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This is because Australia has a relatively high level of per capita participation in regular exercise and sporting activity. The category of compression apparel has seen exponential growth in the past five years. Also. Compression apparel is designed to improve athletic performance by reducing muscle vibration and improving circulation. not only with increasing athletic performance.1bn 47.8bn 65.5bn 63.9 8.2 10. highlighting growth in the compression apparel category: Year Total Apparel& Footwear (USD) Total Athletic Apparel (USD) Compression Apparel (USD) Compression Apparel (%) 2008-09 158. the global brands still predominate.7bn 67. with some US industry reports suggesting annual sales growth of 55 per cent from 2007-08 to 200910. and any resemblance to real persons is purely coincidental.9 Although Australia is a relatively small market in relation to the global athletic apparel market (estimated to be in the order of AUD 1.1 7.5bn 50. Adidas and Asics. and may not represent actual industry performance. but also with reducing recovery time and postexercise soreness.4bn 5. and total sales growth of 68 per cent from 2010-11 to 2012-13. The financial data contained in this case is for illustrative purposes only. This type of apparel has been credited.4bn 5.3 6. The athletic apparel market contributes approximately 38 per cent to the market.4bn 3. while the US market for Page 3 of 27 .4bn 7. The Industry The global athletic apparel and footwear industry is big business.7bn 4.2bn).DAKZ PERFORMANCE SPORTS APPAREL The following case is fictitious.9bn 2012-13 178.9bn 2011-12 172.0bn 2010-11 167. Product category market shares in the US are similar to those in the Australian industry.2bn 2009-10 163. A growing segment of the athletic apparel market is the highly specialised category of compression apparel. The Australian market is perceived as an ideal market to test product developments on educated and informed consumers.7bn 2. The following table demonstrates the size of the various segments of the athletic apparel and footwear market. the combined market for athletic apparel and footwear was estimated to be USD 178. with the balance of market share contested by several smaller innovative and specialised manufacturers with niche brands. In 2013.1bn. generating huge profits and including globally-recognised brands such as Nike.

from simple beginnings. The company was started by Will Winsome and Sally Armstrong in early 2007. Dakz started making compression apparel for triathletes. before quickly diversifying into small production runs of cycling and running clothes for athletes and active Australians. Sir Rod has served on the boards of many Australian listed companies. and is comprised of seven Australian businesspeople and accomplished sportspeople.9m 25. Will Winsome. The Deputy Chair is Sally Armstrong. including performance apparel. comprising a Board of Directors and an organisation of dedicated and passionate employees led by an executive management team that has largely been in place since the company’s commencement. Sally is not involved in the operations of the business on a daily basis. fitness and compression wear for active people. and the timeframe to be measured.5m 44.3 per cent from 2008 to 2012 3. the Australian market grew at a CAGR of 8.1m 2009-10 23. However.1m 2012-13 66.8 per cent from 2008 to 2012 2. a wholly Australian-owned business that began as a start-up and was created by a group of elite athletes with an entrepreneurial dream.9m 33.1m 12. with high disposable incomes. but grew exponentially in 2008-09 following the 2008 Olympics and a national distribution deal with a major sporting goods retailer. There are currently no international board members. Sales were modest in the 2007-08 financial year (approximately $4. Sally is a former Australian national swimming champion in the 50m Butterfly. 1 The Compound Annual Growth Rate is an average of the year-on-year annual growth rate.0m).8m 11. It assumes growth occurs at the same annual rate. The Chair of the Board is Sir Rod Fisher. which clearly does not occur in reality. Dakz has subsequently expanded into a broad range of performance. producing a wide range of athletic apparel. The Organisation Dakz has been a highly successful business in Australia.3m 3. in addition to the relatively high levels of physical activity per capita.0m 1. Finally. co-founder of Dakz and wife of Dakz’ CEO.9m 21. beginning value.0m 2010-11 33. The following table shows the company’s sales and profit results over the past five years (all figures are in AUD): Year Sales Expenses Gross Profit 2008-09 13.3m 20. Sally is committed to Dakz’s international expansion.athletic apparel grew at a Compound Annual Growth Rate (CAGR) 1 of 0.7m 8. It is calculated by considering the ending value. a distinguished Australian businessman and former Olympian.6m The People Dakz has a well-established organisational structure. 2 Feb 2012 The US Athletic Apparel and Footwear Industry Outlook to 2015 – Evolving Niche Segments in Sportswear 3 Feb 2013 Australia Athletic Apparel and Footwear Industry Outlook to 2017 – Surging Participation in Sports Paving Way for Growth Page 4 of 27 . One of the newer brands in the compression apparel category is Dakz. The Board was established in early 2009.2m 2011-12 44. she is an active Board member and holds the largest individual shareholding in the company. the highlydeveloped Australian economy is dominated by a large proportion of consumers who are early adopters of new technologies and products.

he completed an Executive MBA at a leading Australian business school. In The Clouds. Ewan is an avid sportsperson and chose to join Dakz in 2008 to pursue his passion for assisting a medium-sized. The executive management team leads a team of dedicated and passionate employees of approximately 200 full-time equivalent staff.Other board members include: • Joanna King. and how he is highly driven and often seems obsessed with new ideas for products or commercial opportunities for Dakz. Jane’s most recent career achievement was the establishment of the flagship Australian retail store of a well-known European fashion manufacturer and retailer. and also assisted an Australian travel goods brand to establish a product distribution franchise model in Asia. Indigenous Sports Australia. Dakz employees often comment on how Will always seems to be thinking several steps ahead of everyone else. Ken Tuckey has worked with Dakz since it started business in 2007. and has been an involved and engaged leader. Leading the organisation’s strategy development is Jane Taylor. and more recently. Ken is the primary contact for all of the company’s suppliers. Jane became the General Manager Strategy for Dakz in May 2010. As the company has grown from one success to the next. and is very popular with Dakz employees. Will leads the Dakz executive management team. Following his retirement from elite sport in 1998. former Australian netball captain. Will Winsome. the Community and Industry Partnerships Manager for the recently established non-government organisation. Ken has been involved in the production process at Dakz throughout its history. specialising in the Australian and international retail industries. after a successful career as a management consultant. The culture at Dakz has typically been one of energy and excitement. marketing and business development roles in the sportswear and promotional merchandise industries. CFO of a multi-national business which services the mining and resources sector. He is always present at product launches and store openings. Prior to joining Dakz. BTW. and frequently travels to meet with the company’s contract manufacturer in China. the core group of early employees have been individuals Page 5 of 27 . as well as the way he always seems to achieve his goals. Ewan Meehan has worked with Dakz since 2008 in the role of Chief Financial Officer (CFO). They admire his persistence and resilience. owner of IT consulting and service provider. Prior to joining Dakz. His roles have included Financial Controller for a large logistics and distribution business. is a former Australian marathon runner and Olympian. and was promoted to the role of General Manager Operations in 2009. entrepreneurial business to grow and be successful. as well as casual workers who supplement the team to meet seasonal peak workloads. manager and mentor at Dakz. and • Caroline De Carlo. • Buzz Sawyer. Ken was a semi-professional football player. • Chris McDonald. Ken has recently been diagnosed with a rare illness and is planning to retire from Dakz within the next six months. Jane also has experience assisting Australian businesses to develop new markets internationally. a partner at leading international law firm. and also worked part-time in sales. CEO. Ewan is a CPA and has held a diverse range of roles throughout a career spanning more than 20 years. • Jeff Watson. X & Z Matters. the Australian Creative Director for international advertising agency. now a sports commentator and media consultant. She worked with a popular Australian stationery retailer to expand into Asia via a joint venture. comprised of full-time and part-time employees. specialising in intellectual property and copyright law.

