Web Travel Group Limited (WEB) Earnings Call Transcript & Summary

Good morning, and welcome to Webjet Limited Financial Year '21 Full Year Results Briefing Conference Call. Today, we are joined by John Guscic. I'll now hand over the call to him. Please begin your meeting.

Thank you, operator, and good afternoon, everyone, and welcome to the Webjet FY '21 results. It's the first that reflects our March 31 year-end. Joining me on the call today, I have our CFO, Tony Ristevski. So, whilst we wait for markets to open, we've not stood still. We've taken the opportunity to transform our business to be ready for the recovery. We've looked at ways to be more agile, lean and efficient across the entire business from service and quality to operating and marketing to capital strength and management restructuring. We have created a global platform that will reduce costs at scale by at least 20% and provide the structural support to focus on those markets that we will rebuild fastest, where competitors are weakest, and we can target the #1 position. We see a world of opportunity. We know people cannot wait to travel, to reunite with families and loved ones, to embark on adventures and to explore the world. Webjet has significant cash reserves. We have a team that's always been agile and hungry to win, and we are ready to go. Business is powered for recovery, and we're already seeing that in the results in FY '21. In every market that's opened up and has had material volumes, and I'm talking about the domestic flights market in Australia, the WebBeds North American market, we have increased our market share by at least 50% compared to pre-COVID levels. We saw in FY '21, the key highlight is that Webjet OTA returned to profitability, and that's been driven by domestic leisure markets reopening, and we have continued to take significant share. On the WebBeds side, we're seeing improved booking performance over the last few months, but many regions are still being impacted by lockdowns and travel restrictions. The transformation initiatives that we will cover later on the presentation enable us to refocus our business in maintaining and extending our cost efficiency lead and improving ourselves when we get to scale. We started that business in 2013. We targeted 8/5/3, 8% revenue TTV margin, 5% cost, 3% EBITDA. We then shifted 2 years ago to 8/4/4. Our new target is 8/3/5, and we'll talk about how we're going to get there a little bit later on in the presentation. Our strong capital position has us with proforma cash of $431 million. Our FY '21 average cash burn was $5.5 million a month. And all our debt has moved out -- all the maturity of our long-term debt has moved out from November '22 to November '23. We are ready to capture demand when travel returns. Our global footprint remains intact. Our customer base is diverse and large. We have significant exposures to domestic leisure markets and where domestic leisure markets do now open up, we're able to tap in with the new contracted hotel rates that we have for that business. We have improved efficiencies across all businesses, which you'll see a reflection of our revised cost base for all of our businesses. And as markets reopen, we are starting to see bookings come through in all businesses. Moving on to Slide 4. TTV and bookings growth are occurring as markets reopen. The standout performer for our business in FY '21 was the Webjet OTA business, where we're seeing consistent growth over the course of the full financial year over the 9 months. And as we roll into April of the start of the new financial year, we're seeing that we are delivering 95% of pre-COVID flight bookings for the corresponding April period of 2019. Online Republic has improved its performance during the course of the final quarter, and that continues to step up in April. We actually made money in the month of April, the first time Online Republic has made money since the pandemic. And we are through the combination of a better product mix for domestic markets, lower cost base and revitalized management, we're continue and optimistic about the possibility -- the outcomes probable for the Online Republic business. The WebBeds business has been the most impacted by ongoing travel restrictions in many regions. As markets open up, we are seeing bookings pick up. The best example is North America, which is now traveling at 83% of April 2019 numbers. To put that into context, the overall flight market in North America is at less than 60% of its 2019 capacity. And if you reflect on our historic WebBeds business, it's been an international outbound business in a market like North America, in which international outbound has been severely curtailed over the course of the last 12 months. That reflection of our market share is a pickup of our domestic-led strategy in that particular market. Moving on to our financial summary. Tony will go through this in more detail. The difficulty, obviously, is it's the first of our new financial year. It's the 9-month financial year that we've just completed. The EBITDA result doesn't make for an immediate compare. However, for the underlying operations for the business for the 9 months, we had a loss of $56.3 million at an EBITDA level. At a statutory level, the loss was $125.3 million, but it included $69.4 million of non-cash items. Cash position remains extremely strong. We started the financial year with $210 million. And on a pro forma basis based on the convertible note being raised on the 1st of April, we finished the year at $431 million. Clearly, it provides us with significant liquidity for any circumstances in the recovery as well as giving us the opportunity to look at M&A down the track. If we look at our cash burn rate, the third quarter cash burn rate increased to $6.9 million. This was due to 2 factors. One is that we paid some finance costs during the month of roughly $700,000, and the significant improvement in working capital driven by the improvement in our B2B business plateaued during the quarter, so we didn't get