Wotif’s search for growth

Wotif.com, the online accommodation provider, is a specialist in helping customers find rooms at the last minute.  Wotif.com’s chief executive Robbie Cooke has taken over the reins from founder Graeme Wood, and talks to Amanda Gome about how the recession has affected Wotif and the tourism industry, the business’s strategy for the times ahead, how to market effectively – and how to relax in stressful times.

Amanda Gome: While tourism has been hit, you’ve got a very good online model. Briefly take us through what you do and why you’re growing.

Robbie Cooke: The Wotif.com business model is very much an online accommodation provider, and has been since our inception in 2000.

We originally came out of an environment where hotels in the last five-10 days before a check-in would have spare rooms in their hotels, and those rooms were basically distressed inventory. And the hotels needed to find a way to actually move those rooms. Move them or lose them, basically.

So we built a business off distressed inventory. We moved the model so originally we started with five days worth of bookings available, moved to 10 days, then moved to 14 days then to 28 days back in October 2005. And pretty much stayed at that 28-day booking window from then through to the beginning of this year, in March this year, where we extended the booking window to three months.

What did you report for your last quarter?

We’ve benefited from the current environment. People are still taking holidays, they’re tending to travel more domestically rather than overseas, they’re looking for deals and value, and people are realising that you get the best deals and value online.

So quite perversely, whereas a lot of other travel companies, your traditional travel agents and your airlines, are doing things in quite a tough environment, we’ve actually seen our business grow.

For example our number of room nights sold on our site in March and April were up 15% from the same period last year. On a group basis we’ve actually grown in terms of volumes up to the end of March, by about 32% on the number of rooms we’ve sold, and that’s partly been driven by two acquisitions we made last year. We took over a business called Travel.com.au, and we also bought a business called Asia Web Direct which operates an accommodation online business in the Asian markets.

Have you been doing any discounting?

We provide the hoteliers with a distribution channel for their rooms. So the hotels actually put the rates up on our site and we earn a small commission off those sales. So we don’t actually set the pricing, we just make sure that the best pricing is getting out to our customers.

Have you taken any hits on profitability?

Look our last set of results were for the period for 1 July to 31 December, and we announced those in February this year. And our profit was up very strongly; our profit grew 21%. So for six months we delivered a profit of $20.6 million, and that was up from $17.1 million same period last year. Our revenue was up 43% to just under $59 million.

Are you going to be hit at all?

I’d much rather be positioned in our space than perhaps say a traditional bricks and mortar travel agent.

But look, we’re not invincible, we’re very much a provider of a discretionary product. So we are in the general market, and if times get tougher, the environment we’re in will get a bit tougher, and the head winds will be there. But up to the end of April we were seeing strong growth in the number of hotel rooms being distributed on our site.

Tell us about the acquisitions. Have you had any trouble integrating those, have they lived up to their promise?

Look acquisitions at any stage for any company are always, always difficult, they always come with problems and they’re challenging, and Wotif was no different. And particularly we were quite a small company. We had about 150 staff and we executed two transactions very close to each other.

We launched our takeover for TVL (Travel.com.au) back in October 2007, and we started the discussions to buy Asia Web Direct shortly thereafter. So we were running two acquisitions in parallel. The TVL acquisition was completed in January 08 and the Asia Web acquisition completed in March 08, so we were then doing two sets of integrations very close to each other.

So definitely it was a stretch for the company but I’m pleased to be able to say that we completed both those integrations and they’re working very well for us. We have got two very different businesses.

The TVL business provides us with a full online travel agent solution, and we’ve seen that business grow very strongly in terms of room nights sold on the site and that’s translated to very strong EBITDA performance.

So that business before we bought it was generating for a half year about $800,000 in EBITDA. For the first half that we owned it, it generated about $2.9 million in EBITDA. So very good performance there, driven from accommodation, flights and also selling other things like car rental and insurance for travellers, so that business went well.

Asia Web Direct also gave us a footprint in a very different region so it gives us a strong operation in south east Asia in particular. The headquarters for that business is based in Thailand, about 180 staff. Again for the six month’s EBITDA about $1.7 million, so performing very well.

Now you did a licensing deal with Plugger in September last year and you rebranded the service Wotnews and extended your brand. How’s that worked for you?

Wotnews is a very interesting business. We don’t have a lot of involvement on a day-to-day basis. Basically the team at Plugger had developed a very leading edge search functionality for pulling news and content from the web and all other sources and delivering it up in one location.

The guys at Plugger approached us because they were quite interested in using the Wotnews name, which Wotif held the rights over. And we’ve effectively licensed that name to the Wotnews team. We get a little bit of promotion on the Wotnews site. It’s a nice symbiotic relationship there.

But from a day-to-day point of view, the Wotnews team run that business completely separately and they are doing a fantastic job and getting a very innovative product out there in the market.

What else are you doing that’s really innovative, that’s outside the square?

