Flight Centre Skroo’d by holidaymakers

Flight Centre Skroo’d by holidaymakers
By Hannah Edensor


Flight Centre has had a massive $600 million wiped off its market value after a drop in holiday travel forced the company to cut its profit forecasts.

Competition to nab business travellers and growth in the OTA sector were also to blame for the group’s second downgrade this financial year, with FC announcing it now expects a pre-tax underlying profit of between $355 million and $365 million in the year to June 30, down from the $360 million to $390 million it forecast when it last made a downgrade in December.

A $355 million underlying profit would be a fall of 6% from the previous year’s record result.

The announcement yesterday morning resulted in investors punishing the agency group, wiping $595 million from its market value as shares plunged 13%. Shares were up 2.7% before the downgrade announcement.

Flight Centre said sales growth in its Australian operations, the largest part of its business, remains much slower than normal and a rebound in holiday travel demand has not been reflected in the company’s sales, while competitive pricing in the corporate travel market is also a factor.

Official figures show a record number of Australians travelled overseas in March, almost 800,000, a sharp increase on the first two months of 2015.

“Our international businesses will deliver solid profit growth, but the Australian business will not achieve its normal growth trajectory,” managing director Graham Turner said.

Discounts in the market to stimulate demand from cautious holiday travellers and costs increases due to wage changes made in August 2014 also resulted in earnings to fall, the company said.

Turner said it did not enjoy the same post-Christmas recovery in holiday travel demand that has been seen in the wider market, and business activity has not increased as it typically does in May and June.

But with the number of international airlines flying from Australia on the rise, the outlook for the travel market is positive, he said.

Per a report by AAP, IG market strategist Evan Lucas said multiple profit warnings in one year always sent shockwaves through the market.

“When investors see dual downgrades then they start to really doubt the stock and that’s partly why you’ve seen this reaction,” he said.

Flight Centre’s warning also highlighted longer-term challenges for the company, he said.

It said it expects outbound travel to boom in the years ahead, and also re-iterated a focus on improving customer service and a desire to offer exclusive travel products and benefits.

“What they’re effectively saying is that they are very much beholden to market conditions and there’s not much they can do about it until conditions improve,” Lucas said.

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