These are compression wear items that protect selected parts of the body. Samples are generally created in Australia in a purpose-built facility at the Dakz head office. Ken Tuckey has expressed concerns to the executive management team that the existing manufacturer is unlikely to have the capacity to deliver the additional quantities required to meet anticipated demand. These include outerwear such as rain jackets. swimwear and lingerie. and lightweight running singlets and shorts. Dakz has been pleased with the quality and timeliness of products from its Chinese manufacturer. Dakz was not nominated for an Employer of Choice award in 2012 or 2013. Dakz provides a high degree of flexibility to its employees to attend training sessions. competitions and championships. such as arm sleeves and calf sleeves. Product Development Dakz invests a considerable amount of its financial resources in research and development of its products. The company plans to introduce some additional product lines over the coming years. triathlon suits. Dakz also engages local universities and sports science institutions to conduct research and testing in order to maintain its high standards of product quality and innovation. Production occurs at a Chinese. family-owned sportswear clothing manufacturer with whom Dakz has had a relationship for the past 7 years. Previously. Dakz was named as an Employer of Choice in the 2011 Australian Human Resources Association Employment Awards. Until recently. Based on US sales data. make and trim the sample garments prior to large-scale production. The three Dakz sports scientists specialise in biomechanics and exercise physiology. In addition to its in-house expertise. Currently. T-shirts and shorts. as well as providing sun protection. However. both domestically and internationally. and within reasonable timeframes. which is located close to Melbourne’s Tullamarine Airport. a new product line that Dakz is contemplating is in the area of compression sleeves and guards. the focus has been on clothing for participation. These products are designed to provide a range of benefits. Dakz has a highly-experienced team who cut. including fashion. hoodies and other items designed to be worn before and after sporting activity. and holds a number of ‘family and friends’ special clearance sales on sample and discontinued lines throughout the year. Page 6 of 27 . track suits. Interestingly. and the awards are based on selection criteria as voted by employees. Employers are nominated by employees. sportswear. including increased circulation to enhance recovery and reduce soreness. The seven designers come from a variety of professional backgrounds. Dakz also provides a generous discount on products purchased by employees. This is because the owner of the Chinese factory will not acquire the new machinery required to produce additional quantities of products in a timely manner. the protective sleeves category is the fastest-growing and most profitable category in the compression wear market. Suppliers & Manufacturers Dakz currently has a team of in-house designers and sports scientists. such as compression tights.who love sport and exercise. and often participate at an elite level.

Sales and Distribution Dakz operates its own network of retail stores in Australia. which many employees are finding difficult to comprehend. Online sales are an increasingly important sales channel for Dakz. Despite the perceived challenges. Furthermore. there currently appears to be a high level of inertia. Amongst these challenges was the sheer quantity of retail outlets in Asian markets. with a surge in online sales in large markets like the US and Europe during 2012-13. depending upon the entry mode that Dakz chooses for each market. with approximately 20 outlets. it utilises the services of international distributors and sales agents in smaller Asian markets. Online sales now account for approximately 10 per cent of all of Dakz’s global sales. friendly. Distribution also occurs through major chains of sporting goods retailers and department stores. However. which included the following: • • Vision: To be one of the 10 most-recognised global sporting brands. these two directors presented an explanation of the international expansion opportunities. Despite several strategic planning and information sessions conducted by the CEO and Executive Team for all employees. These consultants Page 7 of 27 . this will almost certainly change as the company increases its market development activities. through agency agreements in place. with negligible or immaterial market share in international markets. As a result of this presentation. At a recent Board meeting. the company has been able to achieve close to 40 per cent market share in the Australian market for compression apparel. the Board commissioned an analysis of international expansion opportunities by external management consultants. growth and profits. and Strategy: Work towards achievement of the company vision by increasing sales by 10 times over the next 10 years. such as Singapore and Taiwan. many of Dakz’s original employees joined Dakz because it was a small. However. and will forget the employees that helped it to become successful. Through recent product development. and vibrant company that was popular and well-respected in the Australian market. There is a growing perception among many employees that the company is becoming focused purely on a global presence. and the regulatory barriers imposed on wholly foreign-owned companies setting up in some Asian countries. The Need for Change In 2013. the directors still see many opportunities for Dakz to achieve some quick wins in international markets. who arrange distribution of Dakz products into a small number of sporting goods retail stores. confusion and uncertainty within the organisation and its employees. Dakz does not currently operate any company-managed retail stores in any international markets. This is despite assurances from Will Winsome that the company is planning to introduce an employee share program offered to full-time employees who have been employed by Dakz for more than 10 years. Two of the directors participated in a recent government-sponsored Asian trade mission. This is likely to be due to the scale of the proposed changes and global ambitions at Dakz. such as Singapore and Taiwan. it does not currently operate any company-owned offices outside of Australia. Although Dakz has a sales presence in certain countries. the Board approved the company’s Strategic Plan. where they saw some of the challenges Dakz may face in achieving the company’s vision.

Page 8 of 27 . employees and other stakeholders in conducting their analysis. The Board is expecting the management consultant’s final report in the near future.will engage with the executive management team.


g. hotels. airlines) also provide a booking service for other travel suppliers (e.0 billion and estimated profit of $521 million.g. These agencies also provide local advice. the Australian travel agency industry had estimated revenue of $3. but only for those travel products that are owned by the suppliers themselves. arranging tours within Australia. airlines. Australian travel agencies also provide packaged travel for overseas visitors to Australia. These arrangements are not considered to be part of the Australian travel agency industry for the purpose of this case study. to booking organised tours and arranging complex travel itineraries within Australia or overseas. To take bookings on behalf of other travel suppliers.g. Qantas) are not considered to be part of the Australian travel agency industry. with total industry revenue having increased by 1. The industry offers travellers a wide range of services. accounting for approximately 70 per cent of all travel bookings.1 per cent from 2008 to 2013.g. as well as international travellers coming to Australia. customer segments and demand A Industry services Australian travel agencies arrange travel bookings on behalf of Australians travelling both domestically and internationally. travel suppliers such as airlines that offer their services direct to travellers (e. ■ Business travellers: persons travelling for reasons related to their employment. These services can be as simple as providing travel information and making reservations and bookings for singular travel components. specialised tours. agency) between the traveller and the travel supplier. such as Virgin.AN INTRODUCTION TO THE AUSTRALIAN TRAVEL AGENCY INDUSTRY In 2013. Group size can vary from enough travellers to fill a tour bus to groups that can fit into one 4-wheel drive vehicle for smaller. travel agencies act as intermediaries between suppliers of travel products and services and the travelling public by making bookings on behalf of travellers. accommodation (e. guides and interpreters. and arranging accommodation. ships and rental cars). and insurances.g. They do not supply their own travel products to customers. motels and serviced apartments). The industry is classified as being in the mature stage of its lifecycle. tourist activities and attractions (e. Page 10 of 27 . theme parks and museums). accounting for approximately 30 per cent of all travel bookings. Travel suppliers of this kind have forward integrated to allow travellers to make direct bookings. B Customer segments There are two broad customer segments for the industry’s products: ■ Leisure travellers: persons travelling for holiday or leisure purposes.g. The revenue for these services is directly related to inbound tourism numbers. This can include making bookings. The industry’s key products include travel information and bookings for transportation (e. ground transport and insurance. but act as the ‘middleperson’ (e. and develop specialised itineraries for individuals or groups. hotels). Importantly. Essentially. the travel agencies must be licensed by the relevant licensing authorities. Some travel suppliers (e. because they do not take bookings on behalf of other travel suppliers.g. 1 Industry services.