the tailwind of improved working capital. Overall, the business has done a good job in incorporating, getting everybody back to 100% salary and a reduction in significant government subsidies, all of which have been offset by the strong trading performance of the Webjet OTA business. As we have explained many times over the years, as the -- our business grows, the working capital cycle is a positive to the production of cash for the business. And as markets open up during the balance of FY -- of calendar '21, we would expect to see a continued improved working capital position for the business. Moving on to a more detailed look at our respective business units. We'll move to WebBeds. Our transformation strategy has been underway for 12 months now. There are a significant number of initiatives that the entire business has been focused on. As we can see, our cost base is down for the 9-month period of 42% on a compare basis. We are seeing, as I've already called out, bookings being impacted by when markets open up and how markets have handled the vaccination process, but we are starting to see an improvement in the underlying business, and we expect that to continue throughout the new financial year. Our business margins are expected to be similar at a TTV level to pre-COVID margins, which will be around about the 9% number. The current margins are clearly impacted by a skewing to our lower-margin businesses, primarily in APAC and the U.S.A. As I've just mentioned, the standout performer for us is the first market that's opened the business in the B2B side is North America, and we're seeing an improvement that's quite material against the underlying market, and we have a high degree of certainty that the North American market will exceed the pre-pandemic results by the middle of this calendar year. So we're well positioned in markets that open up to outperform at a top line level, primarily because, as the world has changed over the course of the last 12 months and supply arrangements have been modified and consumer behavior has changed, we have skewed our sales efforts to 2 areas. One is on the supply side, getting domestic inventory across all of our markets, and you already can see the success of that in the North American business. And on the customer side, we are leveraging the relationships that we have with OTAs across the world. The consequence of having a more viable product offering for the OTA market sees that the overall B2B market that WebBeds is addressing has actually expanded beyond the $70 billion market opportunity that we saw pre-pandemic. The OTA business has continued to be the key driver of the WebBeds business, and we think that will be sustainable in the recovery, notwithstanding that we have a diverse customer base and diverse -- and a broad geographic mix, which incorporates not only OTAs, but Super Apps, which we expect to grow and wholesalers, which give us access to niche providers of sales of hotel room that we previously would not be able to tap. We think that will be the 3 drivers that will give us an expanded market opportunity. We have an expectation that retail travel agents, corporate travel agent, tour operators will still exist and will still continue to have a viable place in the travel ecosystem. However, we also believe that they won't grow at the same rate as the aforementioned OTAs, Super Apps and wholesalers for our particular business. Moving on to Slide 10. Our transformation strategy has been well underway for the last 12 months. And the primary motivation behind the transformation strategy is to be the low-cost provider in a business of scale that is the WebBeds B2B business. In a business in which competitive advantage is derived by being the low-cost provider, we've taken and continued to undertake significant works that will enable us to take costs out of our business at scale and improve our ability to generate efficiencies at scale by reducing our cost base by at least 20%. There are a broad range of initiatives. We've previously, a couple of months ago, gone through these quite extensively over a 1.5 hour presentation. The financial -- the information is still available on our website for people who want to explore -- to look at what we're doing and explore the initiatives underway and how we expect to drive the outcomes that we're focused on. The net results of that cost base improvement is that our profitability targets can now reflect with a high degree of confidence that we can get to a 5% EBITDA margin against our TTV. The net result is we expect on our targeted basis that our 8/4/4 can transform quite seamlessly at scale to an 8/3/5 model. And if we go to Slide 12, we have the opportunity of looking at how that has progressed over the journey of the WebBeds business. Our profitability pre-COVID continued to improve at an EBITDA level. And we started the business back in financial year 2013. And as I reflect back on our first sales of $14,000 in February of 2013, we spoke about at scale trying to get to a target of 3% EBITDA on the back of 8% revenue to TTV margins. As we made scalable acquisitions during our journey primarily through JAC and DOTW, our margins kept improving. And as we reduce the organic investment in our business, we saw those EBITDA margins get above the 8/5/3 target. We revised that target in the first half of financial year '19 to 8/4/4. Pre-COVID first half FY '20, we got to a 45% EBITDA target, which was well on track for the 8/4/4 numbers. And with the cost efficiency programs that have been embedded, the cost taken out of the business, the utilization of robotics, machine learning, AI across the entire portfolio, the streamlining of diversified regional structures into a consolidated centralized structure provides us with a high degree of confidence that we're able to deliver against the 8/3/5 target once the markets open up and we get to scale it. Moving on to the Webjet OTA business. Clearly, the standout performer at an EBITDA level for the last 3 months. We made $3 million, providing