Bobby Brenman

Vishal Patel

Anupam Bhandari

Kyle Gardner

CEREBRATION 2009

Objective:Increase profits in next 2-4 years building long-term value

ChallengesStrategyImplementationFinancial Analysis

Agenda:

Global Economic Crisis

Increasing Competition

Customer Preferences

Personalization

One-stop shop

Information

Best deal

What can we control?

Expansion Strategy

1111 Focus on core geographies

2222

3333

Expand user base

Improve user experience

Strategy

Value Knowledge &Relationships

1111 Focus on core geographies

Strategy

Singapore

China, Hong Kong, Macau

Philippines

Malaysia

Thailand

Indonesia

6 core geographies

Country Projected Travel Increase 2008-2012

% Originating from Core Region

(Source Markets)Singapore 26% 68%

China 26% 58%Hong Kong 19% 62%Philippines 52% 16%Malaysia 61% 72%Thailand 32% 25%

Indonesia 46% 45%

30%Growth by 2012

2222 Expand user base

Strategy

Leisure

+Unmanaged

Business

>S$ 4 B >6%

Unmanaged Business

Market Size

CAGR 2008-2012

Partnerships

White label

VS. Branded

3333 Improve user experience

Strategy

Enhance Create

Asia Pacific

1.52 B

Mobile Opportunity

2008

19%CAGR

1111 Focus on core geographies

2222

3333

Expand user base

Improve user experience

Strategy

Measuring Success?Feasibility

Increase number of users

Spend responsibly

Increase profits

Increase long-term value

Implementation Plan

Technology ▪ Marketing ▪ People

Technology

Search Engine Optimization

SEO Paragraph

Site Map

Backlinks

Increase website traffic

MyAsiatravel.com

Recommendations Dynamic Packaging Loyalty Program Localization Social Features

Improve user experience

Instant information Instant purchasing Access anytime

Mobile ChannelIncrease accessibility and convenience

Summary

Feasibility

High

LowHighLow

MyAsiatravel.com

Marketing

Objectives

Enhance brand equity

Deliver value to core demographics

Gain competitive advantage

Asiatravel.com is losing visitor share

One-stop travel solutionNew positioning:

Company One-stop Flights InventoryInstant

ConfirmationBusiness

Travel

Asiatravel.com + + + + -

Agoda.com - - + + -

Asiarooms.com - - + + -

ChannelsOnline

Offline

80%

20%

Search engine marketingBanner adsPromotions

PrintConventionsTourism bureaus

Conversion

Awareness

Expand Partnerships

Photo sharing

Destination sites

Travel ServicesTravel Services Social NetworksSocial Networks

QQ.com

Facebook.com

People

Maintain local sales forceMerchant relationshipsLocal knowledgeSupport

Local Offices

Expand sales team knowledge Business traveler knowledge Business specific resources

Centralize non-salesMarketing

Technology

Operations

Realign regional SVPs

Create new positions

Align people to maximize long term valueMain Office

Overall efficiency

Best practice sharing

Potential cost savings

Implementation

Proposed Structure

Implementation TimelineSearch Engine Optimization

Launch MyAsiatravel.com

Launch Mobile Channel

Launch Unmanaged Business Traveler Services

Launch New Marketing Message

Improve Channel Marketing

Organization Realignment

0 1 2 3 4

2 years

1.5 years

1 year

6 m

3 years

2 years

6 m

Successful StrategyFeasibility

Increase number of users

Spend responsibly

Increase profitability

Long-term value

Financial Analysis

Financial Strength1) Strong cash reserves

2) Commitment to shareholders

3) Increasing profitability

*Assumptions: 5% terminal growth rate, 10.31% discount rate

Increase market value

S$ 30.4MM

Revenue Growth

Key AssumptionSignificant slowdown in 2009-2010

Long-Term Profitability

Key Assumption: Declining Gross Margins (2% Annually)

Leisure Remains Principal Segment

80.6%

15.3%

4.1%

Percentage of Revenue: 2012

Leisure

Unmanaged BusinessMobile Distribution

Product InvestmentsAnnual Capital Investments (S$’000)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2009 2010 2011 2012

