TURBULENCE IN FLIGHT CENTRE'S 'GOLDEN ERA'

Written on the 24 February 2015 by Laura Daquino

TURBULENCE IN FLIGHT CENTRE'S 'GOLDEN ERA'

THE YOUTH, Baby Boomers and corporates - three markets that Flight Centre Travel Group (ASX: FLT) is putting its money on as carrying the company through an overall declining period of leisure travel.

FLT CEO and managing director Graham Turner (pictured) remained firm today that we are "entering a golden era of travel" - as stated by the company last year following a record 2013/14 profit - despite a profit slump in the half year to December 2014. Cheaper fares are expected to stimulate demand going forward.

The company's underlying NPAT declined 6.8 per cent from the previous corresponding period to $97.6 million, from a revenue that saw a growth of 4.6 per cent to reach $1.1 billion. This included costs and profits from the Top Deck acquisition settled in August 2014.

While it may not look like a golden period on the books, this result was met with a share price surge of 8.5 per cent to $38.25 in early trading today.

The company, with diversified offerings across 29 brands, is of the view that decline has stabilised in the Australian market - which endured a decline in the last half year to offset record sales in overseas markets.

Striking gold offshore

That being said, almost half of FLT's global network (47 per cent) is now located outside of Australia, with Flight Centre USA being the second largest company operation to generate more than AUD$1 billion in TTV in the six months to December 31 last year.

FLT's America to Europe route has 30 per cent more traffic than the entire Australian outbound market.

"Four businesses - the United Kingdom, South Africa (local currency), Singapore and Greater China - delivered record first half EBIT, while the USA achieved its best first half result since we acquired the Liberty and GOGO businesses in 2008," says Turner.

"In sales terms, each of our 10 operations [worldwide] achieved record results.

"We are pretty confident in the corporate market in Australia - corporate TTV topped $1.1 billion for the period - but the bottom line leisure results were lower than we would like, and lower margins and costs haven't gone away.

"Leisure is pulling us backwards but we think it will be profitable in the second half - the challenge is to enhance productivity in our leisure businesses, as we are successfully doing in corporate."

Costs pulling the fleet down

A downturn in consumer confidence corresponded with increased investment in terms of new shop designs, marketing strategies such as SEM that incurred higher costs and wage increases.

Wages grew nine per cent over the period, the major drivers being a $5 to $6 million investment in Australian novices, a seven per cent increase in headcount and store numbers increased four per cent to 2759.

Where the money is

Turner says the long term goal for the next 20 years is targeting three different markets.

"Through many of our brands including the recently added Topdeck, we are showing our focus on the youth market and may look to more acquisitions in this area where we feel we have a strong offering," he says.

"The youth market seems to be resistant to the ebbs and flows of the economy.

"We are also very focused on Baby Boomers and designing more offerings for them considering 186,000 are entering the market each year in Australia and they are typically strong premium travellers.

"The other one is corporate, who like to spend lots of money on travel, and we are seeing a lot of movement towards."

Directors today declared a fully franked interim dividend of 55c per share to be paid on April 16. This is equal to the 2013/14 interim dividend.

Flight Centre has maintained its guidance for a full-year underlying profit before tax in the range of $360 million to $390 million, which was updated in December last year.

 

Author: Laura Daquino Connect via: Twitter LinkedIn

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