with a $4.1 million full year results for the business. The improved profitability in the second half is down to high degree of consumer confidence in being able to travel domestically. And as domestic borders have opened, we've seen significant improvement in underlying volumes across every state of Australia. The key driver that has always been the footprint that's delivered value for Webjet shareholders is the significant brand strength that we have. And as a consequence of the quality of service that we have provided during the pandemic, we are seeing a significant uplift in our market share in the Australian marketplace. Our costs are about 74% across the 9-month period. The key driver and the reduction of cost is the scalable cost base that's tied primarily to TTV, and the biggest driver of that cost improvement is marketing and other volume-related expenses. We believe that in a market that continues to open up over the course of calendar years '21 and '22 that we will be able to drive a sustained above-market performance without the significant marketing costs that we have had historically. We're already seeing that as a reflection in our EBITDA margins already being back up above 30% for the second half of FY '21. And we believe that EBITDA margin will continue to improve in the new financial year. And that level of outperformance has continued at the start of the new financial year as reflected by April numbers showing us at 95% of April 2019 level in a market that is a long way from 95% domestic availability in Australia. If we move to Slide 15. Historically, we have been the #1 OTA with more than 50% of the OTA flights market. We have picked up share, and we would have more than 50% of the entire OTA flights market. Our business has historically been skewed primarily for leisure. We have been the beneficiary of the strong shift from offline to online, which has continued to enable us to outperform the market. There has been great demand for leisure travel as markets have opened and our ability to provide a unique booking platform to combine the 4 domestic carriers in Australia as they battle for market share, and we give a unique consumer insight into pricing, and we get a unique consumer ability to combine fares across the entire spectrum that gives us the competitive advantage that sees us deliver the results that we have seen. As per the graph on Slide 15, you do see an immediate impact as state premiers shut down borders but an immediate rebound once those borders unlocked. We've been now profitable with the exception of the Christmas, New Year period when there was the outbreak in New South Wales. But we've been profitable since the start of November, and that profitability continues to improve over the course of the last quarter of the financial year. We move to Slide 16. You can see that as a reflection of whatever metric you wish to compare us to, to demonstrate that we have increased market share over the journey of FY '21. Against the total market as represented by [ Vitra ] data, we have outperformed the market by the top graphs that you can see by 1.7x. And if we compare ourselves to anybody outside supply, the airline direct. We have more than doubled our share across our traditional competitive set. That structural shift is continuing to accelerate. As you can see, it accelerated again into April, which is again our best performing month compared to our historic average of doing 5.5% of all GDS bookings. And that doesn't capture the non-GDS bookings in which we have been able to demonstrate significant outperformance, in particular with REX and Jetstar in the Australian marketplace. What we're seeing is a shift to our platform, primarily because our mix-and-match capability is well suited to a changing and reduced airline schedule. And as new entrants and variable airfares enter the market, we're seeing lots of consumers take advantage of our incomparable matrix display that gives people the ability to compare and book multiple carriers instantaneously. It's been a great success over the course of that, and we have no doubt that, in financial year '22, that we will continue to see an improved performance from the Webjet OTA business. Moving on to Online Republic, a similar strategy and ability to execute as per Webjet OTA. However, the Online Republic business is more levered to international travel. As soon as the Australia, New Zealand border opened, we became profitable in the Online Republic business in April. As I've mentioned, our focus in our recovery strategy is to take costs out of our business. The cost for the Online Republic business is down 43% on a comparable 9-month basis. We expect ongoing margins to normalize around the 9% to 10% level. We have appointed a new CEO for that business. We will be launching a brand rejuvenation in the first quarter of FY '22 for this business and continue to roll out as markets open up across the board. What we are seeing and April's results are testament to that is that when the ability for people to travel internationally opens up, it makes the Motorhomes business a viable alternative, and we saw an immediate rebound of that business in April as markets did open up. If we go to Slide 19, as per all of our businesses and the unifying elements of our strategy are as follows: cost reduction to maintain the cost leadership position as well as an ability to focus on domestic marketplace offering. The Online Republic business is no different. We have captured domestic demand that previously we weren't addressing, and that's across the numbers that you're looking at on Page 19. And you demonstrate that those 2 weeks of profitability were enough to tip the entire month of April into a profitable outcome, which is a testimony to the cost reduction strategy that we've now got and the ability for the revised management team to energize the employee base in our New Zealand-based business to outperform the overall market. So, moving on to the financial summary. I'll hand it across to Tony Ristevski, our CFO.