Online Leisure Unmanaged Business Mobile Distribution

Significant Returns

Grow Cash Balance

Financial SummaryResponsible spending

Positive ROI investments paid back within 5 years

Growing cash balances

Increase profitability

27% revenue growth

Profits > S$10MM by 2012

Long-term value

Market value increases 56%

Conclusion

Core Regions User base User experience

S$30.4MMIncrease Value

Reinforcing system

Referrals

User base Site Traffic Sales

PartnersProfits

Long term value

Successful StrategyFeasibility

Increase number of users

Spend responsibly

Increase profitability

Long term value

CEREBRATION 2009

Thank youTerima kasih

AppendixStrategic Implementation

SWOT Analysis SEO Examples

Environmental Analysis Considerations

Transnational Matrix Recommendation

Market

Core Region Analysis Cost Cutting Measures

Global Departures Financial Summary

Online Booking Trends Sources Consulted

Customer Segment Analysis

Key Population Trends

SWOT Analysis

Strengths Weaknesses

• Strong merchant model• Brand recognition• Strong partners• Strong balance sheet• Established offices in 6 core geographies

• Website less developed than competitors• Value proposition not clear• Brand not recognized outside region

Opportunities Threats

• Mobile channel• Business travel segment• New partnerships• Evolving user needs

• Global recession• Merchant model phasing out• Increasing competition

Demographic TrendsAging population while median age stays the same

Macroeconomic ImpactsEconomic downturn and financial crisisGrowing middle class seeking to travel

Socio-Cultural InfluencesIncreasing online usageAcceptance of e-commerce

Political-Legal PressuresOverall political stability with uncertainty in Thailand and Indonesia

Technological DevelopmentsInternet penetrationMobile penetration

Global Trade IssuesFluctuating exchange rate

Environmental Analysis

Low High

Low

Hig

h

Glo

bal

Inte

gra

tio

n

Local Responsiveness

Technology

Operations

Sales

Marketing

Transnational Matrix

Core Region Travel Analysis

Country 2008 Forecasted Arrivals (mm)

2012 Forecasted Arrivals (mm)

Projected Increase from 2008-2012

Source Markets

Malaysia 24.01 38.77 61.33% 71.9%Philippines 3.55 5.00 40.80% 16.0%Singapore 11.00 13.90 26.30% 67.7%Indonesia 6.35 9.28 46.14% 45.0%Thailand 15.59 20.65 32.43% 25.4%

Hong Kong 30.98 36.95 19.23% 61.5%China 141.86 179.09 26.20% 58.4%Total 233.34 303.64 30.12%

• Asia Pacific region has the highest level of growth

• Asia Pacific will trail only Western Europe but the Asian market is less competitive

Global Departure Analysis

Source: Thought leaders in Marketing Roundtable 2008 Report

Current Online Travel Booking Trends

Customer Segment Analysis

Leisure Travel Needs Unmanaged Business Travel Needs

Needs AST can address with current resources

• Online solutions to travel needs

• “One-stop shop” for flight and hotel needs

• “One-stop shop” for multiple services from visas to insurance

• Need for more personalized travel advice and services

Needs AST can address with future resources

• Personalized user experience- ability to interact online

• Access any time anywhere

• Efficiencies in travel planning and travel management

• Support with additional resources for group / meeting / event related travel

Asia Pacific Region’s mean age is increasing but at relatively slow rate. The 20-54 age cohorts are stable segments that should be targeted

Key Population Trends

Singapore Travel Destinations - use Asiatravel.com to find the best airline and hotel deals in Singapore. Use the customer buyer tools to research all aspects of the Singapore travel market. Whether looking for travel to or from Singapore, Asiatravel.com can help.

