Flight Centre (FLT) shares have plunged after the travel group downgraded its profit forecast due to weaker demand and higher costs.
The company expects its pre-tax underlying profit to be between $355 million and $365 million in the year to June 30, down from its previous forecast range of $360 million to $390 million.
Earnings will be lower than in the previous year because of discounting made to stimulate demand among cautious leisure consumers, plus higher costs after a wage change and investment in its network expansion.
In December, Flight Centre had forecast underlying profits before tax of between $360 million and $390 million this financial year. The bottom of the range represents a 4% decline on last financial year when it booked a record $377 million profit.
For the December half year, Flight Centre reported a 5.9% drop in first-half underlying profit before tax to $137.6 million, in line with the lowered guidance range of $136 million to $142 million issued to the market in December.
Flight Centre reaffirmed its guidance for a full-year underlying profit before tax in the range of $360 million to $390 million, which was updated in December.
That has now been lowered.
Flight Centre shares fell 13.6% to $37.51, after the downgrade was issued during the morning session. That was 10 cents up on where they were back in February after the release of the interim profit report.
Given that the wider market was up 1.3% yesterday’s that’s a real trashing of Flight Centre’s shares by investors.
FLT 1Y – Flight Centre plunges on profit warning
Flight Centre managing director Graham Turner said the Australian operations would “not achieve its normal growth trajectory" but its international business would deliver profit growth.
“Corporate travel results have generally been reasonable, although the downturn in the resources sector has again affected performance in Western Australia and the Australian corporate travel market as a whole,” he said in yesterday’s statement.
Australian leisure turnover will be up just 2.7% this financial year, compared with an annual rise of 8.5% over the past five years. That is due to weaker consumer confidence.
The company said there had been signs of a recovery in the second half of this financial year with the overall market seeing modest growth after a flat first half, while gross profit margins were stabilising.
"We are also seeing strong demand and sales to the USA and this looks set to continue into the new year with a price war currently underway on the Australia-Honolulu route," Mr Turner said.
Total transaction value in Australia was likely to be 3% higher this year due largely to its corporate business.
However, Mr Turner said the company’s share of a recovery in leisure travel had not kept pace with the market and it had not experienced a “traditional uplift in business activity" during the key months of May and June.
While conditions have been tough in Australia, the company said all of its businesses overseas with the exception of Canada would be profitable.
Both its US and UK businesses – the second – and third-largest operations in terms of sales – would deliver growth in earnings. Pre-tax profits from its US operations would be up 50%.
