Webjet Shareholder's Letter - February 2001

Dear Shareholder,

As already announced to the Australian Stock Exchange on 12th January, your Board is pleased to report that the progress reported to you for the quarter ended 30th September continued through to the end of December 2000.

This is despite a pronounced industry downturn in new travel business written during the latter part of the December quarter. Webjet substantially outperformed the industry in the quarter and recorded continued growth, where generall industry indications are that the total market, affected by the Olympics and GST, amongst other factors, exhibited negative growth.

The following three graphs indicate continuing increase in site sessions, transaction values and quarterly bookings. As you will appreciate from the graphs, the percentage changes are quarter on quarter.

 

1. Quarterly Site Session Trend Analysis Apr 00 - Dec 00
2. Quarterly Gross Transaction Values Trend Analysis Apr 00 - Dec 00
3. Quarterly Booking Trend Analysis Apr 00 - Dec 00

Webjet completed the December quarter with cash of approximately $4.3 million
and no debt.

The first two weeks of January continued a further substantial acceleration of bookings, some 20% compared with the same period in November. This is in a period where the industry traditionally does not write substantial new business. Customers have either completed their holiday travel plans or, alternatively, are waiting for new year holiday program releases but have not yet returned to normal commercial activities. This would suggest to us that we are again substantially outperforming the industry.

Against this background, your company has now completed a series of major technology developments, including a new next generation robotic booking engine and the installation of interactive instant messaging which will provide us with the platform which we consider to be the most exciting and revolutionary change to the distribution of travel in Australia. I don't think it is overstating it to say our strategy has the potential to substantially accelerate our growth rate, provide a vastly more efficient consumer access to the latest airfare deals, deliver the customer substantially better value and choice and, most importantly of all, accelerate your company's progression to profitability.

We consider that it will cement our position as market leaders in terms of the implementation of technology and provide us with a unique competitive advantage.

 

L-R: Dean Maidment, Allan Nahum, Steven Scheuer, David Clarke, Ben Lochtenberg, John Lemish.

In a revolutionary move, your company now offers travellers airfares at cost price. We are effectively delivering on the Internet tens of thousands of airfares at price levels previously only available to travel agents or large corporate accounts.

Concurrent with this development we are providing the customer with four ways of buying. Each way has attached to it a pre-determined fulfilment fee. For the first time the customer has real choice and transparency in the selection and management of their travel arrangements. The customer can effectively be their own travel agent and as you will see from a copy of the full advertisement on the opposite side of this page, select from a range of services, starting with full robotic online processing, right through to a unique personal travel manager facility. It is a full spectrum of choice.

Put another way, the customer can choose the level of saving and service. No other Internet travel provider in Australia currently provides this level of choice.

This uniquely positions your company and we expect this revolutionary development will lead to a substantial acceleration of Webjet's already established growth path. It is indeed four new paths to cheaper flights. We expect it will be a major path to increased turnover and an acceleration of your companyÕs progression to profitability.

As a consequence of the technology, it means Webjet can process in Booking Option 1 (DIY Quote and Book) ever increasing volumes with minimal effect on processing costs.

This development is made possible by the co-ordination of a series of major technology initiatives. These include:

The installation of a highly advanced Australian developed online booking engine which in addition to providing a calendar driven graphical interface for fare searches, integrates all of Webjet's net factory price fares. Developed by Penzance Travel Technology Pty Ltd, the booking engine is regarded as world leading technology.

The linking of our customer service centre to our website and therefore our customers through an interactive instant messaging process. The software has been provided by Face Time Inc. a leading North American company in the area of customer service/Internet software. The significance of this software is that it enables our service centre to instantly interact with the customer to assist in the process of bookings when necessary, provide web pages on request and in fact undertake a full quoting and reservation service where the customer selects that booking option.

In addition to these two major technology developments, Webjet will continue to provide its highly efficient e-mail Quote or Book facility which has particular relevance for out-of-hours operation. It now adds a new and unique facility called Personal Travel Manager.

Personal Travel Manager provides a fourth booking choice. It is designed to enable our customers to physically talk or visit with a senior professional travel manager who, linked electronically to our service centre via the interactive Quote and Book process provide all of the benefits of our new revolutionary pricing, combined with highly personalised service.

Your Board believes that these developments will lead to:

• Clear and definitive market differentiation.
• Substantially greater transaction volumes.
• Lower transaction costs.
• A position of market leadership.

The launch program will be supported by carefully targeted high impact media advertising. This program will include the colour ad on the opposite page in the Weekend Australian magazine which has proven to be extremely cost effective and in the Financial Review colour magazine targeting small and independent business travellers. It will also appear in the Qantas flight magazine and the Ansett flight magazine which in combination covers all domestic air travellers in Australia over the next two months and all of the Qantas international traffic on a global basis.

This core media campaign will be supported by two strategically placed billboards; one on the Tullamarine Freeway in Melbourne and one on the princes hwy, Matscot in Sydney and will be supplemented by tactical key daily newspaper placements from time to time.

The expenditure on this campaign is being carefully controlled but on a quarter by quarter basis may lead to a higher cash line in the quarter ending March 2001.

Milestones

During the last quarter your company has successfully implemented the following initiatives:

• A highly successful million bonus point promotion.
• The introduction of instant Quote and Book.
• Our innovative Primus marketing promotion.
• The development of a series of customer value links.

The next three months are going to be very exciting times for your company. Your Management and Board are committed to exploring all avenues to increase shareholder value. You can help us in that process by ensuring that when you wish to travel you book with Webjet and take advantage of our special shareholder benefit program.
 

