DOWNTURN HITS FLIGHT CENTRE PROFIT

Written on the 26 June 2015

DOWNTURN HITS FLIGHT CENTRE PROFIT SAVVY holidaymakers turning to online competitors have slugged Flight Centre (ASX:FLT) with the travel retailer downgrading its profit guidance.

Underlying profit before tax is forecast to be between $355 million and $365 million in FY15, down from its earlier target of $360 million to $390 million.

Earnings are also expected to fall short compared to the previous period, despite reporting a record total transaction value across Flight Centre's 10 global businesses.

Consultant discounting in the first half to stimulate demand and compete with bargain market pricing has contributed to the decline.

The company has also faced higher costs as a result of increased wages, network expansion, repositioned marketing strategy and sluggish sales growth in the industry overall.

Flight Centre managing director Graham Turner says the growth in the retailer's international division won't be enough to offset the domestic decline.

"Corporate travel results have generally been reasonable, although the downturn in the resources sector has again affected performance in Western Australia and the Australian corporate travel market as a whole," Turner says.

"While our mainstream leisure growth has been subdued this year, the investments we are making in the marketing and customer intelligence areas will help us generate stronger returns on our marketing spend and increase our market-share in the future."

Leisure sales in Australia slowed in the lead up to the Federal Budget in May last year, with the market stabilising in the second half of FY15.

Turner says the company hasn't kept pace with the recovery, as demonstrated by modest growth during the traditional "uplift" months of May and June.

"On a positive note for the longer term, airline competition remains healthy in Australia, with international capacity up again this year and about 50 airlines servicing outbound routes," he says.

"This competition looks set to continue, with Airbus recently predicting in its Global Market Forecast that the passenger aircraft fleet serving the Australia South Pacific region will almost double by 2033.

"This supports our belief that the next 20 years will represent a Golden Era of Travel, as customers will have more choice, better in-flight experiences and continued access to highly affordable fares."

Earnings in the US are set to increase by 50 per cent this year, while the UK is on track to reach GBP$1 billion in transactions.

Flight Centre will continue to revitalise the brand in Australia, including the roll out of enhanced stores for Escape Travel and Travel Money.

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