Travel groups are finding it hard to get airborne early in the 2019-20 financial year. Webjet got caught by the collapse of UK group, Thomas Cook with $43 million of likely losses, now Flight Centre, the sector’s biggie, yesterday slipped out a forecast of lower first-half earnings and the shares hit turbulence and slumped more than 13%.
They ended down 11.7% at $41.67 after being down more than 13.5% at one stage. That’s the lowest the shares have been in more than six months.
Flight Centre revealed the problems in a presentation at the Morgans Queensland Conference by CEO Graham Turner said that while profit guidance will be provided at the November 7 AGM, who said he had not yet seen any benefit from interest rate cuts or tax refunds.
As a result, the company says that while total transaction value (TTV) is increasing, its underlying profit is likely to be lower in the six months to December, compared to the record same period in 2018.
He said while TTV was again increasing solidly early in the (financial) year, “underlying profit would be below the prior corresponding period (PCP) during the H1 and was likely to be heavily weighted towards the second half (2H) of FY20. Stabilisation was expected during Q2 after a challenging Q1.”
FLT reported a record $23.7 billion in TTV in 2018-19 (that’s the total value of all travel booked in the year to June, not revenue for the company) and had an underlying $343.1million underlying profit before tax.
Matching that profit before tax will be the major task for the company this financial with the weak first quarter, not exceeding it.
Mr Turner blamed: “unrest and uncertainty [sic], which has slowed profit growth in other geographies that have become material earnings contributors. Examples include the United Kingdom (Brexit) and the United States (safety concerns in the Dominican Republic impacting travel to a key destination for the US leisure business)”.
Flight Centre also faces increased costs, having to pay an additional $4.2 million in wages to its leisure salespeople following a lawsuit, due to consultancy costs and strategic reviews, and is expecting lower interest costs on its cash and trust account holdings.
“Thomas Cook’s high profile collapse in the UK had a minimal impact on FLT and its customers, but the company expected to incur in the order of $7 million in costs associated with its decision to ensure its customers were re-accommodated and not adversely affected by the collapse of Bentours and Tempo Holidays in Australia,” Mr Turner added.