Top Cities:Singapore | Macau | Hong Kong | Kuala Lumpur | Dubai

Top Countries:Malaysia | Singapore | China | UAE | Phillippines | India

SEO Paragraph:

Sitemap:Site MapFlights CruisesRound trip flight Cruise DealsOne-way flight Singapore CruisesMulti-city flightSearch flexible dates Customer SupportFare alerts Frequently Asked QuestionsFlight deals Contact UsSingapore flightsHong Kong flights About usDubai flights Contact usMalaysia flights Media

SME travelTop Hotel Destinations Parner with Asiatravel.comSingapore hotels Become an affiliateHong Kong hotels Advertise with Asiatravel.comDubai hotelsVacation Rentals

SEO Examples

Implementation Outsourcing Considerations

In-house Outsource

Pros

• Secure intellectual property rights

• Creating a technology focused culture

• Focus on core competencies

• Lower cost

Cons

• Cost to hire and train staff

• Time to market

• Need to manage outsourcing firm closely

Recommendation: Hybrid Strategy

Create small in-house team that manages outsourcing activities

Use current IT resources for development of more critical, time-sensitive products

Outsourcing firm should create a content management system for AST to make changes/maintenance easier

In-house Development Outsource DevelopmentTargeted recommendations Clean web interfaceDynamic packaging Unmanaged business travel contentLoyalty programs Savings calculatorLocalization Search engine optimizationContextual advertising Mobile informationAffiliate marketing Social networking/ community

Mobile booking & payment

Cost Cutting Measures

Enhance Asiatravel.com’s Bottom Line

Technology• Evaluate in terms of cost

savings• Partner with Amadeus

to incorporate eTravel Management

• Outsource tech. enhancements

Operations• Evaluate resource usage • Consolidate corporate

functions• Focus on expansion in

existing core geographies

Finance• Take on debt financing

for financial benefits• Use derivative financial

instruments to protect against foreign currency volatility

Financial AppendixOverview

Financial Statement HighlightsCash Balance Grows Significantly Profit GrowthKey RatiosSources of FinancingRevenue and Profit by BusinessEmployee Salaries

Online LeisureRevenue GrowthInvestments and CostsResultsNo New Investment Forecast

Business TravelOpportunityResults

MobileOpportunityAdoption RateResultsMobile GrowthLong term growth forecasts

ValuationDiscount RateFree Cash FlowsSensitivityComparablesUncertaintiesMargin AnalysisDrivers of ValueTop UncertaintiesDelaying Investments 1 Year

Base CaseAssumptionsIncome StatementBalance Sheet AssumptionsBalance SheetStatement of Cash Flows

Financial Statement Highlights

Cash Balance Grows Significantly

‘09 ‘10 ‘11 ‘12

Importance of maintaining strong cash

reserves 1. Signal company strength in a tumultuous period

2. Maintain dividend to shareholders

3. Preserve resources to pursue growth

4. Protection against exogenous shocks

Profit Growth

1. Slow profit growth for first two years attributed to world economic outlook

2. Rapid growth in 2011-2012 as investments start to pay off and economy rebounds

3. Short-term profit decrease is essential to gain long-term competitive advantage

‘09 ‘10 ‘11 ‘12

Key Ratios

Observations:1. Decreasing profitability ratios expected over next two years2. AST’s increasing financing via debt increases leverage but hardly enough to affect credit rating3. Operational efficiency remains steady if not improving

Cash Flow from Operations• Cash Flow from Operations exceeds investments in all forecasts

Debt Issue• Very low leverage (0.08 D/E) only increases to 0.27 in forecasts. Should not greatly affect cost of debt. Issuing debt is recommended

Equity Offerings• Stock is undervalued• Equity offerings not recommended in short run• Viable source of financing in long run

Sources of Financing

Revenue and Profit by Line of Business

Implication:AST’s core business, online leisure, will

continue to be the most profitable and should receive the primary

focus

Employee Salaries

Revenue growth in 2007 and 2008 equaled 23.3% and 21.6% respectively

With global downturn, cut growth by 25%-50% in 2009 and 10-25% in

2010 before returning to above-historical levels

Online Leisure: Revenue Growth

Online Leisure: Investments and Costs

Online Leisure: Results(Amounts in S$’000) 2009 2010 2011 2012

Revenues 97,063 114,146 142,683 178,354

Gross Profit 24,314 26,368 30,106 34,066

Amortized Investment Cost 888 1,551 1,653 1,241

Allocated expenses 15,711 17,128 20,172 21,152

Total Attributed After-Tax Profits

6,635 6,612 7,121 10,038

Profits above “No New Investment” Forecast

(227) (74) 682 3,733

Total Investment 1,554 1788.5 388.5 388.5

ROI (15%) (4%) 176% 961%

Based off a “no new investment” forecast where AST does not pursue any new investments beyond the scope of normal

business

Online Leisure: “No New Investment” Forecast (Amounts in S$’000) 2009 2010 2011 2012