The global financial crisis (GFC) impacted individual and business travel from 2008 to 2010. and a low wage growth in Australia over the past few years have resulted in customers having to exercise fiscal restraint and reduce leisure travel. The industry is sensitive to economic factors and other factors that affect travel. revenue and structural trends A Industry value chain Traditionally. Major events. travel suppliers have distributed their products through travel agency stores. with growing disposable income and a strong dollar. impact industry demand.A large number of travellers contribute to both of these customer segments. make a booking. With less people taking extended leave. C Demand for travel agency services Demand for travel agency services is largely affected by the demand for travel products in general. and the ‘war on terror’. At the same time total international visitor numbers to Australia only increased modestly from 5. and collect or print their tickets. Business travellers would call their corporate travel agent to make their booking.8 million over the same period. As travel is perceived to be a discretionary purchase. 2 Industry value chain. households typically tend to reduce such expenditure in times of economic downturn. and the travel industry recovered quite well in the following years to 2013. ■ International tourism: As a large proportion of the travel agency industry revenue is derived from international airline ticket commissions. However. The number of Australians travelling overseas has increased from 4. a business traveller may travel often for work purposes and also travel during holiday periods for leisure purposes. this decline in extended holidays has been offset by growth in shorter holidays. There are four major drivers of demand for travel agency services. Australia emerged relatively well from the GFC. the SARS and Avian bird flu outbreaks. rather than use the services of travel agencies. and a decline in business conference activity have all contributed to a reduced demand for business travel. To reduce travel costs. many large organisations buy their services directly from travel suppliers.8 million in 2008-09 to 6. Leisure travellers would typically consult a travel agency store or travel agency website to find and receive information on their destination and travel options. such as ‘September 11’. with many Australians opting for extended weekends and short breaks.5 to 5. have all contributed to fluctuations in inbound tourist numbers over the last thirteen years. largely based on the demand for travel products more generally: ■ General economic conditions: Customer sentiment has significant impact on the demand for travel.8 million in 2012-13. However. The global financial crisis. Page 11 of 27 . the growth in Australians travelling overseas has a large impact on industry demand. long holiday bookings (3 to 4 weeks) are in decline. both domestically and internationally. ■ Business travel needs: Cost pressure on profitability. such as airlines and accommodation providers. For example. fluctuating interest rates. the increase in telephone and video conferencing through technological advancements. ■ Available leisure time: The availability of recreational leave and the ability of workers to take holiday leave.

e. The travel agency charges the traveller the full ticket price of the travel booking. Travel suppliers (i. airlines. ■ A back-end (often referred to as an ‘override’) payment. Within this industry. Page 12 of 27 . Ferries etc.The Australian travel agency industry’s value chain is illustrated in Figure 1 below: Figure 1 Australian travel agency industry value chain Travel Suppliers Transport Suppliers Domestic Airlines International Airlines Cruise Ships Rental Cars Trains. accommodation and transport providers. and transfers this amount. to the travel suppliers that are providing these services to the traveller. including commissions. Accommodation Suppliers Hotels Motels Serviced Apartments Hostels Caravan Parks Tourist Attractions Museums Theme Parks Amusement Parks Tourist activities Insurances Travel Car Hire Luggage Cancellation The Industry Direct to Customers Travel Agency Retail Stores Travel Agency Websites Travel Customers Leisure Travelers B Business Travelers Industry revenue stream Travel agencies earn revenue in three broad ways. the split between front-end (fixed) and back-end (variable) compensation has generally been about 3:1. This type of commission typically applies to larger travel agencies. which is a variable bonus for reaching agreed sales targets with a particular travel supplier. and insurance companies) pay a commission to travel agencies when bookings are made on their behalf. Commissions typically comprise two components: ■ A front-end reward which is a fixed percentage paid on the value per ticketed booking. less the agreed commissions. 1 Commissions paid by travel suppliers: Commissions accounted for about 85 per cent of industry revenue in 2013.

travel information magazines and websites. 3 Advertising fees: These fees accounted for about 5 per cent of industry income in 2013. Cruise ship travel is also increasing its share. some travel agencies have also started to charge leisure travellers a fee for making a booking. the higher the fee charged to reflect the time and effort undertaken by the travel agency on the traveller’s behalf. tours. domestic travel packages (including travel insurance. with the advent of Page 13 of 27 . Table 1 Typical travel agency commissions Commission Per Booking (%) Volume of Total Bookings (%) Total Commission Revenue (%) Less than 5 15 5 International airline tickets 10-15 35 29 Hotels and accommodation 15-20 15 17 Cruises 20 15 20 Other ‘land’ items (cars. activities etc. Qantas announced that it would no longer pay base commissions to travel agencies for domestic and New Zealand flights. the more complex the travel itinerary. Some large travel agencies earn income from allowing travel suppliers to advertise in their brochures. Traditionally travel suppliers sold their products through retail store-based travel agencies where leisure and business travellers would go to make their bookings. Table 1 shows typical commissions earned by travel agencies for various products provided by travel suppliers. This is due to changes in the way customers purchase domestic airline tickets. However. In recent years. In 2006.2 Booking fees charged to travellers: Booking fees accounted for about 10 per cent of industry revenue in 2013.) 20 10 13 20-30 10 16 Product Domestic airline tickets Travel insurance Commissions from domestic airline ticket sales are in decline. C Structural changes in the industry’s value chain The structure of the industry’s value chain has been changing rapidly in recent years. Commission from international airline ticket sales is the main source of revenue for the industry. car rental and accommodation) continue to be an important source of revenue for the industry. This type of arrangement is more prevalent for business travellers. Customers are increasingly purchasing their leisure travel by booking directly over the phone or online rather than through travel agencies. Some travel agencies charge customers a fee for making travel arrangements on their behalf. where the companies that engage a travel agency to make all travel arrangements on their behalf pay a fee per booking. However. as popularity for this form of travel grows. and that it would reduce commissions from international flights from 7 per cent to 5 per cent. Domestic airfare price reductions have further compounded the decline in the value of commissions earned from domestic flights. Generally.

