Webjet is splitting up.

Last Wednesday, Webjet announced a likely demerger between the consumer-facing business and WebBeds, the B2B wholesale business.

Webjet is a household name; whenever you’re booking a trip it’s easy to throw it into Webjet to get the best flight prices. But did you know only 25% comes from the Online Travel Agency (OTA)?

Back in 2013, Webjet launched WebBeds, and in FY24, it contributed $4 billion of Webjet’s $5.6 billion in total transaction value (TTV).

How did this come about?

Here’s the story:

Launching WebBeds

Okay, it’s 2013. Webjet already has a significant hold on the consumer market, outperforming well-known travel brands like Flight Centre and Expedia, and now they have their eyes on B2B. WebBeds (then known as Lots of Hotels) is set to launch in Dubai.

The B2B business operates as a marketplace where hotels, resorts, and other accommodation providers sign up with WebBeds to list their properties on the platform at a discounted rate. The platform then provides a comprehensive list of available options to travel agents, allowing them to compare and select the best fit for their customers - this is how Flight Centre always have such great deals. WebBeds then makes revenue through commission on bookings and advertising on the platform.

It is a raging success from the get-go. Covering the Middle Eastern market and expanding into the African market they achieved a $40m+ annualised total transaction value (TTV) and profitability in the first quarter. So what does Webjet do when they spot the early success?

They pour fuel on the fire and go on a buying spree.

Acquisition after acquisition to expand into adjacent markets. In 2014, they acquired Sunhotels in Spain to expand into the European market. In 2016, they took on Asia Pacific by launching FIT RUUMs in Singapore, and in 2017, they strengthen their position in Europe and Africa with the takeover of JacTravel.

After a few more acquisitions, bringing the total to 7, the group structure and branding started to get messy, so they unveiled the new WebBeds to hold their growing B2B trade brands.

By 2019, WebBeds’ global footprint has grown to over 1500 people in over 50 countries. Every 8 seconds a hotel reservation is being confirmed. In just 6 years since starting up, it has delivered $2.2 billion in TTV and is the fastest-growing B2B player in the world.

But then, the black swan event that took the global travel industry by storm: in 2020 Covid hits and the world goes into isolation.

WebBeds in Lockdown

When the world went into lockdown, travel stopped, and the Webjet group, including WebBeds, was put on life support.

In the first half of FY20, prior to the impact of COVID, WebBeds had TTV of $1,470m, up 42% from the same period in the prior year. The impact of COVID was then felt at different times throughout the second half of FY20, with most of the world in some kind of travel ban by the end of February 2020. The bookings didn’t just drop; they completely fell away. TTV came to $395m, all of which was from January and February.

Extensive steps were taken to mitigate the impact of COVID and prepare for the recovery of global travel:

Costs reduced by approximately 50%,

Strengthened the balance sheet through a $346m equity raise and $163m notes issued,

An extensive reset of strategic and operating initiatives to maximize performance and market share as markets reopen.

The cost-cutting wasn’t easy. The board and executive team took between a 20% - 60% pay cut, 515 people were let go (22% of the workforce), the remaining employees were moved to a 4-day work week, and all non-essential operating costs were paused.

The impact of COVID was persistent through FY21, with TTV only hitting $198m (for 9 months as they moved to a March year end), a new low since FY15.

However, the second half of FY21 showed early signs of promise. As markets were opening, bookings were rebounding, and April 2021 TTV was at 83% of April 2019 levels in North America.

Markets Open and WebBeds Soars

In FY22, global travel was returning to normal and so was WebBeds. The focus was on growth through:

1. Targeting new market opportunities and increasing their North America presence,

2. Streamlining technology to drive efficiencies and reduce costs by 20%, and

3. Leveraging access to data to create demand for hotel rooms through a US$10m investment in ROOMDEX, a leader in automated hotel upselling solutions

And the rocket ship was back.

Here’s the Deal

Webjet Group is exploring a separation of its two leading travel divisions, WebBeds and Webjet B2C, which includes Webjet OTA, GoSee, and Trip Ninja, via a demerger. If pursued and completed, this move will result in two standalone ASX-listed companies, each holding leadership positions in their respective industries.

A demerger will allow both divisions to benefit from separate management teams, independent capital structures, a stronger ability to respond to the evolving travel industry, and access to new investors.

Any potential transaction is expected to be completed during Webjet Limited's FY25 financial year.

Thanks for reading,

Archie Sampson, Founder of Prepped