The weakness of the retail sector may be starting to hit the once-impenetrable online markets, with shares in travel and accommodation sites WebJet and Wotif falling between 6-10% during the last month due to weaker profit outlooks.
But WebJet managing director David Clarke denies the slowdown is a result of online markets stating to head towards maturity, and says there are still plenty of customers to win.
While the company is set to hold its annual general meeting today, two days ago Clarke told the market that it is too early to determine if this year’s Christmas trading will be as successful as the last.
Clarke also says Qantas’ recent engine problems on its A380 aircraft have affected spending, and could continue to make prospective travellers more nervous when heading overseas.
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Clarke said that while the travel market remains strong, with improving underlying demand, it is still too early to assume that trading will remain strong through November-December.
“Results to the end of October indicate a profit increase before tax of approximately 15%, compared with last year, with a TTV increase of approximately 20%,” the company said. But Clark says the latest hit to consumer confidence is now spreading online.
“Until the end of October, we’ve been very strong and have gained market share. Total turnover relative to the same period is up 20% and the industry as a whole is only up about 7%. So we’ve been growing very strongly.”
“But what we’ve seen is that with the interest rate rise, and what that has done to the property market, there are some major issues in our view. And some initial reports suggest that massive increases in utility costs are affecting spending.
Over the past month, shares in WebJet have fallen over 10%. Shares in Wotif have also fallen over 6%.
Part of the problem appears to be related to market sentiment towards Wotif and Webjet, which are now strong, mature businesses but may not enjoy the explosive growth they have in the past thanks to their position as online retailing pioneers.
This was reflected in Wotif’s annual general meeting last month, when it forecast a slower growth rate.
“It is inevitable that it becomes extremely difficult to endless accelerate growth rates… Put simply, the base is now much bigger and it takes much more to build on it… slowing growth rates do not spell the end of the Wotif story,” the company said.
Indeed, Wotif also said it will be difficult for the company to outperform its 2010 result, and that its performance for the first half of the 2011 financial year will be similar to its performance in the second of the 2010 year.
Clarke delivered a similar message to the market on Tuesday, saying the company does not yet forecast results for November-December and noted it expects “that results to the end of December are likely to be similar and the same, to the half year ended 31 December 2009.” Clarke said in the statement.
But Clarke says the company is still growing strongly, has gained market share and will continue to do so over the next year, saying this latest hiccup is just a slump due to low consumer confidence. The current weakness, he argues, is simply a symptom of a weak market kept afraid by interest rates.
“The third component here is that we are hearing rumblings from discretionary groups such as Harvey Norman and JB Hi-Fi, and it’s very tough going for them.”
“We are personally not seeing that yet, but we want to be very cautious about this. The last November/December was very strong and hopefully we can replicate that. But it’s still too early to say that will happen again.”
He also says the market has overreacted to the drop in share price, and points out that “shares have been at their highest points in two years”.
“However, for every seller there is a buyer and we think people may be able to pay at bargain prices. We’ll continue to be conservative and if that spooks people, then that’s what’s going to happen.”
Clarke argues the market will take some time to adjust to the changes. “If you look at the interest rate rises, working families have now had their pay reduced, essentially. We are not pessimistic, but we think it’s better to be cautious.”
And while Clarke acknowledges both WebJet and Wotif have forecast subdued growth, selling online is still the best way to market.
“Both online and offline businesses are impacted by the same factors but when people are looking for a bargain they will go online. We saw that before the financial crisis, we saw that during the financial crisis and it’s likely to be the same again.”
“That type of retailing is very hard to do in bricks and mortar, and I would say that in these types of circumstances, online is likely to be the winner.”