such as Virgin. customers can take advantage of discounted rates that are only available online. Google earns 5 to 10 per cent of its advertising revenue from online travel searches. In 2010. Online-only travel agencies can achieve reasonable profitability from a combination of low commissions and fees charged directly to customers. The global financial crisis and the growth in low-cost airline providers in Australia. because they no longer need to pay commissions to travel agencies. These online companies help travellers to locate the cheapest travel options without having to visit multiple direct travel supplier websites. In addition. Expedia and Zuji abolished fees in 2011 on all flights booked in Australia. and Wotif. More international competitors are expected to enter the Australian travel agency industry as technology makes entry easier. Industry experts estimate that about 35 per cent of all airline ticket bookings in Australia are now made online. Most customers have researched destinations and associated prices for airfares. is a significant threat to industry technology. online booking has emerged as the preferred booking method for many travellers. The emergence of online travel agencies such as Webjet. as they increasingly become comfortable with making online payments and transactions. and purchase tickets. for USD 700 million. the search engine Google emerged as a major new entrant to the travel industry. internet-based booking services are improving in their functionality. accommodation and attractions before walking into any store-based travel agency. There are two main factors impacting the industry in this regard: ■ Online travel agencies: The emergence of online travel agencies has heightened competition and is a major threat to the traditional store-based travel agencies (also known as bricks-and-mortar travel agencies). Expedia and Zuji (mainly for flights). ■ Online travel supplier websites: Increasing customer preference for booking travel online has influenced travel suppliers to develop their own websites to attract direct bookings online. Google decided not to sell airline tickets Page 14 of 27 . Over the past seven years. particularly leisure travel. Direct customer bookings reduce the cost per booking and improve overall profitability for travel suppliers. traditional store-based travel agencies are finding that customers are more knowledgeable than ever about their travel destinations and potential travel plans due to increasing internet usage. ITA. To avoid losing this revenue. store-based travel agencies. meaning they can be used to organise more complex travel itineraries. many may never return to using traditional store-based travel agencies. such as store rent. As a growing percentage of travellers move to booking online and value the convenience it offers. and this is expected to increase to 60 per cent in the next five years. have encouraged customers to bypass the traditional travel agencies and make their bookings online directly with the travel suppliers. They no longer need the expert travel information that travel agencies have traditionally provided. Each year. Savings on commissions are then partially passed on to customers as discounted fares. Jetstar and Tiger Airways. has intensified. Google uses ITA’s software to search the websites of the world’s airlines and makes it easier for customers to search for flights. plus extra profits achieved by cross-selling higher margin products and services to customers. These two businesses now rely on a low commission from airlines. compare flight options and (for accommodation). Fee cutting by online travel agencies is a significant threat to the profitability of traditional travel agencies that have higher fixed operating costs. This followed Google’s purchase of flight information software company. competition for travel revenue. This way.

In Australia. As more customers decide to book separate parts of their holiday package with different travel suppliers. According to Boyd (2010). Further.7 Zuji 1. Data shows that Australians don’t want another distribution system. the Roy Morgan’s research showed that the most popular travel websites in May 2010 were as shown in the following table: Table 2 Most Popular Travel Websites.itself for a period of 5 years until 2015. only 14 per cent said they would book all the components of a holiday from the same website. factors like price. The internet has revolutionised the way people buy travel services such as flights and holidays. with many Australians also buying their tickets directly from the airlines. found in 2012 that 66 per cent of surveyed respondents go direct to airline websites to make their bookings.5 Virgin 8.2 Flight Centre 5. because they were seeking the cheapest price. Australian industry associations have highlighted research about the United Kingdom’s leisure travellers as being relevant to Australian travel agencies.8 Webjet 6. Over 62 per cent of survey respondents cited price as a major consideration when booking a holiday. As a result of the growth of online travel bookings.6 Expedia 1. it is important to understand current trends that impact customer behaviour as well as future threats and opportunities for travel agencies. online agency. Only 12 per cent of respondents said they book their holidays with the same travel agency or travel supplier every time.3 6.9 Jetstar 8. especially one that requires the customer to search for a ticket on Google and change to another website to purchase. For internet-savvy customers. as their potential customers pick up brochures and information in store and then go online to make their bookings to take advantage of discounted fares. or search site) as being their method of booking. Australian online travel agencies are unconcerned with Google’s entry to the airline ticket search market. This is cause for concern for storebased travel agencies.7 Page 15 of 27 . 2010 Website Share of Online Bookings Made (%) Qantas 9. Google directs searchers to various direct airline websites where they can purchase their tickets. Travel Weekly. variety and customer experience come to the fore in the decision-making. 78 per cent of consumers cite online booking methods (being online direct. research on internet traffic mirrors the trends experienced overseas. Industry journal. Rather. The research conducted by Tealeaf (2010) on a sample of internet users showed that the amount of choice on the internet was damaging brand loyalty.3 All other 51.

rather than book directly through travel supplier websites. for the first time. Customers can buy full-fare seats with catering and checked-in luggage. and can be frustrating. However. by the time customers have finished their research. accommodation and ground transport website content. Navigating through different travel supplier websites to search the various options is time-consuming. 3 Industry Key Success Factors The following four key success factors are identified as critical for competitors in the industry: ■ Being part of a buying group. Also. and allow the business traveller to book their whole trip on the one corporate travel website. and many combinations of these elements. with more consumers making bookings directly or via online travel websites. at any one time there can be 300 different ticketing choices available to someone wanting to fly in Australia from Sydney to Melbourne or Sydney to the Gold Coast. provide an online presence for consumers who want to book for themselves. Page 16 of 27 . For example. particularly the United Kingdom and the United States. and retail stores for those who want advice and a face-to-face experience. but most people who try to do this are frustrated by the experience. Commission revenue is earned from the travel providers in addition to the booking fees paid by customers. many major traditional retail store based industry competitors have established their own online presence and now offer online booking services. For example. in search of growth and profit opportunities through virtual shop-fronts in these markets. promotion and marketing scheme: This lowers costs and increases market presence. The advantage to customers and business travellers of retail store based travel agency websites is that they often consolidate all travel booking requirements in one location. the fare option they decide to select is no longer available. having different brands targeting different types of consumers can provide multiple access points but leverage buying power. There are too many choices for customers to select from. ultracheap fares with no catering and carry-on luggage only. Industry response to structural change In response to structural change in the industry and the strong competition from online and direct bookings systems. These corporate travel agents have sophisticated systems which consolidate individual airline. ranging from between $15 to $50 per booking for domestic travel and more for international bookings. airline websites have replaced travel agencies as the main method of booking an airfare online. These companies generally charge a booking fee for online bookings. It also allows the major travel agencies to capitalise on the strong brand awareness customers have for their store outlets. The trend towards online travel bookings is also increasing for business travel. It is important to capture as much market share as possible by presenting multiple brands to different consumer segments. Research has shown that almost half of the airline tickets in the world are purchased online. This trend has continued in the last four years. and to convert this brand awareness into awareness and acceptance of their online services. and customers have the ability to pick up tickets and information in-store as well as receiving booking advice and assistance. This has enabled some to expand into overseas markets. the majority of business travel is booked through online corporate travel agency services. because airline websites are updated frequently throughout the day to optimise airline yield management.This research confirmed industry fears that. Often.