Thank you, John, and good afternoon, everyone. I'll turn everyone's attention to Slide 21 and go through at a high level, the summary of the non-operating expenses. There's probably 2 major call-outs in the 3 months ending March, which despite the smaller numbers, the first half are worth mentioning. The first one being the fair value change in the better derivative for the convertible note. The way to think about it is that the $55 million at the end is a combination of us determining what the intrinsic value was for that instrument, which aggregates to about $93 million. When we initially bifurcated that instrument back at the start of the settlement period, it was roughly about $38 million was initial value. And then the residual value of $55 million incorporates the incentive fee of $33 million and then the remaining amount of $22 million is attributable to the ultimate intrinsic fair value, to the debt instrument. It is a complicated process, and there is quite a bit of data in our statutory accounting section 2.3 for those who are interested in understanding further the details and the policies that we've adopted there. The second major item worth raising for the audience is the write-off of our ERP cost to date. There is, again, further detail in the CapEx sections we'll go through. But in essence, there was a direction from the IFRIC organization that looked at the application of IAS 38. And effectively, the direction taken was any costs be it configuration or customization of software where it's under a SaaS arrangement, i.e., you're renting it, that no ownership transfers across, so therefore, the consequence, the cost incurred should be a quarterly expense. But look, I'll park that for a moment and go into a bit more detail when we get to CapEx. But they're probably the major 2 major call-outs on this slide. I'll then turn to the next slide, which looks at corporate costs. Consistent with past periods, the inclusion of costs has been like-for-like on a going-forward basis. The quarter ended slightly down -- or slightly up, should I say, on a quarterly basis at $3.6 million. We'll see that number grow going forward in FY '22 to approximately $4 million per quarter. The growth is going to come from primarily on the increase of Directors' and Officers' insurance. Our process is to renew that every 31st of March. So, we've already seen a significant step-up in that, and that's been consistent with many ASX 200 companies in the main unfortunately. But going forward, the way to think about is circa $4 million per quarter as what we expect to spend for FY '22. Moving to the next slide, being Slide 23. As John mentioned earlier, our pro forma cash sits at a healthy $431 million. At the time of raising to $250 million of the convertible note on the 31st of March, we had $130 million of term debt. 1/3 was paid off as part of the raising of the $250 million. 1/3 was extended from November '23 -- sorry, November '22 to November '23. And ones that've remained at November '22, since then, we've been working actively with our banking partners and managed to extend the residual amount at November '22 to November '23. That effectively gives us close enough to 2.5 years of any sort of renewal event occurring, which gives us plenty of time to obviously look for the recovery to in due course. The other thing to mention here is despite the healthy cash balance and given the ongoing market uncertainties regarding travel resumption, at this stage, we thought it would be best prudent to defer any decision regarding paying the last year's first half dividend at this stage until late this calendar year when we announce our results late November of '21 for the first half of FY '22. Moving to the next slide on to balance sheet. Probably the biggest item to call-out here is as a consequence of the convertible note being set for soon after year end, the existing EUR 100 million, the embedded derivative, which was traditionally cash -- classified as non-current has moved into current as a consequence of that. But all things being equal, the balance sheet from where we were 3 months ago in December to where we are has relatively remained constant. I'll then move on to the next slide, being cash flow. As John mentioned earlier, our working albeit our cash burn after working capital has remained, albeit it's been around $5.5 million going forward. The key thing there to call-out is, obviously, as trading improves, not only do we start to turn into the black into that EBITDA level. But above and beyond that, we also get the benefit from working capital in particular to B2B. So, when we look at last year, as an example, our overall burn over the 12 months was roughly around $24 million, whereas this first 9 months, we're down to about $5.5 million. So, it's been a significant step down from the horrific last 12 months. And then moving lastly to the CapEx slide. Consistent with the first half results, we did see a step down in our spend in B2B. That's primarily on the back of efficiency being driven by the team. And that hasn't compromised our ability to execute on the project [indiscernible] initiative that John has outlined in the B2B transformation. So that remains still on track to this calendar year under that transformation strategy within the parameters of the existing CapEx program and including on the second thought point there, what we expect to spend in the next 12 months is sufficient to drive that transformation strategy. And separately, as mentioned earlier in the one-off section, obviously, the IFRIC guidance that came out late March is quite new. As we try to understand the consequences to our organization, and this will apply to every organization, both here and abroad. That's not unique to Webjet, its application. We'll spend the first half of the new financial year understanding what portion can be capitalized and what can't be. But we thought it would best be prudent at this stage to take a more conservative approach and expense the spend in the -- at this point in time. And then we'll provide an update later this calendar year as we begin to understand its application and what portion can be capitalized. And the way to think about it is because it's software it's rented, we don't own the code. But to the extent we've got changes made to our booking platforms to our WebBeds data like -- and the like, those items can be capitalized because that's software that is owned and controlled by Webjet group. So, on that point, what I'll do then is hand back to John to talk about outlook.

