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DESPITE achieving record sales in the first half, Flight Centre Travel Group (ASX: FLT) profit has suffered the effects of a turbulent industry, dropping 36.2 per cent to $74.4 million.
Flight Centre's revenue and profit margins were grounded by a tough global trading cycle during 1H17, as the company was peppered with hurdles including a widespread discounting of airfares and exchange rate volatility.
While Flight Centre's total transaction value increased by 1.8 per cent to hit $9.3 billion, revenue fell 0.6 per cent to $1.25 billion.
Managing director Graham Turner says although Flight Centre has been upset by abnormal market conditions, the company has still performed soundly under the circumstances.
"While we were disappointed that our record sales didn't translate to record 1H profits, our $113.2 million underlying profit before tax (PBT) was a decent outcome, given the conditions," says Turner.
"Currency headwinds had a significant impact and particularly affected the UK result translation, with a GBP500,000 1H profit increase translating to an AU$3.9 million 1H PBT decrease.
"Widespread airfare discounting, particularly on Australian outbound routes and in the USA, New Zealand, Singapore and India, also impacted short-term results."
Turner says the discounting was driven by rapid growth in airline capacity during CY16; a double-edged sword which allowed airlines to offer unprecedented bargains to their travellers, but cause vendors' total transaction values and revenues to split apart in comparison.
"On a positive note," adds Turner, "productivity is improving and our record ticket sales again underline the strength, relevance and diversity of our offerings and our omni-channel network".
"These are encouraging signs and mean we are well placed to benefit when conditions stabilise."
Turner expects market hardships suffered in 1H17 will continue to impact Flight Centre's results through the full year.
"While we still believe that a full year PBT towards the bottom of our initial range is possible, we are not yet seeing tangible evidence that the factors that affected 1H profits are abating quickly and that the benefits will flow through during FY17," says Turner.
"As a result of these external factors, we now believe that underlying FY17 PBT is likely to be at the lower-end or below our initial guidance and that a result between $300 million and $330 million is more likely."
During 1H17 Flight Centre made capital investments totalling $66 million which include shop enhancements, system upgrades and the relocation of its global headquarters at South Bank in Brisbane.
Flight Centre's shares have dropped 3.89 per cent as of 2:45pm AEDT to trade at $29.12.
The company has declared a fully franked interim dividend of 45c per share to be paid on April 13, representing a 58 per cent return of underlying net profit.
Business News Australia
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