it is important to provide professional service to clients through an ongoing training program for employees. Industry experts suggest that in the future. This is good for retail travel agency operators. The survey found that 70 per cent of those who travelled more frequently–three or more trips per year–relied on the same agent to book each trip. However.8 nights compared to 5. retail travel agents scored highly on ‘client satisfaction’ among consumers who used the services of a retail travel agency to book travel within the previous12 months. For online bookings. offering the lowest prices is not the only basis upon which to compete. For online only travel agencies. Page 17 of 27 . price will continue to be the key basis for competition in the industry. location. Loss of sales from retail store-based travel agencies to online direct bookings with travel suppliers is increasing the competition for market share. 4 Competitive landscape Competition in the industry is high and expected to increase. Increasing awareness of pricing as a result of the growth in online bookings has intensified price-based competition. There are some important non-price elements in the competitive environment. Making available high-quality and accurate information online is also important for online travel agencies. Strong personal relationships and advice are an important component in the industry. ■ Proximity to key markets: Being situated in a highly-visible location can attract local and drop-in customers for traditional retail stores. These include the quality of service provided. than bookings made without a retail agency involvement. ■ Access to the latest available and most efficient technology and techniques: A computerised information and reservations and bookings system lowers costs and provides quality customer service and convenience. as satisfaction implies that clients are likely to remain loyal. on average. utilising tools such as search engine optimisation (SEO) and search engine management (SEM) is important to ensure good placement in search results related to travel and bookings associated with travel.3 nights where an agent was not involved. to generate repeat custom. as technology has increased consumer transparency of pricing across different travel agency competitors. and wordof-mouth recommendations. Agency clients were reported as spending about 47.5 per cent more. Industry experts predict that in order to be successful in the industry in the future. and it now consists of only two or three major shop-front travel agency franchises. detailed knowledge of destinations and products on offer. Websites should remember key customer information to speed up the online booking process for return customers. A correlation was also identified between the use of a retail travel agent and length and total expenditure of the trip booked. significant consolidation has occurred within the industry. easy customer signup and login are important. Bookings made by an agent reflected an average length of 7. According to Travel Weekly’s “Travel Booking Trends Among Leisure Travellers 2011-2012” survey. with 65 per cent of consumers using the same retail travel agency to handle transactions where two or more trips were booked. Strong satisfaction ratings also establish consumer loyalty to a retail travel agent. competitors must hold an advantage in each of these of these key success factors. It will no longer be sufficient to compete on the basis of one or several key success factors alone. and more expensive product sales means higher commissions. As a result.■ Having a loyal customer base: For retail store-based travel agencies.

History FCL commenced with the opening of a discount travel store in Sydney in 1980. FCL has established different brands to cater for different segments of the travel market. FCL offers a comprehensive travel booking service to leisure and business travellers. the challenge with the current business model for retail travel agents is that this advice and expertise is offered at no cost to the consumer. with many consumers going to a retail travel agent to scope out products and get objective information. because there is a higher level of trust and integrity perceived in specialists. Initially. On this basis. an industry consultant has suggested that one option for retail travel agencies is to charge for the advice offered as a consulting fee. The company was listed in December 1995. targeting the leisure traveller. resulting in the company being regarded as ‘the travel experts’ and a trusted travel provider.’ ■ Webjet. The company has grown substantially in recent years. He argues that. is a relatively new entrant to the industry. The company services both leisure and business travellers through retail stores as well as through an online presence. The UK and US offices were closed in 1991 as a result of the Gulf War. with more retail stores than all other industry competitors. The company has been described by industry experts as a ‘traditional bricks-and-mortar travel agent with limited online capability. Expansion began again with a move to South Africa in 1994. By 1990. and that knowing the details can make a large difference to the overall trip. US operations recommenced in late 1999. 5 Two approaches to competing in the industry The following case facts discuss two competitors in the industry that have adopted different business models: Flight Centre Limited (FCL) and Webjet Limited. ■ Flight Centre Limited is an established travel agency in Australia. just 1 per cent of bookings where expert advice was required was with an online travel agent or direct with the travel supplier.Consumers are also favouring travel agencies that specialise. A full range of services and travel supplier products are offered. and has expanded via a combination of organic growth and acquisitions. FCL had opened stores in New Zealand. The company operates online only with no retail shops. and a return to the UK later that year. the United Kingdom (UK) and the United States (US). and then later booking directly with a travel supplier or an online travel agent. Industry experts have called Webjet the ‘new kid on the mature block with internet savvy. Conversely. the company built a Page 18 of 27 . Survey respondents indicated that 12 per cent of their bookings were through a retail travel agent because they wanted expert advice. by contrast. It is credited with revolutionising the retailing of international air-travel in Australia. FCL is Australia’s largest travel agency. ‘the idea of simply retailing other people’s products “versus being a knowledgeable consultant” is not a viable business model for agents. Canada in early 1995. Consumers believe the agencies know more than they do.’ particularly as internet competition becomes more fierce.’ A Flight Centre Limited Listed on the Australian Securities Exchange (ASX). Consumers seek retail travel agents out because they are experts. shifting to a model where profitability was driven by volume rather than margins. Consumers believe that this type of knowledge cannot be gained just from reading information online. However.

Business model FCL’s strategy is to be a world class retailer of travel products to leisure and corporate customers. Major companies are signed to long-term travel agreements under which FCL arranges all business travel requirements. hotels and car rental businesses.g. also purchased a land product. ■ The corporate travel division Currently selling about $5 billion of travel each year (at total ticketed value). This has presented significant threats and opportunities for FCL. airline tickets make up about two-thirds of booking turnover while the remainder comes from ‘land’ products (predominantly hotels). Various company announcements referred to its ‘consolidated e-commerce business’ and ‘clicks-and-mortar’ strategy. FCL’s strategic response to online travel bookings over the last ten years The way in which customers make travel bookings has changed over the past ten years. The company is organised into two major divisions: ■ The leisure travel division Currently selling about $9 billion of travel each year (at total ticketed value (TTV) – that is. and is the travel supplier of choice to a large number of Top 1000 companies in Australia. Hence. tours and activities. hire car) and a booking fee per booking. FCL’s scale enables the company to use its global purchasing power to negotiate better deals with travel suppliers for both leisure and business travel products. Page 19 of 27 . At a recent financial results presentation. meals. and expressed desire to focus on world’s best practice in retail. For the whole FCL business. fees and surcharges). The focus would be on the company’s ability to offer the customer a complete travel agency service. crossselling is a critical component of the business. accommodation. The value of the booking fee depends on the overall ticketed value of the booking. FCL has a comprehensive global distribution network of travel suppliers such as airlines. the FCL management confirmed that 77 per cent of leisure customers. Its brand name is easily recognised and is well-regarded internationally. this division has undergone significant growth over the past five years. The company has grown its international market share to become a global leader in the leisure and business travel segments. It provides a variety of travel products that range from simple domestic airline tickets to complete overseas packages. In Australia. airline. the total amount price paid by the traveller for the booking which includes the ticket price plus any commissions. The company charges the relevant ticketed value for the various components of the booking (e. which include international airfares.price advantage via by-passing airline ticketing and seeking out lesser-known airlines as travel suppliers. This division has many large corporate customers. accommodation. no matter how customers wanted to make their booking. The latter have grown in importance over the past few years and are responsible for much of the apparent growth in leisure margins. as well as the level of complexity and number of different travel components included in the booking. Student Flights and Escape Travel brands. the company recognised the changing environment and announced that it would resource the development of an online presence. In 2004. phone and online sales. who bought an air ticket through FCL. the company targets different types of leisure customers through its Flight Centre.

