Flight Centre (ASX: FLT) has tightened its belt and corporate clients are spending more than expected, but the pandemic's toll has shown its jetlagged weary face with the travel company anticipating a loss before tax of $825-875 million in FY20.
This will likely represent more than a $1 billion shift in the negative from Flight Centre's FY19 result, or more than its recent $700 million capital raise, $200 million debt facility increase and Melbourne HQ sell-off combined.
Before the virus became a pandemic and led to widespread travel restrictions, in the eight months to February the group had achieved a profit before tax of $150 million.
On an underlying basis the performance for FY20 would have been around $350 million higher if it weren't for around $110 million in COVID-related costs to reduce monthly cash outflows, as well as costs arising from supplier failure, impairment charges, write-offs against goodwill and other one-off factors.
The Brisbane-based company took drastic steps to reduce costs over the last few months, slashing its number of leisure shops in half, negotiating rent reductions for remaining stores and placing 70 per cent of its staff globally on government stand-down/furlough programs or in redundancy.
"COVID-19 and, specifically, the government responses to it have clearly had devastating impacts on businesses worldwide and on the airline, travel, tourism and hospitality industries in particular," says FLT managing director and co-founder Graham Turner.
"This has severely impacted us and our people and some very tough decisions have been made over the past four or five months."
Flight Centre's goal was to reduce monthly net operating cash outflows from their pre-COVID levels of $230 million down to $65 million, but this was surpassed by keeping the figure down to $53 million.
The outflow was lower still when considering a $10 million per month net benefit from the JobKeeper program for Flight Centre's retained employees in Australia.
Recent developments such as the Melbourne property sale, a government-backed UK loan and ongoing eligibility for JobKeeper are expected to extend to add $200 million to the group's $1.15 billion "liquidity runway" as at 30 June.
Revenue was higher than anticipated in July at $17 million, mostly fuelled by the company's corporate business which was also a fast-growing segment leading up to the crisis with previous annual TTV of more than $10 billion.
Total transaction value (TTV) exceeded $200 million globally for the month and approached $100 million in Australia.
"Despite ongoing restrictions, revenue has now started to increase, particularly in Europe, and we have surpassed our initial cash flow target, thereby extending our liquidity runway," says Turner.
"We have also continued to win a record amount of new corporate accounts, while generating an underlying corporate profit during FY20.
"This highlights both our corporate business's resilience and its strong future growth prospects in this large, global travel sector which was estimated to be worth $US1.5 trillion per year pre-COVID-19."
Turner says there are still further challenges to be overcome as well as ongoing uncertainty about government COVID-19 objectives and strategies.
"It is critical that businesses across all sectors know these objectives and data lines for COVID-19 control and the lifting of restrictions - whether the end goal is community immunity, suppression, eradication or learning to live with this virus," he says.
"Learning to live with the virus involves protecting the vulnerable, particularly the elderly, while ramping up testing, contact tracing and ultimately isolation so we don't overwhelm intensive care units.
"Adopting this approach, while continuing to take sensible health precautions, flattening the curve and getting society and business back to a reasonable level of normality must be priorities to reduce the already dire economic outcomes being experienced."
Updated at 10:04am AEST on 13 August 2020.