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FINANCIAL HIT FOR HLO AS AGENCY NUMBERS FALL AWAY But company remains upbeat about prospects for future profits


Issues & Trends – June 2014

FINANCIAL HIT FOR HLO AS AGENCY NUMBERS FALL AWAY
But company remains upbeat about prospects for future profits

By Ian McMahon

HELLOWORLD has revealed it will take a $5-10 million financial hit from a sharp reduction in agent numbers following last year’s decision by now-departed chief executive Rob Gurney to jettison four established retail travel brands in favour of a single new brand.

In a statement to the Australian Securities Exchange, the company says it expects the $5-10 million EBITDAI losses will be “partly mitigated by growth in online trading through helloworld.com.au”.

The statement has puzzled observers who note Helloworld’s share of online travel agency business, as measured by Experian Hitwise site visit figures, has plummeted since its decision to close Best Flights.

As reported in previous issues of travelBulletin, Best Flights was consistently ranked comfortably within the top 10 OTAs by site visits while latest figures show Helloworld outside the top 20.

travelBulletin submitted a question to the company about how its statement could be reconciled with the Hitwise figures but its public relations consultancy was unable to reply before we went to press.

The statement does not touch on the Best Flights closure which puzzled the industry at the time. Nor does it clarify whether the closure was a requirement of its deal with online partner, the global OTA, Orbitz.

The statement to the ASX also made the surprise announcement that approximately 100 locations will remain operating across the Harvey World Travel, Travelscene, Jetset Travel and Travelworld brands in Australia – seemingly undermining the Helloworld single brand strategy.

A key argument for dropping these brands was that it would enable the company to do battle with Flight Centre by concentrating its promotional dollars on Helloworld.

Asked if the stores retaining the other brands will continue to pay franchise fees and receive marketing support, the company’s public relations consultancy was unable to reply before we went to press.

In its ASX statement, Helloworld said its retail locations in Australia and New Zealand have dropped by seven per cent since December 2013 when implementation of the single brand strategy under now-departed chief executive Rob Gurney was well under way.

But the figures cited by the company point to a much more dramatic free-fall in agency numbers since the 2010 merger of Jetset Travelworld and Stella formed what is now Helloworld.

At that time, when ACCC approval for the merger was being sought, the combined group was said to comprise over 2100 outlets – Jetset’s annual report said it had 670 branded and affiliate stores while Stella’s strength was put at more than 1500 including about 700 operating under the Harvey World Travel and Travelscene brands.

The company says it now has a network “in excess of 1700 locations” – that’s a reduction of about 18 per cent in the pre-merger numbers.

“The decrease in network numbers is expected to result in a reduction in Adjusted EBITDAI (earnings before interest expense, taxes, share based payments, depreciation, amortisation and impairment) of between $5 million and $10 million,” the company reported to the ASX.

Nevertheless the statement presented an upbeat view of prospects with a prediction of significantly improved profits in the 2015 financial year.

A highlight was the news that QBT, long considered a financial drain on the company, is now trading profitably.

The statement predicted an EBITDAI outcome in the range of $40 million to $41 million for the 2014 financial year, after adjusting it to exclude “costs associated with the implementation of Helloworld and other non-recurring items”. The costs of implementing Helloworld are put at $15-16 million.

“The focused, consolidated Helloworld network will provide a strong platform for future growth in a multichannel environment,” the statement said.

“With the implementation of Helloworld largely completed by June 30, 2014, there will be a significant reduction in implementation costs and other non-recurring items in the financial year ending 30 June 2015. As a consequence, and subject to trading conditions, profit before tax is expected to improve significantly in 2015.” The statement also reported an “overwhelmingly positive” response to its store refresh program from franchisees, members and consumers. “The brand’s momentum is continuing to build nationwide,” it said.

It quoted glowing comments from two agency owners.

“I have been a Harvey World Travel franchise owner for 21 years and I can honestly say that Helloworld is a change for the better,” said Debbie Carr (Helloworld Surrey Hills, Victoria).

Glenn Temple, co-owner of five Helloworld locations in NSW (Bowral, Mount Annan, Campbelltown Mall, Macarthur Square and an Ambassador store at Shellharbour) said: “Our Shellharbour Ambassador store was opened in December in a completely new location, in a high demand shopping centre. We have been very impressed with the way in which the branding and layout drives foot traffic to the store.”

Helloworld chief executive Elizabeth Gaines said: “In a relatively short period of time, we have developed a strong network of Helloworld agents that have truly embraced the Helloworld brand, customer charter, products, services and business philosophy.

“Our Helloworld agents are proud to be part of a market leading, multi-channel travel company.

“Our sustained investment in mar-keting activity has already delivered a significant presence.

“We are very pleased with the progress the company has made in implement-ing the Helloworld strategy since it was launched only 11 months ago.

“The most critical phase of change is completed and we will now focus our efforts on growing the brand presence in the Australian market.”

 

 

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