enquiry management. However. [or] a dealer for someone else’s product. in an environment where travel booking was inexorably moving online. as growth in online bookings was predicted to continue. customer care. The company has stated that. Less than optimal booking turnover had been partly compensated for by higher margins. The company marketed itself as ‘taking the worry out of travel’ by guaranteeing to have the widest range of options around the globe.’ The fiveyear strategic blueprint focuses on retail efficiency. supplier relationships. FCL will transition from a travel agent to a world-class retailer of travel products to leisure and corporate customers.’ While leisure customers were able to book domestic flights online. In order to book or enquire about international flights. The website only provided an estimate of ‘start from’ prices. In addition. these also be bookable by online customers. corporate travel growth. However. this strategy had not been fully realised. FCL’s strategy at this time was to be a trusted travel expert providing a complete service to satisfy all of the travel needs of the customer. area-based structure. Retail stores have long leases which are not easily terminated and represent a high fixed cost for the company. FCL’s CEO declared internet bookings were ‘an accessory to our model’ and that ‘it wouldn’t become that important to us. in 2011. FCL announced a new strategic blueprint to guide the company through its next stage of growth. FCL had chosen not to promote a strategy that would take revenue away from its stores. there was no doubt that some customers had been lost as a result of FCL’s retail-only approach. they were still unable to book an international flight on the company’s website. and potentially damage relationships with its employees in the process. ‘being a world class retailer means we are the brand or business people identify with and go to. servicing customers through a broad network of retail travel agencies. and helping its emerging businesses become successful sooner. customers had to log an expression of interest which was then followed up by someone from the company who then contacted the customer via phone or email. Following this strategic review. some have questioned the company’s ability to turn what is still effectively a retail-based travel agent into a multi-channel provider of travel products. It is very different to being an agent. This review concluded that FCL’s strategy of allowing online customers to book only low-margin domestic travel on its website needed to be changed.However. However. Industry analysts have broadly been supportive of the latest strategic approach by FCL. the company is known for its strong personal service and its ability to tailor travel bookings to suit the needs of individual customers. Some industry analysts described this as an unacceptably slow approach for many modern-day customers who knew what they wanted to book and did not need to talk to someone. In 2012. International flights were higher margin (even the simple destination-to-destination type) and the review recommended that to improve customer service and lower margins. a middle man. Hence having enquiries referred to a store-based employee for follow-up enabled the company to maximise its booking revenue and maintain its reputation as the travel expert. a strategic review was commissioned. this was a deliberate strategy. Page 20 of 27 .

Experts. offline. and 6 per cent from other related services. Profit before tax (PBT) surpassed $300 million for the first time. who are readily available if additional expertise is required. at a shop. accommodation and meals. What do they do that is special? 2. 5. chat. Unique Product Making. not office workers. phone or SMS. They can touch. combining and sourcing exclusive…products and services.9 per cent in 2013 – total commissions and revenue earned off TTV (13. 6.Seven strategic goals were identified in the 2013 Annual Report as requirements to successfully implement this strategy. 4. 2pm or any time in between – online. finishing ahead of expectations for the year at $349 million ($330 million in 2012). as quoted below: Strategic Goals 1. Redefining the shop Corporate. rather than simply selling suppliers’ products – [our] brands must have something unique that distinguishes them from suppliers and competitors – product that is different and interesting and not readily available elsewhere by creating travel packages such as all-inclusive holidays such as arranged tours including excursions as well as transport. Total ticketed value (TTV) exceeded $14. not agents Ensuring each [of our] brand’s people are experts in understanding the brand’s speciality and that they. All brands must be able to answer three questions that clearly illustrate why they are the customer’s best alternative in their particular segments: i.2 billion in 2012) and should exceed $15 billion in the year ended June 2014 if FCL achieves its growth target. Recent performance For the year to June 2013. What do they have that is special? ii. thereby developing and delivering better products and increasing [our] relevance to customers. showing overall revenue and profitability growth. and that each leisure brand has a promotion and advertising plan and deployment that create opportunities to increase market share. What do they know that is special? iii. or by email. 20 per cent relating to revenue from the provision of travel packages. FCL reported strong results. browse and buy all of [our] products when and how they want – at 2am. Information as power Profiles and patterns – gaining a better understanding of customer habits and proactively using this information. 7. 3. In addition. just two years after the $200 million milestone was achieved. Employee benefit costs were around 63 Page 21 of 27 . In the 2013 year. despite many external challenges that have arisen and impacted on overall travel bookings.2 billion ($13. wholesale and retail spaces reflect that FCL’s people are retailers first and foremost. the company was able to generate a revenue margin of 13. A sales and marketing machine Ensuring each corporate brand has the largest and best business development manager (BDM) network. FCL’s share of revenue was around 74 per cent commissions from the provision of travel services. Brand and specialisation Evolving our brands to truly specialise in specific areas of travel and have clear customer value propositions. are backed by ’travel gurus’. in turn. Blended access Ensuring [our] brands are always available to customers. FCL has now delivered 16 year-on-year PBT increases in its 18 years as a public company.8 per cent in 2012).

However. FCL transferred the majority of these flights to other airlines. FCL chose to pass on the majority of these savings to customers. Singapore Airlines or Hilton Hotels. According to Tourism Australia. Over the same timeframe. Having grown rapidly through the 1980s and 1990s. other airlines will have a commercial imperative to follow. Earnings per share. and numerous independent agencies. The most significant threat to FCL comes from direct distribution. the construction of a new business model becomes increasingly likely. airlines have cut the commissions that they are prepared to pay to both online and offline travel agencies. on share price growth.and rental expense relating to store leases 7 per cent (7 per cent in 2012). FCL was able to gain first mover advantage in sourcing attractive deals from travel providers. between 2008 and 2013. If airlines keep reducing commissions. FCL’s main competitors were other chains. FCL has moved to increase the level of front-end commission at the expense of back-end commission. However. online travel agencies may still be profitable in a growing market. Over the past few years. but also an indicator that sales growth is harder to achieve given FCL’s large size. Page 22 of 27 . dividends and FCL’s share price were all at record levels during 2012-13. the number of Australians who departed temporarily for an international holiday. This saves the travel supplier from paying commissions. industry analysts expressed concern over the lack of growth in leisure bookings for the company. However. rose about 26 per cent to 4. With continued erosion of the travel agencies’ share of the total market. with their higher fixed cost structure.per cent of total expenses (62 per cent in 2012). however. negotiating terms with suppliers can be challenging. such as Harvey World Travel and Jetset. when FCL wanted greater up-front commissions from Singapore Airlines. or to visit friends or relatives. Travellers can easily go online and book directly with Qantas. while its size provided scale advantages on the cost side. the corporate travel division of FCL has experienced strong growth. Over the years. with sales and marketing costs at about 8 per cent (9 per cent in 2012). For example. FCL then took Singapore Airlines off its panel of preferred airlines and its agents no longer actively encouraged the promotion of the airline. If one airline can carry on business without the involvement of the largest travel agency chain. traditional travel agencies. The concern. might have trouble covering costs.7 million. retail travel agencies controlled the market for travel purchases. combined with the declining leisure travel sales being experienced. This led to a 70 per cent reduction in sales by FCL of Singapore Airlines tickets. FCL is now among the most expensive of many distribution options available to travel suppliers. in a way that was quite difficult ten years ago. proving its influence on the industry and the value of its expert advice. However. The company was the fifth-best performing top 200 stock in 2012-13. The stagnant growth in the leisure division of FCL’s business therefore implies that a greater number of leisure travellers are choosing to book their travel with someone else. This. is likely to reduce the company’s bargaining power with travel suppliers. The push to re-weight compensation in favour of fixed commission is partly a reflection of a tough economic environment. undercutting the competition and gaining a dominant market share in Australia. Threats for Flight Centre Prior to the internet. By contrast. and this division now represents 40 per cent of FCL’s total booking turnover. Singapore Airlines renegotiated with FCL to prevent any further loss of sales. for example. FCL’s leisure booking turnover declined. is that sometime in the future one of the important international airlines may construct a business model that will not involve significant commissions to travel agencies. the airline refused.