Thank you, Tony. The Webjet business is powered for travel recovery. We know there's strong pent-up demand for travel. We see it in every market that opens up, that there's an immediate influx of bookings. I can just give you anecdotally a great example from this week. The U.K. opened up to Portugal on Monday, the 17th, and clearly, there were a substantial surge in bookings from that market. We are seeing the capacity for our business to plug into the existing infrastructure that it's had in regards to our global footprint, our diverse customer base, and that will enable us to capture that demand when and where borders do open. The factors around the shift to online continues to accelerate. All our businesses from the Webjet OTA, Online Republic and the WebBeds business are all well positioned to capture that demand. Our cost base, as I have mentioned earlier, is going to be materially lower going forward, providing us with substantial leverage opportunities and a substantial competitive advantage that enables us to aggressively pursue our corporate objectives. As Tony just covered, we have significant cash reserves. And our underlying objectives continue to be leadership in the segments that we compete in. For WebBeds, that translates to being the global #1 B2B provider, the Webjet OTA to increase our market share, and Online Republic to drive improved underlying performance. As we look to FY '22, the vaccine rollouts are well underway on a global basis. The 2 standout markets that have a material impact to the WebBeds business are the U.S.A. and the U.K. We are now seeing Europe accelerate the vaccine rollout across their markets, which will enable a Northern Hemisphere summer to take place in which travel will be possible. Many of the Mediterranean markets are open for business. And it will be a factor of our source markets, whether or not they're prepared to travel to those destinations. We know there is a number of markets that are already open. And over the course of the last 3 weeks, we have seen a substantial improvement in the European business as we roll into May. And we would expect that to continue as we go to our historic peak period of the Northern Hemisphere summer. Across other markets, as vaccines roll out, we believe that the reopening of those markets will occur, though there is great uncertainty around the timing of when those markets do reopen. Looking at our business and looking at the data rather than the hyperbole around what we believe we can achieve, we do know that as markets open up, that we are picking up share as a consequence of the strategic initiatives that we've undertaken to drive a domestic output. The best example, which I've referenced is the United States in which we're already at 83% of 2019 volumes. The transformation initiatives across our broader WebBeds business will enable us to outperform our historic base. I have no doubt that will occur. And that will be a factor of the -- a different competitive set, reduced number of direct competitors in the B2B space, an expansion of the B2B market by providing a unique offering to the OTA market. And the fact that we will be the low-cost provider fills me with high confidence that when markets do rebound that our market share position will reflect the outperformance that we've already been able to achieve in the U.S. in conjunction with the fact that the domestic market opportunity in those large domestic markets like the U.S. will enable that to happen. [indiscernible] looking market, highly scale the cost base, the unique platform that we have in place makes us well positioned and puts us in a strong position to ensure that market share will continue to improve. Online Republic, the breakeven number with the modest profit we made in April of 2021 is a reflection of the travel bubble opening. And as more travel bubbles open, we believe the Online Republic business will revert to being a significant contributor to our overall business. So we have obviously substantial capital strength to pursue our leadership ambitions. With significant cash reserves, the prudent actions that the Board has undertaken in providing the improved access to capital gives us strategic options that very few travel companies have on a global basis. And we have the capacity to invest in our business, and we certainly will do that over the course of the next couple of years. As I opened up the commentary, we see a world of opportunity ahead of us, and the Webjet team is agile, energized and ready to go. And with that, operator, I will take any questions.

