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Result

The year ended 30th June 2001 has produced a consolidated loss of $2.235 million.

Of this figure, an amount of $775,453 representing media advertising and brand building costs has been fully expensed and written off to the profit and loss account so that the result is stated in the most conservative manner.

Net cash used in operating activities totalled $2.15 million which is broadly in line with my report to shareholders in August 2000 which estimated a net usage of funds of approximately $2 million. Your company concluded the financial year with cash reserves of $3.03 million; again approximately in line with forecast and had total assets of
$3.3 million.

If current year business plans can be achieved we expect net cash outflow for the year to 30th June 2002 to be approximately $1.5 million.

Webjet's Business and Its Market

Webjet is fundamentally a marketer and manager of travel, using the Internet to take particular commercial advantage of a low cost distribution mechanism which in turn ensures additional customer values through the delivery of a price advantage based on the assumption of the customer completing the transaction themselves (the DIY concept), immediacy of information and online service advantages which are unavailable to the physical travel distribution industry. Unlike a number of participants in the sale of travel via the Internet, Webjet is unique to the extent that we are the only organisation which delivers our customers capacity and effectively complete the whole transaction online. As our billboards say Write your own ticket and save.

We are operating in an industry in the Australian market which continues to exhibit strong growth to the extent that Australian residents travelling abroad have increased from 2,500,000 approximately in 1995 to in excess of 3.2 million in 1999. Similarly, domestic airline activity within Australia, as measured by the Australian Bureau of Statistics Domestic Passenger Activity Report show an increase in the same period from approximately 22.7 million to some 24.4 million. Despite some disruption to normal travel patterns in the financial year ended 30th June 2001, caused principally by the Olympic Games and the introduction of GST, we are of the view that current indicators point to a continuation of these growth rates in the near future.

Interestingly, there is a concurrent underlying growth, both in terms of Internet access and usage and very particularly a substantial increase in the number of people buying online. According to the latest ABS statistics (February 2001) people buying online has increased some 66% between November 1999 and November 2000, with a parallel increase of 44% of adults accessing the Internet over the same time span to a level now in excess of 6.9 million adults. Fuelled by a series of airline initiatives, including Qantas, Virgin Blue and the then Impulse Airlines. The sale of airline tickets on the Internet has become an important ingredient of e-commerce in Australia and in many ways is beginning to replicate the experience in North America where the sale of travel on the Internet has been identified as one of the highest growth components of e-Commerce.

Against this background it is appropriate to comment on some of the particular site developments of Webjet during the year.

The Site, Technology, Our Shop Front

Webjet’s Internet site has undergone a transformation during the year.
In association and in very strict synchronism with our brand building exercise through the physical media, we have sought to ensure that the Webjet Internet site provides a strong level of brand differentiation and integrates leading edge technology to deliver best possible consumer experience to truly place our customers in a position where they literally write their own ticket and save.

During the year Webjet has:

• Introduced a new state-of-the-art booking engine which delivers online access to in excess of 20 million airfare combinations and their associated inventory management, along with the automatic provisioning of fare control rules. Unlike a number of competitors, the Webjet experience is automated from beginning to end and does not rely on the now obsolete process of email quotations and replies, checks and rechecks. The process is entirely automated and delivered online to our customers, including fully secured online credit card processing.

• We have integrated with this online capability sophisticated video linked instant messaging with the objective of providing our customers with real time online customer support, again obviating the need for either phones or emails.

• Supporting that technology we have brought our Customer Service Centre in-house as part of the process of being as close as possible to our customers and doing so in a manner which is cost effective and scalable. Webjet does not operate a telephone reservation centre. We operate an online customer support centre.

• As part of the provisioning of these online services, our site has been substantially enhanced to now include a more comprehensive range of destination information, including travel maps, the pictorial representation of key destination features, extended visa and passport information and a very comprehensive online world travel guide.

• Behind these visible site enhancements our world airline reservation system has also been upgraded and moved to Galileo which is considered by us to be the world’s most advanced global reservation system. We note particularly that we have enjoyed extraordinary co-operation and assistance from Galileo in Australia in the process of that change.

• In order to further provide first time users with additional security and assistance, we have introduced an online video demonstration pack and provided credit card authorisation security, including the provisioning of free transaction insurance to protect our customers against however improbable misuse of credit cards.

The combination of these site developments provides a strong level of differentiation relative to our competitors and during 2001 and 2002 there are further exciting developments in various stages of planning and implementation. As technology changes, as customers experience changes, opportunities arise. Webjet will continue to lead the field in the implementation of integrated Internet travel capabilities.

It is one of our core strategies.

Key Strategies

Webjet’s fundamental strategy is to ensure that we remain a focused online Internet seller of travel and that the process we deliver to the customer puts the customer in control, supports the customer and provides us with a commercially scalable service provision and the increased volumes, which during the year have been enormous, do not mean equivalently increased costs. It is our objective to ensure that the cost increases, which would otherwise be expected to go with dramatic volume increases, are extremely limited.

The second component of our business strategy is to deliver a product which is differentiated relative to other suppliers of travel products and is consistent with delivering the customer value control and economic advantage. This strategy saw us release the revolutionary change, cost plus pricing in February this year where for the first time the cost price of travel products is transparently provided to our customers and as a result facilitating informed choice. Webjet is the first company in Australia to then disclose simple, clear fulfilment fee which in combination with the cost pricing philosophy provides an enhanced opportunity of delivery of enhanced economic value.