Revenues 95,932 109,439 131,326 157,592

Gross Profit 23,983 25,171 27,579 29,942

Allocated Expenses 16,004 17,396 20,092 22,611

Total After-Tax Profit 6,862 6,687 6,439 6,305

Key Assumptions Revenue growth 90% of model value in 2009, 80% of model

values thereafter (competitors reduce growth)

Declining gross margins (identical to model)

Salaries, etc. grow at 5% annually (identical to model)

Depreciation, Amortization, and Financing fixed at 2008 levels

Other operating expenses between 7.5% and 8% of revenue

Business Travel Analysis: Opportunity

Business Travel Analysis: Results

A lucrative line of business producing significant ROI

(Amounts in S$’000) 2009 2010 2011 2012

Revenues 267 11,692 20,578 33,954

Gross Profit 67 2,689 4,321 6,451

Amortized Investment Cost

165 305 376 281

Allocated expenses

43 1,754 2,909 4,027

Total After-Tax Incremental Profits

(121) 541 891 1,843

Total Investment 494 421 211 211

ROI (25%) 128% 422% 872%

Mobile Distribution: Opportunity

Bass Diffusion Model used to estimate customer adoption of new mobile booking technology

Input parameters based on historical averages

Only 1 year, 2012, modeled (introduction of booking)

>400,000 customers in 2012, ~3.5% of total available market

Mobile Distribution: Adoption Rate

Mobile Distribution: Results

While not a driver a company value from 2009-2012, the mobile distribution channel represents a

source of significant future growth for AST

(Amounts in S$’000) 2010 2011 2012

Gross Profit 46 86 1,697

All Additional expenses 30 58 1,059

Total After-Tax Incremental Profits

14 24 549

Total Investment 262.5 752.5 402.5

ROI 5.2% 3.2% 136.3%

Mobile Drives Long Term Growth

Long-Term Growth Forecasts: 2012-2016

Valuation: Discount Rate

Parameter Value Method

Risk-free rate (rf) + 1.32% Yield on 5-year government bond 3/16/09 (matches investment horizon)

Company beta (β) x 0.996 Regressed last 5 years of AST monthly returns vs. Straits Time Index (STI) returns

Market risk premium (rm-rf) =

4.00% Subtracting monthly 5-year government bond from market return yielded negative premium so outside source consulted*

Return on equity (re) 5.31%

Applied Return on equity (re)

10.31% Return on equity doubled because (1) it seems rather low (risk-free rate near historical lows) and (2) new investments bear risk – a higher discount rate accounts for such risk

Objective: Compute a reasonable return on equity, re, at which to discount AST’s free cash flows

* http://8percentpa.blogspot.com/2007/06/price-earnings-ratio-and-earnings-yield.html

Valuation: Free Cash Flows

Observations1.Earnings are primary source of free cash flow Increases in net working capital are primary use2.Most of value in terminal cash flows. Projecting longer term increases accuracy3.Terminal growth rate estimated as 5% (inflation + growth potential of mobile segment in particular)

Base Case

Valuation: Sensitivity

Market value is highly sensitive to both the growth and discount rates

Valuation: Comparables

Objective: To avoid the discount rate problem, determine value using EV/EBITDA ratios of comparable firms

Challenge:1.Almost all Singapore comparables are private (ISINet)2.Using 2009 (or 2008) EBITDA for AST does not reflect the changing nature of the business

Conclusion: Apply a DCF valuation, despite its limitations

Gross Margins drive value

Valuation: Uncertainties

Assuming Constant 25% Gross Margins Doubles Profits in 2012

Which Uncertainties Drive Value?

