Sally White takes a look at the turnaround of a major integrated travel group in Australia

Cries of disbelief rang around Australia’s travel market when Helloworld, its major integrated travel group, jettisoned local market leading brands. This was part of a radical updating that included a much stronger online focus. Source of the pain was that the company numbers several key local players on its share register, so they knew that these were not classic moves.

The shareholders in question were a powerful bunch, each with large slugs of the equity. They ranged from Qantas to the AOT group (provider of a range of travel services inbound services and of the neednow.com.au last-minute portal) and the Alysandratos family (one of Australia’s richest with a wide range of travel interests). However, their knowledge of the industry also enabled them to understand the need to increase Helloworld’s online presence.

The shares are slowly climbing out of the mire. They’ve moved up from a low of A$0.26 to around A$0.37. Of course, this does not as such provide a lot of comfort since back in 2010 they traded around A$0.95, but they are definitely trending in the right direction and are now well worth watching.

Helloworld’s Australian revenue took a dive last year of a whopping 57% down to A$223m – reflecting its change of strategy. It is 56% in retail, 31% wholesale and the rest is travel management. Australia accounts for 78% of its business since last year, overseas the rest.

The group has a strong portfolio of brands – in its retail segment, operating as a franchisor for multiple retail travel agency networks, this includes helloworld, Jetset Travel, Travelworld, Travelscene American Express, Harvey World Travel, and Concorde Agency Network in Australia, as well as for United Travel and The Travel Brokers in New Zealand. This segment also owns and operates Air Tickets, a ticketing facility that services the company’s travel agency networks and independent travel agents. The wholesale segment is engaged in the arrangement of tours and travel, and provision of override services. Its wholesale brands include Qantas Holidays, Viva! Holidays, Harvey’s Choice Holidays, Ready Rooms, Travel Indochina, GO Holidays, and Qantas Vacations.

It launched its consumer-facing brand helloworld.com.au, a couple of years ago. The then CEO Rob Gurney told news agencies that: “We are ambitious in our goals to reshape the Australian travel industry and have embarked on a major transformation for the group. We are well progressed on our transition and are focused on completing the transformation over the next 12 months.

“The second half of the financial year ending 30 June 2014 will represent a period of investment in the implementation of the Helloworld brand and growing our digital business,” he said.

Strange moves

So far, so good. The havoc started last year when Helloworld made the startling decision of closing one of Australia's most popular travel websites, BestFlights.com.au, after Gurney has said this was not on the cards. In the process it cut 40 jobs and was seen as dumping profitable business with estimated turnover of A$180 million and 2% market share. BestFlights.com.au and sister site BestCruises.com.au shut on Feb 1, all direct traffic being channeled to helloworld.com.au. But names have been ditched across the retail network.

Analysts were highly critical. "We think it is a strange move given the brand awareness, level of turnover and profitability of the site," wrote Armina Soemino of JP Morgan. "We see it as a major risk for the site to have abandoned this brand for an unproven one. We continue to see further adoption of the Helloworld brand as a major risk for the company.”

Of course, Helloworld was itself a product of rebranding – its name was changed from the iconic Jetset Travelworld (established in 1963) in 2013.  So, the market should, perhaps, not have been so upset. However, taking on board the general unhappiness, the company did make a classic move – it put in a new CEO in Elizabeth Gaines. As a new broom she has been able to complete changes with less opprobrium, and seems to have got away with disappointing H2 2014 figures and reduced numbers in guidance for 2015. 

The market skimmed over the H2 2014 8% fall in revenue, 44% dive in underlying earnings from A$19m to A$10.6m, and pre-tax loss as reflecting the repositioning and leaner networks. It decided that transformation was thankfully complete. There was also the comfort of a share-buy-back. Most importantly, the second half saw the online business through helloworld.com.au increase by 155%.

Looking ahead, Gaines has said: “This continued investment in Helloworld’s digital offering, along with the subdued consumer sentiment in Australia, means that the Group is currently tracking to deliver an adjusted EBITDAI in the range of A$25 – $30 million and remains on track to deliver a profit before tax in FY15.”

Local brokers, such as JP Morgan, are now moving to favour the stock, saying: “Due to its new strategy, Helloworld and its network should benefit from travel product which is more aligned to both its agents and consumer needs, greater buying power, consolidated marketing, an enhanced incentive structure, improved training and investment in technology, and a digital offering.”

Auspicious, too, is the Australian travel market background. International tourism was up 8%, according to the government’s last annual figures with trip spend increasing 9% to a record $30.7 billion. Overnight domestic trips and spending were up 7% and 6% respectively.

Come 2016, Morgans believe, Helloworld and its shareholders will really be seeing the benefits!