The Webjet Limited (ASX: WEB) share price is down 4% after Qantas Airways Limited (ASX: QAN) gave an update to the market.
Webjet’s decline
The Webjet shares are on the nose today after Australia’s biggest airline gave an update.
Qantas revealed that the corporate travel segment is now at 75% of pre-COVID levels, up from 65% in April. Leisure demand is growing strongly, with deferred international holidays converting into multiple domestic trips.
It also said it’s on track to reach 95% of its pre-COVID domestic capacity in the fourth quarter of FY21. Qantas and Jetstar expect to average 107% and 120% respectively of their pre-COVID domestic capacity in FY22. All domestic aircraft have been brought back into service.
Webjet is keenly aligned with the success of Qantas because the more people that are flying the more likely they are to use a (online) travel agency like Webjet.
Many of those numbers that I just included above are pretty positive, but some investors may have been hoping for even more.
Qantas also announced that it was revising its assumption for the phased return of material international flying from late December 2021 onwards.
The Qantas CEO Alan Joyce said: “We’ve adjusted our expectations for when international borders will start opening based on the government’s new timeline, but our fundamental assumption remains the same – that once the national vaccine rollout is effectively complete, Australia can and should open up. That’s why we have aligned that date for international flights restarting in earnest with a successful vaccination program.
“No-one wants to lose the tremendous success we’ve had at managing COVID but rolling out the vaccine totally changes the equation. The risk then flips to Australia being left behind when countries like the US and UK are getting back to normal.”
Qantas also said that as part of reducing its cost of sales, Qantas will lower front-end commissions paid to travel agents on international tickets from 5% to 1%. This change won’t take place until July 2022.
Is Webjet an opportunity?
The ASX travel share recently revealed its FY21 result.
Webjet’s total transaction value (TTV) for the nine months was $453 million, down from $3 billion in FY20. Revenue generated in FY21 was $38.5 million, down from $266.1 million. The underlying net loss was $88.8 million, compared to a loss of $42.3 million in FY20. The statutory net loss in FY21 was $156.6 million, compared to a loss of $143.6 million in FY20.
The travel business reported that as markets reopen, its segments are rebounding quickly. As at April 2021, its OTA Australian domestic bookings were 95% of April 2019 levels. WebBeds USA TTV was at 83% of April 2019 levels and Online Republic bookings were 48% of April 2019 levels.
Management believe that there is strong pent-up demand for travel, particularly leisure travel.
With Webjet targeting a higher profit margin than pre-COVID, I think the Webjet share price could be a long term opportunity, particularly if domestic travel in Australia continues to grow. But its future is a bit more clouded with Qantas announcing this change. Webjet will need to tell investors what this means.
