Sunny outlook for On The Beach

OTB does not buy flights or hotel rooms ahead of time to later sell to customers, as is the case with traditional tour operators. Instead the online travel agent offers real-time prices and does not purchase anything until instructed to do so by its clients, thereby reducing capital requirements and the risk associated with selling into the cut-price 'lates' market. Instead, OTB has commercial agreements with the airlines and hotel groups and uses its scale as a buyer to spread costs and get a better price. Website users can also compare various flights and hotels and read reviews of travellers who have already visited the destinations. Users have the option to spread their cost into payment instalments, too.

Progress has been rapid. At the half-year stage, the five-year compound annual growth rate for revenue stood at 29 per cent and - with costs as a percentage of sales falling - for cash profit was 37 per cent. Daily unique visits to the site increased 9.5 per cent in the first half to 27.5m. And while OTB faced tough competition from traditional operators due to early bookings and the advantageous effect of hedging, revenue was up 7.3 per cent to £38.1m in the period, while pre-tax profit increased 34 per cent to £9.9m. The second half is expected to be stronger for OTB as the tailwinds for traditional operators fade and OTB benefits from the collapse of an aggressive competitor, Low Cost Travel Group.

As OTB's scale increases and its brand becomes better known it is edging back the heavy marketing spending that has helped power growth. Online marketing expenditure as a proportion of revenue was 40.4 per cent in the most recent half-year results, compared with 46.3 per cent during the same period the year before. The group should also benefit from its acquisition of fellow travel website Sunshine.co.uk for £12m in May, and the strong balance sheet means further deals could be on the cards.