Keeping focus is very important. And our focus is travel. We are looking at ways where we can leverage our technology and our proprietary systems in other areas. And that was part of the reason why both the acquisitions we conducted were very important for us because we’re leveraging off our technology and our smarts in other markets and for other brands.

So we don’t try and expand into areas that we don’t have the expertise in. We’re looking for new initiatives, new functionality in relation to our website and our business rather than just trying to push the envelope and push into new business streams.

What marketing are you doing to get your message out?

We spend a lot of money with Google. And we have a very effective online marketing team who are experts in dealing with search engine marketing and also search engine optimisation. So they’re two very big planks of our business.

Google is a very effective tool for us. It’s a very measurable approach, for every dollar we spend with Google we know exactly what return we’re getting back as a business. So it’s a very targeted and focused means of marketing.

We actually though, as a business, experimented with a bit of traditional marketing. A year and a half ago we did a bit of television marketing. We have in the last two months actually done some radio marketing. We tend to experiment with traditional media and traditional marketing to see if we can get outcomes that are as good as the sort of outcomes we can get through Google spend and online marketing.

And do you?

We have had an interesting experiment with radio and we’ve actually found radio to be quite effective.

And not TV?

TV was a little bit more difficult to measure for us.

How much do you spend on Google?

We don’t disclose that, but it’s quite a lot of money.

Percentage?

We don’t work on percentage basis with our spend. Some companies talk about spending X% of revenue on Google spend. We don’t see it that way, we take a very different approach. We look at the absolute return we’re getting. But for every dollar we’re spending with Google, we know what return on that spend we generate. And that’s our way of actually working out what our appropriate Google spend is.

Has your strategy towards Google changed? It is becoming more expensive to buy key words.

It is, but having said that it is still probably one of the most cost effective ways of advertising.

What’s your growth strategy? What are you planning to do?

Our growth strategy is to keep building our brand because at the moment the Wotif.com brand has 51% brand recognition but that means that there’s a large amount of people in Australia that actually don’t know of Wotif.com and probably don’t realise that the online booking functionality exists. So we want to bring those people who might be using more traditional forms of booking, like they might be going to a travel agent or calling up a travel agent.

We want to educate those consumers about the online environment, the fact they can book their accommodation directly, the convenience, the value the online space presents. Because at the moment in Australia only about 13% of bookings are conducted online for accommodation, so there’s still a lot of head room there.

What’s the percentage in America?

About 30% to 34%, in that vicinity; so we’ve got a long way to go to catch up and we’re very keen to make sure that we grow the market and grow our market share.

Tourism in Australia generally – what do think of the standards of the websites?

Look I think Australia is very much up there with the world in the online space. I mean people are using the web to research destinations here just as they are overseas, and there is a lot of content out there on the web when you’re researching the destination.

I do think the Australian consumer probably understands what’s available in Australia quite well and knows the places they want to visit. So the selection process probably isn’t as deep as maybe it is if you’re looking to travel to Asia and you want to research Phuket or Langkawi or somewhere like that. You might spend a little bit more time I’d imagine researching destinations you’re not familiar with. Definitely we’re up there with the leading edge.

In terms of what we have to offer?

From an accommodation point of view? We’ve got a fantastic offering in Australia definitely. As a destination I think Australia represents a great option, and I think when the world corrects itself I think we’ll grow our inbound tourism market, definitely.

What is happening in the accommodation industry? It’s under stress?

Look there is definitely more capacity at the moment. There’s been segments of the market that are doing it harder. Corporate travel has contracted, the convention based accommodation space has contracted, which has meant there is more surplus capacity in a lot of hotels.

When we come out of this recession, what are the main changes that are going to change the tourism industry?

As occupancy levels drop, it’s important people don’t panic and drop prices too deeply, because it becomes very difficult to claw pricing back as things recover. And experience shows that if you do get into a panic based pricing position that it can damage the whole market.

So we’re very much of the view while hotels with spare capacity will do tactical discounting, it is important to maintain a pricing point. When we come out of the malaise that we appear to be heading into at the moment, travel will pick up very quickly, and it’s important that hotels just continue to use all channels to stimulate demand.

What are you seeing on the competitor scene?

We’re in one of the most competitive industries and spaces in the world. There are a huge number of online players in the world in the accommodation space and the travel space. The barriers to a consumer booking on one site or another site are very low.

So for our money, what we’re focused on is just making sure that for our customers we deliver the best value, the best service, that we also work with our hoteliers as partners and try and produce outcomes for them.

And if we continue to do both of those things, so provide value for the customers and provide a very effective and cost effective distribution mechanism for our hotel partners, we should continue to prevail and place ourselves in very good stead against our competitor pack.

It’s tough running a company as big as yours at times like this. How do you relax or control your stress or make sure you don’t burn out?

Look I’m always very relaxed, you just have to stay relaxed and you just can’t let things get to you. I have a young family and I spend as much time with my family outside work as I can, and that keeps me very relaxed.

You’re in Queensland… and Queensland is god’s country… talking from a cold Melbourne today, I envy you. I lived in Melbourne for two years; I can well understand what you’re going through.