Margin Compression Clouds Web Travel Group’s Post-Demerger Earnings Outlook

Demerger Reshapes Web Travel Group

In a pivotal move during FY25, Web Travel Group Limited (formerly Webjet Limited) completed the demerger of its business-to-consumer (B2C) operations, spinning off Webjet Group Limited. This strategic separation has allowed Web Travel Group to focus exclusively on its business-to-business (B2B) travel distribution arm, WebBeds, positioning the company for targeted growth in the wholesale travel marketplace.

Strong Growth in Transaction Volume

Post-demerger, Web Travel Group reported a 22% increase in total transaction value (TTV), reaching $4.9 billion, driven by a 20% rise in bookings to 8.4 million. This growth was broad-based across all regions, with notable expansion in Asia-Pacific and the Americas. The company’s marketplace now connects over 50,000 travel buyers with more than 500,000 hotels worldwide, underscoring its global reach and network effect.

Margin Compression and Earnings Impact

Despite the impressive volume growth, the company faced significant margin pressures. Underlying revenue increased marginally by 1% to $328.4 million, reflecting a 1.5 percentage point decline in revenue-to-TTV margins. This margin compression was attributed to a combination of company-driven pricing strategies during the European summer, a shift in product supply mix favoring lower-margin third-party inventory, and geographic expansion into regions with traditionally lower margins.

Consequently, underlying EBITDA fell 13% to $120.6 million, and underlying net profit after tax declined 22% to $79.2 million. The statutory net profit after tax was further impacted by non-operating expenses related to the demerger, restructuring costs, and share-based payment expenses, resulting in a steep 86% drop to $11.1 million.

Capital Management and Shareholder Returns

In response to potential dilution risks from $250 million convertible notes maturing in April 2026, Web Travel Group undertook a $150 million on-market share buyback, acquiring 31.2 million shares. Alongside investments in equity-linked financial assets, these initiatives have reduced the company’s exposure to dilution and reinforced a strong cash position of $363.6 million as at 31 March 2025.

The company did not declare a dividend for FY25, reflecting the focus on reinvestment and margin stabilization post-demerger.

Strategic Outlook and Operational Focus

Management acknowledges the challenges faced in the first half of FY25, particularly the unexpected margin decline in Europe linked to external events and internal pricing decisions. Remedial actions have been implemented, including tighter pricing controls and a strategic shift to increase directly contracted hotel inventory, especially in Asia-Pacific and the Americas, to improve margins.

Web Travel Group remains committed to its long-term target of $10 billion TTV by FY30, aiming for approximately 50% EBITDA margins. The company is investing in technology, expanding its global footprint, enhancing customer service, and empowering its workforce to drive sustainable growth.

Governance and Remuneration Changes

The demerger prompted board changes, with new appointments to strengthen governance. Executive remuneration was notably affected by the margin pressures and share price performance, resulting in no short-term incentives being paid for FY25. Long-term incentive plans have been adjusted to align with the company’s refocused strategy and shareholder interests.