IN A REVOLUTIONARY MOVE, Webjet now offers you airfares at cost price plus a small fulfilment fee. As well, we've introduced a choice of four levels of service assistance to make it easy for everyone to access our cheaper airfares online. The less assistance you need to complete any transaction the less you pay. So now, you can decide how much you save on any airfare - and never pay extra for services you don't require. Even all our quotes are free. To fly at the price you want, become your own travel agent, write your own ticket and save.
This 24 hour, 7 days a week booking option gives you direct on-line access to airfare pricing, airline schedules and seat availability for all travel. All quotes are free, so you can check out as many prices as you like. And because you do all the processing work yourself, you'll only be charged airfare Cost Price a low 4% fulfilment fee when you book. It is the cheapest way to buy any ticket.	This booking option lets you chat on-line in real time with one of our Service Centre Consultants - and receive instant messaging. The consultant will personally guide you through the whole booking process and advise you on airline pricing and available flights - so it's impossible to make a mistake. All quotes are free and actual bookings are charged at airfare Cost Price a small 6% fulfilment fee for the extra assistance provided. This service is available Mon-Fri 9am-6pm and 11am-3pm on weekends.
This 7 days a week booking option is perfect for dealing with more complex, multi-destination travel itineraries. Simply fill in and email a Travel Quotation Request via our site and you'll receive an email response detailing all the alternative airfare quotes for free within 24 hours. Once you select your preference, our Service Centre Consultant will make your booking for you and confirm all arrangements. You'll pay a little more for this service, but at airfare Cost Price an 8% fulfilment fee you're still way ahead - especially on international itineraries.	With this personal booking option, let us know your travel plans and we'll match your needs to a professional Travel Manager who is a specialist in the field. You can then talk to them by phone or visit them in person. They'll give you sound, independent advice on planning your itinerary and ensure you benefit from all the savings of booking through Webjet. Whilst you'll pay airfare Cost Price a slightly higher 10% fulfilment fee for this personalised service, you still can't better it by booking through conventional methods.
Strategic Implications Based on an analysis of the Australian and international industry, it is my view that Webjet's price and service strategy will have a number of longer term strategic implications which will be of substantial benefit to your company. Effectively, the implementation and integration of technology on this scale raises entry barriers to new competitors on the Internet. Further, because Webjet can effectively provide free automated quoting, it delivers your company a sustainable, competitive cost advantage relative to the physical travel agency industry. It means we can do business less expensively. It is a core component of your company's continuing brand build and most importantly adds a tangible and real benefit to the customer which becomes inseparable from the brand. It becomes a core brand value. Unfortunately, the general press, both here and overseas, has over the last several months been unduly concentrating on .com collapses, debris and chaos. In this connection we thought it may be useful to append a brief research analysis based on the North American market which provides a clearer perspective on the Internet and travel in general. We believe that the observations in this article translate to the Australian market experience, accepting of course that the size of the Australian market is smaller and its stage of development in some ways is still behind the North American experience. It is, however, rapidly catching up. Australia has a history of rapid take up of technology innovation. Online Travel Set To Boom In 2001 As boom turns to gloom at economic sectors everywhere, here's one prediction for 2001: Internet travel will zoom and Philip C. Wolf, CEO of PhocusWright gives these reasons: There's no tangible product to ship. Even the industry's notorious stream of paper documents has dissipated with electronic transmission. There's little competition from equivalent national brands. Thomas Cook, American Express, Liberty Travel, they have the solid business models and healthy balance sheets, and could have controlled the online world. But while they sat around contemplating e-commerce, the Internet brands - Travelocity.com, Expedia, priceline.com - moved right in. This is contradictory to other industries where the brick and mortars have made it difficult for new players to emerge victorious. Eight of the ten fastest-growing retail sites during the holiday season are traditional offline brands, according to Media Metrix, including Wal-Mart (which failed dismally in its online travel venture), Barnsandnoble.com and eddiebauer.com. The online experience offers a wealth of advantages. ASTA tells us there's nothing like a human travel agent, but consumers tell us differently. While travel agencies are still the main way online travellers buy travel, use of travel agencies has declined 29% while online usage has grown 170% in two years, according to The PhoCusWright 2000 Travel E-Commerce Survey. Consumers are motivated by price, and they think the Internet, with its special discounts, last-minute inventory, consolidator fares and price comparisons, offers the best deal. That's not to mention the other advantages of technology; instant fare change alerts, targeted offers, flight delay warnings, saved itineraries, 24/7 availability, the list goes on. That's why over 20 million consumers will purchase over $20 billion in online travel next year. Travel e-commerce leaders are corporate-backed as opposed to venture-backed. That means an evaporating well of venture financing won't kill the leaders. Online travel sugar daddies include Sabre (Travelocity.com), Microsoft (Expedia), Carl Icahn (Lowestfare.com), Galileo (Trip.com), Rosenbluth (biztravel.com) and Amadeus (OneTravel.com). Travel is the single largest repeat discretionary expense. Sure, housing, autos, education cost more, but how many times do we buy a house in our lifetime versus fly on a plane? Consumers of all types and nationalities continue to defy the sceptics with an insatiable appetite for anything and everything online travel. Traditional travel agencies must radically upgrade their entire service offering in order to secure sufficient market share for generations to come. No industry is immune to a recession, and, if the U.S. falls into one, it will hurt online and offline travel. Corporate cutbacks and fewer family vacations will affect travel in general. The online travel industry has never lived through a recession - it was born in the boom and that's where it grew into a $13 billion business. But it will survive a slowdown because it offers a convenient, efficient and cost-effective way to buy and sell travel. What more could you want in tough times? Thank you for your support. Regards, David Clarke Managing Director - Webjet Ltd