hotel bookings and car hire via its various branded websites. Accommodation sales are also under threat from both direct sales by travel suppliers and through internet sites such as Wotif and HotelClub. small and medium enterprise (SME) market. Today. The key defence of FCL to date against the changing leisure travel segment has been to focus on the corporate travel market where service is as important as the price. the two together might still provide the company with negotiating power over suppliers for some time to come. Webjet is recognised as the leader in online travel tools and technology. It therefore seems more naturally suited to face-to-face sales and personal service that a traditional travel agency offers. and has finally been recognised in the company’s current strategic blueprint. hotel accommodation. The reduction in airline commissions is damaging the profitability of the travel agency industry. the continued growth of online bookings by consumers is a key concern that FCL must address. The FCL’s relatively personalised approach has been the key to its growth in this market. cabin types etc. where customers can book online directly for hotels and gain access to discounted prices and lastminute deals. When customers choose to book elsewhere. History Webjet was founded in 1998 by a former traditional travel agency executive. Webjet promotes itself as a convenient. When this segment is combined with the existing leisure business of FCL. It aims to capture 30 per cent of an estimated $1 billion ticketing revenue market in Australia alone. The company is one of a handful of dotcom companies trading at a higher share price now than it was in 2000. and the company’s role is only to present the various options available for the traveller to choose from. there is an overall loss of commission revenue to the industry. Page 23 of 27 . the US (since April 2010). especially in the category of the higher margin. B Webjet Limited Listed on the Australian Securities Exchange (ASX). FCL might also lose the chance to sell an accommodation product to the 77 per cent of its leisure customers who currently purchase accommodation with their airline ticket. Cruise sales are higher margin sales for the travel agency. However. quick and simple way to book travel at a low cost. North Africa and Southern Europe (2012).The risk of a significant change in the compensation structure of the industry is growing each year. Webjet Limited (Webjet) is an Australian online travel agency that offers flights. With the loss of air travel sales. FCL expanded this to 12 outlets with plans for 60 more outlets. Webjet has done what many technology companies promised to do but failed to deliver: become a key enabler of the shift from bricks-and-mortar to online commerce. For example. Webjet is known to be technologically-focused and innovative in online travel booking. As Australia and New Zealand's leading online travel agency. travel insurance and car hire worldwide. holiday package deals. and listed on the ASX in 1999. the company has an online presence in Australia. Over the past decade. This is an area of travel booking which can involve complex options in relation to itineraries. Singapore and Hong Kong (since late 2010). New Zealand. Its selfservice approach means the customer is the expert. combine and book the best domestic and international travel flight deals. The company’s technology enables customers to compare. FCL is responding to these threats by moving aggressively into niche markets where it believes it has a competitive edge. FCL acquired the single retail outlet of a travel agency focused on cruise packages. The corporate segment of the business offers growth opportunities. the Middle East.

Webjet is different from other travel agencies. people in their sixties and seventies. The company also earns revenue from an online booking fee charged to leisure travellers who use its online services. The website allowed customers to search for travel insurance and could recommend various options. The company earns revenue by taking small commissions from travel suppliers on bookings made via its website. seven days a week. The retail based travel agencies. The marketing message focused on choice and convenience. The demographic of Webjet’s customer-base is similar to the Australian demographic. The company has an active customer base of about 1. and travellers can now purchase Allianz insurance. This provides leisure travellers with even more convenience for making bookings anywhere. the company has access to the flight schedules of all the Australian domestic airlines. Convenience and intuitive software aims to drive customer traffic from the initial airfare transaction into a host of related services.5 million people. To further highlight the technological focus of the company. In the early to mid-2000s. but was unable to transact insurance sales directly. Webjet’s ability to consolidate all domestic airline information onto one webpage was the major differentiator for the company over individual airline websites. anytime and for travellers to take greater advantage of online low price offers from travel suppliers. Secondly. in contrast. It also charges suppliers a fixed-rate service fee for all bookings that it makes. are actively using Webjet to research their holidays and to buy tickets. In addition. Instead it had to refer the customer to various insurance company websites. Webjet offers a guarantee that the price offered on a ticket will not change for 30 minutes. Page 24 of 27 . This guarantee helps to counter the problem of airlines changing their pricing and making fares unavailable during the time it takes a customer to progress from selecting a flight to paying for it. either as part of a booking or as a stand-alone purchase. travellers are also presented with a range of travel options such as accommodation. Since 2011. The company sought to be a fullservice online travel agency.Business model Webjet began by offering domestic airline tickets online direct to leisure customers. When booking flights. are limited in their operations to shop trading hours. despite the general belief that young Australians drive online ticket purchases. Webjet was not a registered insurance agent until recently. Despite being able to offer most travel needs online. both online and traditional retail stores. in a number of ways. Webjet has grown its sales of online hotel bookings from $2 million to $57 million in the first half of 2014. Webjet has also introduced an iPhone application for buying air tickets in Australia. This gap was resolved when Webjet entered into an alliance with Allianz Insurance to be an agent. An analysis of Webjet’s database shows that bookings are not skewed towards people in their twenties and thirties. they can be confident of being presented with all available tickets and prices. Webjet expanded to leverage its flight booking brand into other related travel services. having an online presence means the company operates twenty-four hours a day. such as having multiple airline and fare options on a single webpage. This means that when a leisure traveller conducts a search. Webjet is the only travel agency that offers this price guarantee. Firstly. the company marketed itself through highlighting this benefit. Webjet was the first online travel agency in Australia to introduce this type of comparison tool. This made it easy for the leisure customer to compare different airline fares in relation to costs. car hire and insurances. who are internet-savvy. Having established a strong brand name with leisure customers. travel times and destinations on a single website.