[Operator Instructions]

Oliver, can you hear me?

Yes, John, I'm able to hear you. Are you able to hear me, John? [Technical Difficulty]

Sorry, John's line just dropped out. He's redialing back in. So please bear with us for a minute.

[Operator Instructions]

Hi guys, John Guscic, apparently, I've disconnected, and I believe we're in the middle of Q&A.

Okay. So, we will be taking the first question. [Technical Difficulty]

Operator, can you hear me?

Yes, I can hear you loud and clear, John.

Okay. Let's start the Q&A.

John, Tony, Quinn Pierson, Credit Suisse. Maybe just firstly, in terms of B2B market share, the Americas looks like a pretty clear story where you have emerged with a higher share of the hotel market. I guess outside of the Americas, do you feel that you've also -- based on current data that you've emerged with a higher share of booking activity? I don't necessarily mean just within the bed bank industry, but I guess broader, do you think you've taken share? Or do you think that maybe, I guess, the closure of some of your distribution channels, i.e., retail brick-and-mortar stores that potentially in the near term, you might have a lower share of the hotel booking activity. Any thoughts there would be appreciated.

Quinn, thanks for the question. The -- at scale -- sorry, I'll rephrase. The markets, when they do open up, we clearly see there's an opportunity to win share. And we have done that as demonstrated by the activity that we've undertaken to reposition the North American market that primarily was an international outbound market to become a domestic-focused market. That's a substantially larger opportunity than the one that we were pursuing previously. As I mentioned, we're starting off at a pretty good clip, where we're at least 50% greater than the underlying market performance in North America as measured by flight -- domestic flights in that particular marketplace. So that's that market. Now if I go to every other market where there's still very low level of activity, and most other markets don't have the same domestic opportunity that North America provides us, I'd say it's impossible for us to give you a clear answer on that performance relative to the market. What I will say is that when we get to a market that's opened and our customer base, which is more reflective of not -- immediate short-term bookings and people have a high degree of confidence to make bookings, I'm confident that we will outperform the market because of the superior supply arrangements we now have, the broader supply arrangements we now have and the broader distribution offerings and the bigger market -- addressable market that we have. So, for all of those reasons, when markets do open up, we will be able to tap into them. But when the markets are operating on a book now, travel tomorrow basis, and there's not a high degree of confidence, I've got no way of reflecting that in my data at the moment.

That's helpful color. And secondly, related to the Americas and the U.S., can you help us, I guess, put in context how big or material that region can be for you? I guess I'm trying to understand in terms of your distribution capabilities, in terms of your supply capabilities in that market, when the U.S. really gets to full steam over the summer and onwards over the next 6 to 12 months. I'm just trying to put in context in terms of order of magnitude what the Americas could be for you compared to some of your other regions.

Sure. So structurally, what we have done during the 12 months is we've pulled out the Americas as a separate division within our management structure. We have populated that with [ better ] local management experience, and that doesn't just extend to the United States but also to South America. So, we've got more people on the ground, a high degree of familiarity and expertise within those markets. And as I've touched on, we've got a focus on the contracting strategy for those markets to get the appropriate inventory that makes us salable to the domestic marketplace, primarily in the U.S. So the context of all of that is that instead of us operating as we have historically on the fringes of [Technical Difficulty] I'm not sure if you can hear me. I'm actually in our Dubai office doing this call and someone keeps calling me on this conference line. But to finish the answer, Quinn, the addressable market is greater than it was before. So previously, we were operating at 10% of the overall market's ability. And clearly, we've increased that size by tenfold, which means that the North American market has the capacity to be roughly 80% to 90% of the entire European market, and you've got our historic European numbers to look at as the benchmark pre-COVID.

That's very helpful. And yes, I can hear you. And I guess, third and lastly for me, please, is in terms of EBITDA margins, you've given us a very helpful target for the B2B division. Most of your cost efficiency initiatives are focused primarily in the B2B division. But I look at the B2C division, you've already hit 30% EBITDA margin, with about half of your pre-COVID bookings, and you're talking to improved scalability in that business with marketing seeming to be one line. Can you maybe give us some idea in terms of what the potential margin capacity of that division is kind of at a full run rate kind of post a full reopening of travel?

Yes. We consistently achieved EBITDA margins pre-COVID in the 40s, and we are clearly targeting that number going forward.

So, access to that would be getting ahead of myself, so probably get back to -- in line but not necessarily permanent cost efficiencies in that division.

There's an assumption that there's a compression on the revenue side driven by a smaller product mix of international, which has historically been a higher-margin offering for us. So, we do have a more moderate revenue top line, but the overall EBITDA margins, we think will be at least in line with what we've done historically.

We will now take our next question. [Operator Instructions]

This is Tim Plumbe from UBS. Just 2 questions from me, if possible, please. John, you mentioned within the Webjet OTA business 95% of April '19 levels for the domestic business, and you guys are doing roughly 50% more market share. Does that imply that the overall domestic market is still down kind of 45%, 50%? And do you see a scenario whereby as that comes back, you guys are likely to go well over 100% of what you were previously doing in calendar year '19?