Gross margins have largest effect on firm value. Business market penetration rate has second biggest effect

Dedicating resources to capturing unmanaged business market increases firm value

The Top 20 Uncertainties

Delaying Investments 1 Year

$-

$2

$4

$6

$8

$10

$12

'06 '07 '08 '09 '10 '11 '12

Net

Pro

fit (S

$MM

)

Immediatly increase profitability but significant long-term lag

No Delay Delay

- -- -

Base Case: Key Income Assumptions

1. Gross margins decrease 2% each year, from 25% in 2009 to 19% in 2012

2. Affiliate marketing and contextual ad revenue equal 0.1% of online leisure revenue from 2010-2012

3. Salary and benefit expenses grow 5% annually

4. Other operating expenses (including marketing) as a % of revenue equal 7.5%, 8.0%, 8.5%, and 7.5% in 2009, 2010, 2011, and 2012 respectively

5. Finance costs (i.e. interest expenses) set at 10% of total debt balance

6. Depreciation equals 20% of fixed asset balance

7. Tax rate equals 14% (based on prior years)

- -- -

Base Case: Income Statement

Base Case: Key Balance Sheet Assumptions

Item Assumption (All amounts stated in $S‘000)

Cash 12% of revenues

Receivables 7% of revenues

Inventory 6% of cost of sales

Prepayments 7% of revenues

Tangible Fixed Assets Grow 500 each year

Intangible Assets Grow 2,500 in 2009, 1,000 in 2010, and 500 annually beyond in 2011 and 2012

Trade and Other Payables

Benchmarked to cost of sales at past 3-year average

Deferred Income and Taxation

Benchmarked to revenues at past 3-year average

Long-term Borrowings Grow 2,000 in 2009, 2,000 in 2010, and stay constant in 2011 and 2012

Shareholders Fund Plug value

- -- -

Base Case: Balance Sheet

- -- -

Base Case: Statement of Cash Flows

Asiatravel.com Annual Report 2007, 2008.

Euromonitor: Travel and Tourism Industry Report, April 2008.

Euromonitor International: Future Demographic - Asia Pacific, January 2006.

Euromonitor International Consumer Lifestyles reports for Singapore, Philippines, and Indonesia;

Euromonitor International: Tourism Flows Inbound - Philippines, 11/25/08.

Thought Leaders in Marketing Roundtable Report, HSMAI Asia Pacific 2008.

Turner, Lindsay W. and Stephen F. Witt (2008), Asia Pacific Tourism Forecasts: 2008-2010, Thailand: PATA.

Business Monitor International Q4 Tourism Reports (Malaysia, China, Singapore, Indonesia, United Arab Emirates, Hong Kong, Thailand).

News@PATA weekly newsletter, 5 November 2008. URL: http://www.pata.org/patasite/index.php?id=1883

Travelsmart-asia watch, Abacus International, 18 November 2008. URL: http://www.abacus.com.sg/trvlsmartasia/trvlsmartwatch/ViewItem.aspx?ID=139

How to build backlinks. URL: http://www.webconfs.com/how-to-build-backlinks-article-16.php.

Knight, Kristina. “Compete: Targeted ads great for travel sites”. July 29, 2008. URL: http://www.bizreport.com/2008/07/compete_targeted_ads_great_for_travel_sites.html

Grossman, David. “Travel 2.0: Social networking takes a useful term”. 1/26/07. URL: http://www.usatoday.com/travel/columnist/grossman/2007-01-26-grossman_x.htm.

Hutchison Telecom Q3 2008 Key Performance Indicators: URL: http://www.htil.com/eng/ir/presentation/pre081112.pdf

SingTel Group news release, 12 November 2008. URL: http://home.singtel.com/news_centre/news_releases/2008_11_12.asp

Industry Research: Telecommunication Industry Issue. ISI Analytics: Thailand. 1Q 2009.

Asian Forecasts. Buddecomm Report. August 2008.

Mobile Phones in Asia-Pacific. Datamonitor. February 10 2009.

Sources Consulted