Webjet posted a significant increase in revenue to 2013. and Create the potential for back-office synergies across the combined entity. providing the company’s 1. with a substantial presence in Australia’s online travel agency market. appealing to a wide range of leisure consumers. Each Webjet Exclusives purchase comes with a 21-Day ‘No Questions Asked Money-Back Guarantee’. In the first half of 2014. This is to offer customers the best possible holiday deals that cannot be found anywhere else.6 per cent in 2013 (7. The exclusive deals often provide valuable inclusions at no extra cost. with a strong margin contribution to the overall Webjet financial result. that is. Zuji continues to function under the same brand name within the expanded Webjet Group. However.5 million registered customers with exclusive travel deals that are not available elsewhere. Lots of Hotels has expanded to operate in 18 markets with plans to launch in another 30 markets by 31 December 2014. Webjet launched Lots of Hotels. who has experience from previous managerial roles with Flight Centre and deal website operator Scoopon. Gain scale in Webjet’s emerging hotels segment. Revenue was Page 25 of 27 . Zuji initially commenced operations as an online air travel booking service only. Total transaction value (TTV) was $883 million in 2013 ($768 million in 2012). Webjet Exclusives offers directly-contracted travel products including hotels. This new brand is aimed at the online businessto-business (B2B) hotels market. One of the key differentiators from other deal sites is that all offers featured on Webjet Exclusives are exclusively created and negotiated with suppliers. the company was able to generate a revenue margin of 8. TTV is about $65 million a year. Recent performance Despite the fluctuation in performance of the industry over recent years. Obtain an online leadership position in important Asian travel and leisure markets and a platform for further growth in Asia. as well as increasing overall margins due to higher commissions received for hotel bookings compared to airfares. Zuji was founded in 2002 and had grown to become the number one online travel agency in air ticket sales in Hong Kong and Singapore. North Africa and Southern Europe. The strategic aim of this new operation was to broaden Webjet’s revenue beyond only leisure travellers. In addition.In late 2012 Webjet entered into a binding agreement to purchase online travel agent competitor. land and air packages. Webjet’s investor briefing outlined the strategic rationale for the acquisition as: • • • • Enhance Webjet’s already leading online position in Australia.6 million in 2012) due to costs associated with the acquisition of Zuji. as the impact of the Lots of Hotels increased commissions flowed through. Webjet’s new business venture is led by travel executive Paul Ryan. Customers can request a refund for any reason within 21 days of their purchase. The Webjet Exclusives site offers these deals across key domestic and international holiday destinations. Webjet announced an extension of its Australian business by launching Webjet Exclusives. and set-up of the Lots of Hotels operations. tours and cruises. and launched in 10 countries including the Middle East. by offering an online accommodation service to businesses. Zuji’s business is progressively being migrated to Webjet’s IT infrastructure platform. and then expanded its operations into the hotel booking and packaging. from Travelocity for $25 million. In June 2014. businesses looking to book through an online travel agency business. profit after tax (PAT) declined by 52 per cent to $6.5 million ($13. Also in 2012-3. resorts. and are not available on other websites.5 per cent in 2012). Zuji. despite strong TTV and revenue margin growth.

one of the largest sellers of online airline tickets in the United States. Webjet makes money as a result of the fixed service fees it charges the travel suppliers. rental car hire companies and insurance providers. particularly those offered by companies such as Virgin and Jetstar. the company’s service-based revenue model still allows it to grow due to an increase in bargain hunting by customers. Wotif. However. Having educated the leisure customer to search online for the cheapest prices. with marketing costs at about 27 per cent (32 per cent in 2012). Webjet charges a $19. and technology expenses 8 per cent (4 per cent in 2012). consumers are now increasingly prepared to search across multiple websites to find the lowest prices. This is a threat to Webjet’s growth in the accommodation segment. Webjet faces strong competition from powerful industry competitors such as Flight now make it easy for a customer to see the prices across a range of travel provider websites. While air ticket prices have fallen substantially. These organisations want a corporate travel agency to negotiate a range of prices for the company with various hotels. And with the growth in discount airline tickets. Webjet’s share of revenue was 50 per cent commissions from the provision of travel services and 50 per cent from customer booking fees. Expedia. including offering rebates for exceeding certain dollar amounts and account management services. The company’s performance has been attributed to a strategic business model that relies more on service fees rather than on earning commission on air ticket prices. In addition. Business customers generally want more than an online booking tool only when dealing with a travel provider. as this delivers higher commissions. and select the lowest price for the booking. Webjet has used brand investment to its advantage to date. spending $20 million over the past few years. Webjet continued to maintain market leadership with 14 per cent of the online ticket segment. Expedia has invested in marketing its brand in both the US and Australia. Almost 12 months after the ‘no-booking-fee’ announcement by Expedia and Zuji. but the impact was temporary. no matter how low airline ticket prices may drop. Analysts have been generally positive about the recent expansion into accommodation bookings and the B2B and $14. the company has been able to target those customers looking for a cheap flight. In 2013. In 2011. Of further concern to Webjet is the trend for major international online airline ticket agencies to reduce customer booking fees for online transactions. Large organisations want a travel provider that can meet all their travel and HotelsCombined.95 by Travel. Employee benefit costs were around 26 per cent of total expenses (24 per cent in 2012). dividends and Webjet’s share price fluctuated from 2012 to 2013 from reduced PAT. and the company is struggling to gain market share from Wotif. which may erode Webjet’s and Lastminute. aggregator website such as Trivago.also diversified as a result of the broadening of business operations. $16.95 by Flightcentre. and has developed a strong brand presence amongst leisure customers. The Webjet share price fell as a result. which are Page 26 of 27 .au.95 booking fee compared with a fee of $ Webjet’s website is still primarily used for flight bookings which is about three times the market share of This trend would imply that the company potentially faces the threat of the loss of this booking fee revenue stream. Given the entry of the traditional ‘bricks-and-mortar’ retail travel agents into the online booking with 92 per cent of total revenue earned in Australia in 2013 (98 per cent in 2012). Earnings per share. Threats to Webjet Webjet has experienced strong TTV growth to date. and Zuji announced zero booking fees to customers for online transactions. However.95 by for accommodation booking services.

com/files/1. share market performance is an important performance measure for (accessed July 2014) (2009). pp.flightcentrelimited. 6 June 2014. Travel Weekly. pp. Percentage of Booking Methods. The Weekend Australian Financial Review.%20FLT%202013%20Annual%20Report_0.webjet. July 30. 24–25 July. G.set for generally a 12-month period. rather than an agreed price. As a listed company. T. http://admin. Webjet is not valued as highly as other companies in the e-commerce space and shareholders are concerned about the company’s lacklustre profit after tax. Webjet’s B2B model. Media Release “Webjet launches Webjet Exclusives”. Sources: Travel Agency and Tour Arrangement Services in Australia. p. Webjet Limited. Harris Survey Whitepaper. ‘A new perspective on Flight Centre—Part 1’ in Stocks in Detail on Intelligent Investor. C6. pp. ibid. Issue 281. http://investor. Harvest (accessed July 2014). Brown. ‘Chanticleer’.com/sites/flightcentrelimited. 64 and 61. Tealeaf (2010). http://travelweekly. which offers the best price on the day. 6 and 36. 2013 Annual Report. with about $45 million in cash in the bank and no debt. and dividend results which have limited share price performance.intelligentinvestor. N7220. earnings per share (EPS). 18. April 2014. replicates a leisure traveller service. (2010). This is despite the fact that Webjet has a strong balance sheet. via Lots of Hotels. ‘Booking holidays and flights online: What is the opportunity for travel companies selling online’. February. 2012. ‘The eBooker: Understanding how travel customers use the web’ 29 September http://www. IBISWorld. Flight Centre Limited.pd f (accessed July 2014). Page 27 of 27 . ‘Webjet well placed to repel rivals’.cfm (accessed March 2011). Nielsen/Netratings (2007). C8 and C10.