WHAT happens when a successful company makes a key change that appears to undercut one of the core premises upon which the business was founded?
Has it broken faith with clients or simply taken the game to the next level?
Virgin Blue offers a case in point. It started out as a no-frills budget airline in 2000 but today has morphed into a full-service carrier with many of the flashy extras it once derided.
Online room booking service Wotif.com, coincidentally also launched eight years ago, is poised to make a similarly dramatic shift.
The Brisbane-based company has grown to dominate about 40 per cent of the internet-based business by providing customers with discounted room rates secured at the last minute.
Now the firm, which currently allows clients to book up to 28 days in advance, plans to expand to a 365-day reservation window by the end of 2009. The change will start to be phased in early in the new year, when the bookings will be expanded to up to three months in advance.
But hoteliers almost certainly will not offer significantly cheaper room rates many months in advance. Why would they? The original appeal of Wotif for accommodation providers was that it allowed them to fill rooms that otherwise might have stayed vacant and to do so just a few days in advance.
Wotif.com chief executive Robbie Cooke concedes that there has been "a lot of internal debate about the pros and cons" of previous changes to the forward booking period. The company started out with just a seven-day window but then quickly expanded that to 10 and then 14 days within in the first year. The jump to 28 days was not made until 2005.
Mr Cooke says there are two key reasons driving the change to 365 days.
Customers say they want certainty for forward bookings beyond 28 days in order to solidify travel plans, especially over busy periods such as school holidays and Christmas.
For hoteliers, the attraction is that they can deal directly with a customer - albeit via Wotif. That cuts out a layer of wholesalers, travel agents and other middlemen in the distribution chain that can tack on up to 30 per cent in extra room costs.
Hotels will still offer discounted accommodation for bookings made just a few days in advance but they too can have added certainty for the months ahead.
To some extent, Wotif is just playing catch-up. Its own subsidiary, lastminute.com, already offers bookings up to a year in advance and so does smaller rival Quickbeds.com.
ABN Amro Morgans analyst Belinda Moore says the expanded booking window probably will not make a meaningful contribution to earnings until the 2010 financial year but the change should add a 10 to 15 per cent lift in sales.
Wotif's upgrade comes as the global economic crisis has so far left it seemingly unscathed.
The firm generated a 31 per cent spike in net profit to $34.45 million in the last financial year based on a 40 per cent lift in revenue to $94 million. First-quarter room night sales jumped 34 per cent.
Mr Cooke believes there may even be some benefits stemming from the financial turmoil.
"The majority of our customers are Australia and New Zealand based. With the dollar weakening, I think you're going to see more and more people cutting out the overseas trip and travelling within Australia for a start and probably, more likely, within three hours of home base," Mr Cooke says.
The downside is that Wotif has inventory in 45 countries and those businesses may see patronage decline if fewer Australians travel overseas.
Ms Moore says Wotif had a "reasonable" first quarter with sales in line with forecasts and she agrees that the company is poised to benefit from a likely increase in domestic tourism.
She has predicted a 21 per cent jump in net profit this year and has kept a "hold" rating on the stock, with a price target of $3.50. Wotif shares closed ob Friday at $3.46.
Only $1.3 billion of Australia's $10 billion-plus annual spend on accommodation is booked online, meaning there is plenty of room to grow. About a third of all accommodation in the US is now booked over the web but Mr Cooke is sceptical of estimates that it will hit 70 per cent by 2011.
Closer to home, real growth potential is seen in Asia, where only 5 per cent or less is reserved online. That explains why Wotif acquired Asia Web Direct this year.
"Asia is such an attractive proposition. There's a huge amount of potential there. The market's potentially enormous," Mr Cooke says.
http://www.news.com.au/couriermail/story/0,23739,24591648-3122,00.html
