There are a number of attractive S&P/ASX 200 Index (ASX: XJO) shares to consider this month, in my opinion. From that list, Webjet Limited (ASX: WEB) could be a top pick to consider this month.
I've gone for Webjet as my ASX 200 share pick this month, but I'll point out that my monthly Fool writer pick was Temple & Webster Group Ltd (ASX: TPW) (which I 'picked' when the share price was $4). Though, Temple & Webster isn't an ASX 200 share.
The ASX 200 travel share has not seen a bounce in recent weeks like other ASX growth shares. For example, the Xero Limited (ASX: XRO) share price has risen 18.75% over the past month, the Altium Limited (ASX: ALU) share price has gone up 14%, and the WiseTech Global Ltd (ASX: WTC) share price has risen 31%.
I think the Webjet share price looks good for the shorter term and long term for a couple of reasons.
Oil price is falling
One of the key things that can increase the cost of travel is the price of fuel. The Russian invasion of Ukraine saw a significant bump in oil prices. But, over the past two months, the oil price has dropped by approximately US$20 per barrel.
While some people may not plan their travel around what the oil price is doing, it could help in the medium term if travel doesn't cost as much.
However, the Webjet share price has not gone up to reflect this positive development.
Demand is rebounding
Inflation and higher interest rates could certainly cause some uncertainty in the ASX travel share sector.
Webjet said at the time of its FY22 result that trading continues to improve on the back of increased demand and opening borders. It said that FY23 first quarter trading for the group was tracking "well ahead" of the FY22 fourth quarter in terms of bookings, total transaction value (TTV) and earnings before interest, tax, depreciation and amortisation (EBITDA).
The ASX 200 travel share has seen "strong bookings momentum" for the Webjet online travel agency (OTA) as Omicron "settles" and international tourism recommenced. Total bookings for May were tracking at around 80% of pre-COVID levels.
The company said it continues to extend its lead as the number one online travel agent in Australia and New Zealand. Management is "excited" by the growth opportunities in international flights and, in particular, by what Trip Ninja technology will allow it to offer in that space.
Based on the current bookings trajectory, Webjet has remained "on track" to be at pre-COVID booking volumes by the second half of FY23.
Good outlook for profit margins
For starters, I'll point out that the business returned to profitability in the second half of FY22. The Webjet OTA was profitable for the whole year despite the border closures and the Omicron impact. I think this is helpful for the Webjet share price.
The business is very scalable, thanks to its online model. Webjet notes that in the second half of FY22, revenue was up 63% compared to the first half of FY22, whereas expenses only went up 10%.
Webjet said costs were "expected to increase as more markets open but at a significantly lower rate than revenue, reflecting increased efficiencies across the business".
WebBeds, the business-to-business (B2B) segment, looks particularly exciting to me. Its expenses are "significantly lower" than pre-pandemic levels, partially thanks to automating labour-intensive processes.
WebBeds is reportedly on track to be 20% more cost efficient when at pre-pandemic booking volumes despite global wage pressures. It could reach an EBITDA margin of 62.5%.
Putting these elements together makes me think the Webjet share price has a promising future.
