6,000 Flight Centre staff stood down, 35 per cent of stores to close globally

26 March 2020, Written by David Simmons

6,000 Flight Centre staff stood down, 35 per cent of stores to close globally

Travel agency Flight Centre (ASX: FLT) will stand down 30 per cent of its global workforce, including 3,800 Australian employees, as the tourism sector languishes in limbo.

Covid-19 has had a dramatic effect on the global tourism sector, with many countries closing borders to help slow the spread of the coronavirus.

Flight Centre has felt this downturn crush its operations, with total transaction value tracking at 20 to 30 per cent of normal levels globally this month.

This has led to management making the tough call of reducing its global workforce by 30 per cent, with 6,000 support and sales roles to be temporarily or permanently stood down globally including 3,800 people in Australia.

The travel agency intends to bring the stood-down workforce back to work once travel restrictions are lifted and demand for tourism increases again.

Stood-down employees will be offered the opportunity to take up a call centre job in the meantime; Flight Centre says it has been engaging with other potential employees to secure immediate access to more than 10,000 sales and call centre vacancies. Those who take up one of these roles will be able to return to Flight Centre once conditions improve.

The company has also been working with the government to give employees who exhaust their accrued leave entitlements rapid access to benefits and support schemes if they are unable to find short-term temporary roles.

"We have been forced to make extremely difficult decisions, including temporarily standing down some of our people and cancelling our interim dividend, with a view to preserving more jobs for the future," says Flight Centre managing director Graham Turner.

"These people that we are temporarily standing down are a valuable part of our company and, where possible, we aim to bring them back to work as soon as restrictions are lifted and as demand starts to increase."

After previously announcing the closure of 100 under-performing retail shops the company says it has accelerated and extended its leisure shop closure plans globally and could now close around 30 per cent of its outlets across multiple brands in Australia and 35 per cent of leisure shops globally over the next few months.

"Changes to these plans are likely if market conditions deteriorate further, if restrictions are in place for an extended period or if demand rebounds more rapidly than currently expected," says Flight Centre.

The company's board and senior executives will forego 50 per cent of pay until at least the end of FY20 and short-term incentive payments for the remainder of 2020.

The group's $15 million-per-month sales and marketing spend has been suspended to preserve cash while travellers are effectively unable to take off either domestically or internationally.

Because of the impact on its income FLT has begun renegotiating rental agreements with landlords. These discussions to date have been positive according to FLT, with potential cost savings including rent-free periods and more flexible trading hours on the table.

"We are also making other changes to reduce costs, preserve cash and help the company overcome the current challenges that our industry and almost all businesses now face," says Turner.

"In making any changes, we will be extremely conscious of the impact on all stakeholders and will seek solutions that minimise the effects on any one group."

"We will also be conscious of the need to make changes that allow us to successfully overcome this short-term challenge, but do not harm our culture or prevent us from thriving into the future."

At a glance:

  • 6,000 support and sales roles will either be stood down temporarily or, in some instances, will become redundant
  • FLT will initially retain up to 70% of its global workforce. The company is assessing the timing and nature of further reductions.
  • In Australia 3,800 people in sales and support roles will temporarily stand-down in the near-term.
  • FLT could now close about 30% of its leisure outlets across multiple brands in Australia and 35% of its leisure shops globally over the next few months.
  • FLT has initiated immediate 50% pay reductions for senior executives and Board members at least until the end of FY20. Executives will also forgo all short-term incentive payments for the year.
  • FLT has moved to significantly reduce occupancy costs by renegotiating rental agreements with landlords.  FLT has pursued potential cost savings including rent-free periods and more flexible trading hours.
  • $15 million-per month marketing spend suspended

The remaining Flight Centre team is currently engaged in assisting customers to make it back to their homes; a difficult task considering many airlines have effectively cancelled all international travel and borders are effectively shut both inbound and outbound.

A team is in place to consider all options, including booking charter flights, for customers and other travellers that no longer have access to commercial flights. The company says major areas of concern, given the loss or reduction in scheduled services, includes South America, South Africa and the United Kingdom.

"We are dealing with unprecedented restrictions and extraordinary circumstances that are having a significant impact on our customers, people, suppliers and all other stakeholders," says Turner.

"People are effectively unable to travel in the near-term, either domestically or internationally, and some are actually unable to be repatriated to their home countries, which is affecting thousands of people and is a problem that we're working to help solve."

"Within this climate, our people have been working tirelessly to help our customers amend their plans, but unfortunately the vast proportion of the work that they would normally undertake has now been stopped."

The Covid-19 outbreak has destroyed what would have otherwise been a record 2020 fiscal year for Flight Centre.

The company generated $12.4 billion in first half TTV and broke monthly records in both January and February.

Despite the downturn in business Flight Centre says it is undertaking steps to maintain a robust balance sheet and liquidity position. 

"The company is well progressed in pursuing relevant initiatives and will update the market in due course, at which time it also expects to end the voluntary Australian Securities Exchange suspension that is currently in place," says Flight Centre.

Updated at 10:45AM AEDT on 26 March 2020.

Author: David Simmons





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