The -- I'll answer the second part of the question and then come back to the first. The -- yes, clearly, we'll see that we'll be well over 100%, when markets get closer to the full pre-COVID capacity. So that's a given. As to where the market is, the data we did publish in the top half of the graph, the market share, so data until March, that's not published yet for April. So, I can't make a comment accurately. But we think the market of available seats is around about 60% of utilization. It'd probably be a little bit less than that compared to the pre-COVID operations. So if you -- our guess -- well, sorry, the facts were, the March data you have in front of you, April, we would guess we're at least 50% to 60% to 70% ahead of those sorts of underlying available seat numbers, but there's no data yet published that we can reference to for that month.

Great. And just the other question around the convertible, you mentioned opportunity for acquisitions. Are you able to touch at all in terms of what sort of businesses you'd be interested in looking at or what sort of verticals? [Technical Difficulty]

We have -- when we did our first convertible note and the message to the broader travel market is that we're available and open to acquisition ideas. And having done the second, we're seeing obviously a ramp-up of renewed vigor for people wanting to engage with us on that level. So, we're - we will look at opportunities that are presented to us, and there are some things that we are definitely interested in. But it would be premature to call those out until that happens. But there are plenty of conversations being had in the background at the moment.

Great. And I might just sneak one last one in if I can. Are you able to talk about the Asian market at all, what you're seeing coming out of China, in particular, please?

Yes. The Asian market hasn't had the same rebound that we're now starting to see in Europe and starting -- and obviously, have already seen in North America. The 2 markets that have been the least elastic over the last 3 months have been the Middle East and followed by Asia. We're seeing a strong domestic market in China and very little inter-regional opportunity at the moment. So, it's muted growth at the moment -- muted opportunity at the moment. And we're still a long way from getting the growth objectives that we would expect to see from that market.

We will be taking our next question by Wei-Weng Chen.

John, just wanted to start with maybe just a clarification around the OTA business and your expectation that you see margin compression. So margins in FY '21 were 9.6%. And the history was -- historical sort of been about 1%. I guess I'm just wondering how margins would improve from here once you get back to selling a full complement of products, including international?

You're talking about the domestic -- the OTA business, Wei-Weng?

Yes, that's right.

Look, I think the -- we had been in excess of 10% revenue to TTV margins for the last couple of years pre-COVID. We wouldn't expect those numbers to come back. It will be similar to the number that we've delivered in this -- over the last financial year.

Okay. All right. And just historically, just on the B2B. You've talked about the value proposition that WebBeds offers hotel partners versus, say, OTAs, sort of providing long lead time, higher value, lower cancellation customers. How does this change when your customers start skewing more OTAs? Does price become your main value proposition?

Price is always a key component of the value proposition we give to our travel partners and the ability to do what you just articulated around long lead time bookings, lower churn factors is a key driver in that value proposition. If our bookings were exclusively OTAs, yes, that would be -- we would reflect the OTA market in its absolute terms. However, the -- whilst it is our fastest and it will be, I think, our biggest sector, it's not going to be 50% of what we sell. So, it still applies to the majority of bookings that we make across the board.

All right. Great. And then just the last one for me. The other ASX-listed travel names have indicatively provided breakeven time frames. 2 of your 3 businesses are now breakeven. What are your general thoughts on, firstly, when the group breaks even? And then secondly, when does B2B breakeven? [Technical Difficulty]

We do give you the breakeven levels that are required. I would be -- Yes. I'm not in a position to know when markets are going to open up. It's highly variable. And I'm not prepared to put a time frame out there. What I do know is when markets open up and consumers have confidence to travel, we see an immediate rebound in our position. Now those markets opening up, it's an unknowable event. So, if it's an unknowable event. I'm not sure how I could reasonably be expected to predict an outcome.

We will be taking our next question from Tim Piper of RBC Capital Markets.

John and Tony, just a quick one. You sort of talked to North America as an early sign, an early market opening up. Maybe Portugal is a good example, which you touched on as one of your core markets. When we kind of look at that slide of -- it's on Slide 9, that pre-COVID customer mix of B2B. During the past couple of weeks, the bookings that you're seeing coming through from Portugal, how different is your channel mix? What proportion is OTA coming through? And I guess the second part of that question is what does the booking mix look like. How much of it is through your directly contracted hotels versus other wholesale and other supplied rooms?

Tim, look, I'll start with the back part of that -- back-end -- back half of that question and then come back to the first because I could be more definitive on the back-end. More than 50% continues to be directly contracted hotels, so that hasn't changed in what we do sell. So pre-COVID, that was roughly 60% of all our hotel sales were directly contracted. So, it's a similar kind of number that exists. I wouldn't want to go through the specifics of what the OTA channel versus the others look like other than to say, if we had substantial volumes at the half, I'd outline a new pie chart that would call out those numbers, but the OTA number on the current volumes would be the largest of the half a dozen segments that comprise the pie chart on Page 9.

