In late 2008, as the Global Financial Crisis was shaking the very foundations of the financial system, Flight Centre (ASX: FLT) hit $8.00. It was down 75% from its all-time high only a year earlier.
Intelligent Investor’s analysts and editors gathered – as is their wont – to talk stocks. I remember the gathering in our old Bondi Junction office in Sydney well.
One of our number was adamant that Flight Centre was a goner. It was only a matter of time. The travel booking process was heading inexorably online and ‘bricks-and-mortar’ travel agents were dodos. They just didn’t know it yet.
The rest of us who knew the company well were glum. We could see the argument – the internet was a threat to Flight Centre – and yet the stock looked cheap. Some of us, including me, bought more stock for our personal portfolios around that time for exactly that reason.
Fast forward eight years. Flight Centre’s Australian total transaction value (TTV), the gross value of all the travel the company sells, has grown 56%, or an average of just under 6% a year. The share price is back to around $30.
What I can tell you is that the internet is still a threat to Flight Centre eight years later. It isn’t going to go away, and the employee who predicted Flight Centre’s demise was perhaps just too early. And yet I think there will remain a place for bricks-and-mortar travel agents, just as people will still shop at apparel retailers.
It’s important to consider that there are effectively two travel markets: the ‘do it yourself’ market and the ‘do it for me’ market. Flight Centre operates primarily in the latter, which is why the front page of the company’s 2015 annual report stated the company wanted to become ‘the world’s best person to person travel experience retailer’ (the italics are the company’s).
Most of us have booked travel online ourselves. However, there are plenty of reasons why people might prefer to use Flight Centre’s services. So what are they?
First, booking travel is time-consuming. If you’re time-poor – and many are – travel agents are a way to outsource the process. If you’ve ever booked a holiday online, it can take hours of research. People with young families in particular often prefer that someone else do all the work.
If anything, travel planning is getting even more complicated. Coordinating multiple flights, transfers, hotels and tours is harder than ever, despite the increasing sophistication of online travel sites.
Personal advice? No problem
Second, many people want someone to provide advice or hold their hand. The sheer choice of travel products is confusing, daunting even.
There’s also a perception – whether true or not – that a travel agent will help if there are delays or problems. Travel agents can make recommendations of places to visit while you’re on holidays, or tell you what visas or vaccinations you need.
Third, there’s a perception that travel agents have relationships with travel providers and can therefore get good deals on flights and hotels. There is indeed something to this – online travel is not necessarily cheaper, as some might think. Flight Centre’s ‘Lowest Airfare Guarantee’ means that it will beat others’ prices (assuming you can find the exact same airfare which, of course, you probably can’t).
Whether you think these are sensible reasons for using a travel agent or not, remember that other consumers might think differently from you. Back in 2010, a colleague wrote a blog piece wondering why anyone would use Webjet (ASX: WEB) to book flights. At the time the site charged $30 to book a flight that you could jump across to the airline’s own website and book for free. And yet that company has been very successful.
Flight Centre now dominates the ‘do it for me’ travel market segment in Australia. And there are many other reasons behind its long-term success which are beyond the scope of this blog piece.
There’s no doubt that continued growth in online travel booking may one day take market share from Flight Centre. Even so, some people clearly still value the idea of speaking to a real person, in a real store, in a convenient location.