Webjet – Selling Convenience
With the number of Australian friends who seemed to be enjoying White Christmases (overseas holidays) this year, I wanted to briefly discuss an often touted criticism of Webjet’s business model.
Like many businesses, customers can easily search their website free of charge for what they are after (in the case for flights, room nights, holiday packages), but then purchase the product and bypassing the booking fees by going directly to the supplier – in this case Airlines, hotels, car rental agencies. This is the core reason Webjet’s business model was considered ‘unsustainable’.
So how is it that this company is able to generate excess returns? It is because people are willing to pay for Webjet’s core product – Convenience.
Webjet has entrenched itself in the online travel agency market because people know that they can go to the site to book their holidays, and it will be done quickly and easily. Given the amount of stress that arises during a holiday period, you can appreciate the value that people would place on using Webjet to manage their travel arrangements.
As an online aggregator of information and hence convenience, Webjet continues to benefit from travel. Investors in our funds also benefit knowing that Webjet is a core holding at current prices.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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scott.a.shuttleworth
:
The financial results of webjet are awesome, but I always get stuck on the strength of the comp advantage.
I booked a holiday a couple of months ago, I used webjet to find the flight details and called the airline. I got the flight I wanted without having to pay webjet a fee in minutes, plus they did all the clicking and booking for me. They also price beat on my return flight.
Webjet provided a valuable service to me yet didn’t get paid their fee.
I could maybe understand a bit more if they got advertising kickbacks from airlines.
Anyone-else got 2 cents?
Andrew Legget
:
As i mentioned below Scott, i do the exact same thing. I remembered trying to book a trip to the gold coast through webjet and if i remember correctly, the fees came close to doubling the cost of the total booking. Great for profitability, not so much a person trying to book a flight at the cheapest cost possible. Instead i just went to the airlines website and booked it through them for the same price minus the booking fee from webjet and got to choose my seat straight away as well which was very convenient for me.
Andrew Legget
:
I guess i am one who has reservations about the sustainability of their model. I am a fan of the company but it comes way down the bottom in regards to my faviourite internet list companies. Tier one (REA and SEK), Tier two (WTF), Tier three (CRZ and finally WEB). I admit to struggling as to what to make of it all with Webjet.
It is not that i don’t think they have a good model, but i question the strength of the economics of convenience in this field. Observations tell me that people will rather save money on flights so they can spend more on activites and accomodation (one of the reasons airlines are a bad investment). I can see the same thing happening to Webjet as what is happening to retail companies (Try it where it is convenient and buy it where it is cheaper). I do it myself, i will go to webjet to see what times are available and who is cheapest and then book directly through the airlines website.
In saying that, the facts seem to show that the business model is still holding up and the profitability appears to be still very impressive so the above is more speculation as the facts say otherwise and i think they are a great company that i would definitley consider owning, just not the first choice for me in either internet list companies (as above) or travel (they are behind flight centre which i think has a stronger advantage in their field).
Interesting article Ben, and great to help challenge ideas of my own and see whether they will hold up. So far it seems that Webjet is doing very well.