Okay. And I think maybe one headwind you've seen is short lead time bookings. What are you seeing more recently with borders opening up and particularly in Europe with a bit more certainty? Are you seeing that lead time on bookings push out more significantly?

Absolutely. So, the best example is the U.K. putting in the traffic light system on Monday this week. An immediate surge in bookings across the board, but in particular, to Portugal. And we're not seeing the -- I'll say, the Scandinavian markets or the German markets where, historically, they book their summer holidays in the second week of January. So, we're certainly not seeing that level of lead time booking, but we are seeing a substantially improved booking window into the Northern Hemisphere summer from the U.K. source market this week. So, we're looking out to June, July, August, September bookings.

And is there sufficient airline capacity to service a reasonable volume of holidaying in Europe over the summer period?

Airline capacity will be the least of the constraints that people have. The low-cost carriers, the easyJets, the Ryanairs, et cetera, have substantial capacity. And the legacy carriers, the national carriers all have weathered the storm quite well over the course of the last 12 months and are open for business. So those guys will certainly ramp up very quickly. So, utilization is very low at the moment, and there's plenty of aircraft to come on stream. So if the markets do pick up, it won't be a flight capacity issue [indiscernible] . [Technical Difficulty]

We will be going to our next question by Belinda Moore from Morgans.

Can I just clarify WebBeds at scale, that was TTV of $2.6 billion from memory. So, if you apply a 5% margin, that's $130 million of EBITDA. Are you sort of generally like other travel companies sort of thinking that's FY 2024? Or how should we think about that? And also, Tony, the ERP cost of 10 in '22, does that continue over a number of years, please?

[indiscernible]

You go, John.

Yes. Belinda, the -- so the comment -- the question asked from Wei-Weng, look, it's very difficult for us to put a time frame because it's contingent on factors well outside of our control. So, I'm not putting a number of when that happened -- sorry, time frame when that occurs. But clearly, we believe the following things to be fundamental to the transformative efforts that the business has undertaken: that we can grow in excess of what we were pre-COVID, and we can deliver a better EBITDA margin than we had pre-COVID. Now when that occurs, I genuinely don't know, and I'm not brave enough to put a date out there. Tony, you want to deal with the CapEx question?

Yes. Look, the CapEx, Belinda, the lion's share is next year. So, you would see in the one-offs, we had 4 incurred, which we've expensed, 10 next financial year. And then the following year, we expect to spend probably about 2 on the shoulder of it being complete. So, in totality it ends up being sort of circa around 16 as a total program of work.

We will be taking our next question from Mark Wade of CLSA.

The question, just a way of clarification. The Page 4 on the pres gives you the really helpful breakdown on your bookings or TTV by month. I'm just trying to understand the discrepancy between the claim that the OTA business is back to 95% of April '19. And when you kind of do the math on the pre-COVID average for the entire year, it gives you a lot lower figure, about 66%. So is it just the fact that 2 years ago, April was a really seasonally low month, and that's why you're now cycling at 95% of that corresponding period? Is that -- how to explain that?

John, I can jump in here. Mark, the...

Go for it.

Mark, it's 95% on domestic only. So the [ 131 ] that you see in the slide, that is inclusive of international.

Okay. Okay. So it's as simple as that, just [indiscernible]

And Trans-Tasman.

Yes, yes. So that's the international portion, that's still missing. Got it. Got it. I thought there's something that's missing there. So...

And Trans-Tasman, Mark, as well. So, there's 3 components to our booking numbers.

Okay. Makes sense. And any -- do you feel like there's any -- I mean the OTA business seems like it's coming back great guns. Do you feel like there's any kind of compulsion to maybe drop the booking fee, reduce it down the $35 given the level of kind of competition that is potentially out there and at the same time, the airfares have come down, so the percentage fee looks pretty chunky?

Short answer, no. We're outperforming the market. The Australian consumers have voted with their wallets. They like the platform, they like everything that's offered, and they like the value proposition. And that hasn't changed in the last 15 years. And we are comfortable with the value that we provide to consumers, and they're clearly happy to engage with us and click the buy button, which we're naturally delighted about.

That's all the time we have for questions. Mr. John Guscic I'll turn the conference back to you for closing remarks. [Technical Difficulty]

[indiscernible] about our business, and we look forward to engaging with you over the coming days. If you have any further questions, feel free to reach out to Tony or Dr. Carolyn or myself. Cheers and goodbye.

Thank you so much. This concludes today's call. Thank you for your participation. You may now disconnect.