Flight Centre Shares Head South on Increased Losses

There’s been a rising mood of optimism about the outlook for travel related stocks as vaccination rates have slowly risen, economies have re-opened and stayed open during infection scares, and the travel bubble with New Zealand started last month.

Qantas shares had been solid, especially in the wake of the February financial results release and then in April as the travel bubble started up.

Internal travel opened up, especially over the Easter break and forward bookings for domestic travel have reportedly been buoyant.

Share prices of listed travel groups did well for a while as it looked like Covid was slowly relaxing its hold on economies and the re-opening of borders and travel options seemed closer.

But the terrible surge in India and Brazil, new infections in Japan and a feeling that nothing really was going to change up to mid-March has seen the share prices of travel related stocks soften.

On Tuesday a very weak trading update from the biggest agency of them all, Flight Centre, helped explain the recent loss of traction for the sector

The company intimated in a presentation to the Macquarie investment conference in Sydney that it now expected a bigger full year loss than expected of $500 million.

That also has seen the company once again tell shareholders there’s no chance of any dividends this year or next, so 2023 looms as the earliest.

“Nothing is certain in this market except… we will not be paying a dividend in 2022,” Flight Centre CEO Graham Turner told the conference.

“We feel we’re in a reasonable space considering the difficulty of the travel and tourism market… but it’s going to be a reasonably long road back.”

He told investors the company now expected to return to profit in the second half of next year.

But that’s not to say the company isn’t seeing an improvement.

He told the conference that sales revenue in March was “comfortably higher than previous COVID-period record” and turnover in the month jumped 32.7% or more than $100 million from February.

The implied guidance in yesterday’s presentation is for an underlying full-year loss of around $500 million which is worse than the analyst forecasts around $355 million.

As a result Flight Centre’s share price fell 4.6% in the wake of the update, closing at $16.14 – the lowest they have traded since February 22.

While travel and associated bookings were recovering every month on the back of travel resuming within Australia and North America, that would not be enough to stop a loss this half of around $250 million – which would be in line with its first-half result.

The gradually rising revenue has been offset by the end of the JobKeeper wage subsidy at the end of March.

Mr Turner said travel becoming possible between the US, Europe and UK for anyone who has been fully vaccinated over the coming months would make a significant difference to bookings, while he now assumed Australian state borders will remain open.

Flight Centre has closed around half its retail shopfronts globally since the pandemic hit, and around 40% locally.

Mr Turner told the conference he expect Flight Centre could still return to pre-COVID levels of bookings given its remaining stores accounted for two-thirds of its business pre-COVID.

“They were are best locations that we kept and our best people… and we certainly are considering some online growth,” he said.

 

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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