NERVOUS AUSSIES HIT FLIGHT CENTRE PROFIT TARGET
Written on the 18 December 2014 by Nick Nichols
A SLOWDOWN in the Australian holiday travel market has led Flight Centre Travel Group (ASX: FLT) to downgrade its profit forecast for FY15.
The Brisbane-based company says record earnings from the UKL and US are not enough to cover the slump hitting the domestic market in the latter half of this year.
And the company is not blaming the falling Australian dollar, instead sheeting the blame on the uncertainty that has surrounded the Federal Budget since May which it says has led to a sharp fall in consumer confidence.
The news saw Flight Centre shares tumble below $32 to a low of $31.41 this morning, with the shares currently trading around 10 per cent below Wednesday's close.
Flight Centre was expecting profit growth of between 4 and 8 per cent to between $395 million and $405 million in FY15.
However, the result could go either way to be 4 per cent higher or 4 per cent lower than the record $376.5 million profit of FY14.
Flight Centre is targeting a profit range of $360-$390 million in the current financial year.
The underlying profit is expected to land between $136 million and $142 million, down from $146.3 million in FY14.
"While we expect solid contributions from our overseas businesses which in profit terms have consistently grown at 20-30 per cent per annum in recent years the growth outlook for the larger Australian business is currently unclear," says Flight Centre managing director Graham Turner.
"This means it is difficult to provide more specific guidance at this relatively early stage of the year.
"When we set our full-year growth targets in August, we expected the uncertainty surrounding Australia's Federal Budget would have abated as the first half drew to a close and consumer confidence and spending would have started to rebound.
"Unfortunately, we are yet to seen tangible signs of a full recovery and the overall leisure travel market in Australia continues to be flat year on year."
Turner says the total transaction value in the Australian leisure business is up about 2 per cent, which is sharply lower than the 10 per cent annual compound growth rate the company has achieved over the past five years.
"The Australian corporate travel market has been relatively stable and we are generally seeing good growth in the corporate travel sector globally," he says.
"On a positive note for the leisure business, we continue to see healthy customer enquiry in Australia and attractive holiday offers, particularly internationally, with the International Air Transport Association last week flagging a 5 per cent drop in global airfare prices.
"While it is impossible to predict a timeframe for recovery, we expect stronger demand as the financial year progresses and as travellers start to take advantage of these cheap airfares.
"We also hope to achieve accelerated profit growth during the fourth quarter, which was a relatively weaker trading period during 2013-14."
Turner says the falling Australian dollar has not affected the outbound tourist market to the US, which has increased its share of Aussie travellers heading overseas.
Flight Centre is actually benefitting from the lower dollar through wholesale sales which could translate into foreign exchange profits this financial year.
Meanwhile, Flight Centre's US operations are flying high with EBIT of between $17 million and $18 million expected in FY15 up 50- per cent on last year. The US growth has been largely driven by the corporate travel market.
Flight Centre will release its interim earnings result on February 24.
Author: Nick Nichols