Underpinning these two primary drivers is the ongoing development of the Webjet trust mark. This is not just a question of presenting a brand in front of consumers: it is about attaching to a brand a set of values which enhance and differentiate the brand itself and ultimately, over a reasonable period, transform that brand into a brand of value and a brand of trust. It is our view that whilst small value impulse type buyers may in fact occur in a random manner on the Internet; travel is at the other end of the scale. It is in general a large ticket item, it is an emotionally important item and it is a product and service of some complexity. It is a fundamental imperative that the customer trusts the brand and conversely that the brand delivers the promise.

Unlike traditional sellers of travel who have physical presences through shop fronts etc., Webjet exists in cyberspace and that makes the development of the brand even more important. It is no longer a question of buying newspaper column space to advertise a series of prices. It is about presenting the range of our services in a manner which highlights the totality of the advantages of buying from Webjet on the Internet. Interestingly, this of course provides us with media buy leverage to the extent that our quite modest advertising funds are not dispersed on buying column inches on prices which can in our case be displayed dynamically and with minimal cost on the Internet site, but focused on the establishment of the trust mark.

Our media buy tends to concentrate on weekend newspaper colour gloss magazines, national magazine publications such as Who Weekly, the Qantas flight magazine and occasional tactical travel page product advertising and large outdoor billboards, particularly in New South Wales and Victoria on airport access routes.

The media buy is supplemented by a constant streaming of general press releases and we are delighted to note that in the year ended we have achieved nearly 100 general media mentions; some quite small, some focused on product in the travel pages and some quite significant.

These key strategies have then led us into the formation and strengthening of a series of special alliances and associations.

Key Indicators

Graph 1: Quarterly Booking Trend Analysis indicates the number of actual paid bookings made for the period. The graph shows a consistently strong increase of bookings made from one quarter to the next. It is important to note that on average each individual booking equates to approximately 1.5 passengers.	1. Quarterly Booking Trend Analysis June 2000 - June 2001
Graph 2 : Quarterly Site Sessions report individual web site session activity for the period. The graph shows a consistent building of site activity quarter on quarter.	2. Quarterly Site Sessions Trend Analysis June 2000 - June 2001
Graph 3 : Quarterly Gross Transaction Values indicate the total dollar value of paid booking transactions processed in the period. The graph shows a consistently strong building of total transaction values quarter on quarter.	3. Quarterly Gross Transaction Value Trend Analysis June 2000 - June 2001
Graph 4 : This graph which compares Webjet booking numbers for the months of August 2000 with August 2001, demonstrates our strong business growth over the past 12 months. Each individual booking equates to approximately 1.5 passengers.	4. Booking Growth August 2000 - August 2001

Special Alliances

During the year Webjet has entered into a new and very important contract with Galileo which we consider to be the world’s leading airline reservation system. The agreement with Galileo in Australia provides us with access to leading edge airline booking facilities and a series of commercial opportunities which we believe will be of material benefit to your company over the next several years.

Additionally, Webjet has, as announced to the ASX, entered into a new and enhanced agreement with Qantas, Australia’s leading airline, which we consider will also be instrumental in the development of your company’s business. We are proud to be associated with Qantas and are looking forward to the development of our commercial relationship in the years to come.

We also entered into a special commercial contract with Penzance Technology Pty Ltd, a leading edge Sydney based Internet booking engine company with whom we have worked collaboratively in the implementation and development of what we consider to be the best Internet travel booking engine in the world and we particularly acknowledge Penzance’s contribution to our development during the year.

These special associations are fundamental to Webjet’s ability to continue its development, meeting the challenges and staying ahead of the rest of the field in a world environment in a world environment which is changing at extraordinary speed.

World Developments

The year has seen some colossal changes and developments in the sale of travel on the Internet.
In the North American market particularly, we have seen the ongoing rapid development of mega Internet operations such as Travelocity and Expedia where in each case their annual turnovers now exceed AUD3.5 billion. Interestingly, the nature of their business models appear to us to be very similarly constructed and aligned to the Webjet model, albeit in a North American environment which is vastly larger and dominated by the sale of domestic air travel.

The year has also seen the announcement by Cendant, the acquisition of Galileo, and more recently Cendant’s concurrent acquisition of Cheap Tickets, a major seller of discounted domestic air travel in North America.

The scope of these operations, the capital invested in their ongoing development and their already impressive achievements are clear evidence to us and our assumption that the sale of travel on the Internet provides one of the most exciting opportunities in e-Commerce and, perhaps more broadly in business overall, to be a well founded assumption.

Having said that, there is a great deal of uncharted territory ahead.

Forecasts And Unchartered Territory

Whilst it is clear from the key indicators that Webjet has achieved extraordinary growth during the year and whilst we believe very strongly that our fundamental business model is appropriate to our endeavours of securing long term shareholder value, we are nevertheless cognisant that we are still operating in uncharted territories.

There can be no guarantee of success.

We are competing with travel operations that have strong brands, we are competing with travel operations that have been in existence for many years and have loyal and happy customers, we are developing a business in an environment where e-Commerce is still in its infancy, we are exposed to all of the fragilities and vagaries of international Internet communication and associated technologies and we need to manage our resources and our development in a way which on the one hand takes advantages of the extraordinary opportunities, but nevertheless does so in a manner which measures and uses our capital resources prudently.

That is not an easy balance: it constantly shifts the very real challenge that your management and Board faces constantly. It tries to tune that balance in a way that on the one hand doesn’t sacrifice opportunity, but on the other gives us reasonable reserves to give us the maximum possible insulation about the vagaries of the timeline involved in our revenue build and our movement towards profit.

There can only be one guarantee to you, our owners, in all of these endeavours. Our commitment and our guarantee to you is to continue to focus all of our resources, all of our skills and all of our determination to the delivery of these objectives.

David Clarke Managing Director