financial Review has a good feature on the trends in the online travel sector and the likely fallout for the local operators that have led the market to date.
Wotif.com, founded by founded by Andrew Brice and BRW Rich Lister Graeme Wood, has dominated hotel bookings, while Webjet has been the leader in flights. Both sites are now trying to diversify into the other segment.
The Financial Review article singles out competition from local versions of overseas websites such as Expedia and Priceline’s Booking.com and Agoda and points out Australia is increasingly an important market to the foreign sites.
For example, in November, Priceline chairman Jeffery Boyd used a quarterly earnings call with analysts to highlight that the group’s Booking.com brand had begun a television campaign in Australia – the brand’s first offline advertising campaign outside the US.
Experian Hitwise and TravelTrends.biz list of the hottest 100 travel websites released in August, shows Booking.com surged passed Webjet and Wotif to report 5.3 million monthly web visits compared with 4.2 million for each of the local sites.
Wotif has flagged spending $4 million more on marketing due to an “extremely competitive online advertising marketplace” and $3.8 million more on salaries and wages, much of it going to its IT department. Webjet has said it will spend an extra $2 million on marketing this year.
Even so, JPMorgan analyst Armina Soemino thinks Wotif’s market share will fall by 7 per cent this year, possibly leaving it vulnerable to a takeover bid from a larger rival. She says the damage was particularly great in the last quarter of 2013 after Booking.com began its television ads in Australia.
“Global online travel agents appear to be becoming more aggressive,” she says. She adds that even with the planned increase in marketing spend, Wotif would be spending only 20 per cent of its sales on marketing. That compares with an average of 36 per cent among global peers, including Expedia, Priceline and Orbitz.
While brand recognition and loyalty can be important for online travel agents, investment in getting to the top of Google searches is crucial. Potential customers often Google phrases like “Melbourne hotel” and click on the booking website that appears at the top of the page. The global giants like Expedia and Priceline are experts in search engine optimisation and have deep pockets to spend on paid search ads due to the sheer size of their businesses.
Wotif and Webjet have both issued profit warnings in the past six months and their share price performance has been dismal. Wotif shares fell by 51 per cent and Webjet by 30 per cent over the past year, compared with a 13 per cent rise in the S&P/ASX 200 Index over the same period.
As online businesses, both companies were long considered high-growth stocks and they had price-earnings ratios to match. But the sector has low barriers to entry, leaving them vulnerable to determined global competition.
BRW has reported several related shifts in the online travel market in the past year.
In December 2013 US giant HomeAway bought Stayz from Fairfax Media (publisher of BRW) for $220 million. Wotif declined to confirm reports it bid.
Priceline launched its meta-search engine Kayak in Australia in October. Room-rental service Airbnb also has aggressive growth plans in Australia.
Webjet managing director John Guscic, and Wotif boss Scott Blume, declined an interview.