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%.
The collapse of UK travel company, Thomas Cook after 178 years in business will leave an impact across every part of the global holiday and business travel businesses, with costs estimated to easily top $A2 billion.
Investors couldn’t quite decide about the Flight Centre interim results yesterday. First up they were unhappy and pushed the shares down more than 4% to a day’s low of $41.40, then they changed their minds and chased the shares back up to where they ended the day at $44.30, up 2.8%.
Macquarie has surveyed 40 travel agents, airlines and hotel operators to gauge recent travel trends. The consensus view is that conditions are subdued for both domestic and international travel. Global political uncertainty and corporates mandating travel freezes of varying degrees are having an impact.
The company has downgraded guidance by -12% to $335-360m for pre-tax profit in FY19. Credit Suisse notes the Australian leisure business continues to be challenged and total transaction value appears to have declined in the first months of 2019.
The share price has been on strong uptrend with Citi analysts referencing a positive turn in the industry’s cycle with oil prices having increased by circa 40% over the past 12 months; this is driving up airfares, helping revenue growth for travel agents such as Flight Centre.
Flight Centre has evolved its model from a leisure focus to be 50/50 leisure/corporate, and successfully so, the broker believes. Corporate customers are using the business because it is quicker, cheaper and more efficient.