Company Overview - Flight Centre Travel Group Ltd, formerly Flight Centre Limited is an Australia-based company. The Company is engaged in travel retailing, wholesaling and corporate travel management. The Company operates in five geographical segments: Australia, United States, United Kingdom, rest of world and other segment. The Company's brands include FCm Travel Solutions, Corporate Traveller, Escape Travel, Student Flights, Travel Associates, Cruiseabout, Liberty Travel, CiEvents, Stage & Screen, Campus Travel and Travel Club Gateways. The Company's subsidiaries include Australian OpCo Pty Ltd, Escape Travel Franchising Pty Ltd, Flight Centre (China) Pty Ltd, Flight Centre Property Pty Ltd, Flight Centre Technology Pty Ltd, Flight Centre Office Trust and Moneywise Global Home Loans Pty Ltd.



Analysis - On December 18, 2014, Flight Centre (FLT) announced for amendments with regards to its full year profit guidance, i.e., profit growth target for 2014/15.


Referring to the challenging trading conditions in Australia following the leisure travel spending slowdown late in 2013/14, the Company stated that the slowdown has led to lower than normal leisure sales growth during the five months to November 30, 2014 and lower margins. FLT’s sales force has reduced commissions to lower overall ticket prices and stimulate demand. FLT has altered its front-end pay structures and expansion of its network, which has led to increased wage, occupancy and sales and marketing costs in relation to the previous corresponding period. Accordingly, bottom-line results in the Australian leisure business are currently lower than expectations, thereby making it difficult for FLT to achieve its initial target of a full year underlying profit before tax (PBT) of $395million-$405million (5-8% growth).



Results by Country as per 30 October 2014 Updates (Source – Company Reports)

As per the new announcement, FLT anticipates that underlying PBT for 2014/15 will be between $360million and $390million - the top representing 4% growth on the record $376.5million underlying result achieved during 2013/14 and the bottom representing a 4% decline. Further, underlying first half PBT is expected to be between $136million and $142million in comparison to $146.3million first half result last year.

In the midst of this, FLT believes that solid contributions may emanate from its overseas businesses that have consistently grown at 20-30% per annum in recent years. The Company admitted that the more specific guidance is difficult to be provided at this juncture given the aforesaid scenarios. The total transaction value (TTV) in FLT’s Australian leisure business rose by 2%, which is significantly lower than the compound annual growth rate in the order of 10% that the Company achieved over the past five years. Australian leisure sales growth also witnessed slight dip than the overall TTV growth rate of 7% up until the end of November.

Nonetheless, the Australian corporate travel market has been reported to be relatively stable and FLT is witnessing good growth in the corporate travel sector globally. The Company also noticed healthy customer enquiry in Australia in its leisure business along with attractive holiday offers, particularly internationally, with the International Air Transport Association recently flagging a 5% drop in global airfare prices. The Company expects gradual increase in demand with the progress of the financial year along with travelers taking advantage of the cheap fares.


New Design Features (Source – Company Reports)

The Company further stated that it expects to achieve accelerated profit growth during the fourth quarter, which was a relatively weaker trading period during 2013/14. FLT reported that it has not seen substantial shifts in travel patterns owing to the fluctuations in the Australian dollar as travelers typically adjust destination spending by either upgrading or downgrading plans.

FLT’s leisure sales from Australia to the USA have increased and the rate of growth has exceeded the overall ticket growth rate in Australia. This indicates that the USA has increased its share of the outbound leisure market. FLT stated that elsewhere in the business, it is in fact benefiting from the weaker dollar as overseas profits translate at a higher rate and via the foreign exchange margin it typically earns on wholesale sales. Additionally, improved results from international businesses are also partially balancing the leisure travel slowdown’s bearing in Australia. For instance, FLT’s UK business started the year solidly in both leisure and corporate travel. With new products being developed for leisure customers, including a unique range of customized long haul holidays - the Journeys range - that will be launched in the UK soon, the growth prospects look good. The Company intends to expand its leisure business into Ireland, via a Dublin hyper-store within the next year. Further, FLT is progressing well to deliver its fifth consecutive full year profit in the USA.


Profits Summary (Source – Company Reports)

The corporate business will open in Austin, Texas during the third quarter and in Raleigh, North Carolina during the fourth quarter, giving it a presence in 20 cities. FLT continues to target 5-7% expansion globally in terms of sales network growth. FLT believes to have organic growth, and additional strategic acquisitions and joint ventures are likely to follow the recent additions of youth touring business Topdeck Travel; Dublin-based corporate travel business Travelplan Corporate; and the Buffalo Tours destination management company.

Another update is with regards to the Buffalo Tours which is now providing transfers and organising “at destination” day-trips and activities for FLT’s customers in Thailand, Cambodia, Laos and Vietnam. The joint venture may expand into other key markets within Asia, including Bali, Hong Kong, China, Singapore and Malaysia, during the fourth quarter.


Results Summary (Source – Company Reports)

FLT expects to have significant reduction in losses during the first half, which is the seasonally slower trading period for the leisure and wholesale businesses, and strong second half profits. FLT also anticipates US EBIT in the order of $USD17million-$18million, which is about 50% growth on last year’s result. In the USA, the corporate travel business is the major profit driver and is progressing well to deliver more than $AUD1billion in TTV this year while making it just the third business to achieve the milestone and the first outside Australia. The business’s geographic footprint continues to expand in both leisure and corporate travel. FLT has opened a new hyperstore (third in the USA) in Philadelphia and the fourth is due to open in Los Angeles early in the second half. Smaller stores are also due to open in Pennsylvania and New Jersey very soon.


Dividends (Source – Company Reports)

The Company reported that it is in full-swing to maintain a strong company cash balance in order to capitalise on opportunities that will arise during the second half and so forth. FLT expects to have about $370million in company cash and modest debt as at 31 December 2014. The Company’s half year accounts are expected to be released on Tuesday, 24 February 2015.

During the AGM on 30October 2014, FLT stated that the growth targets have been in order. Further, the results overview showcased that 12.6% TTV growth to $16b, i.e., $1.7b year-on-year increase without significant acquisitions was realized. Further, there was 13% revenue growth to $2.2b with 9.7% underlying PBT growth to $376.5m, 9.8% underlying NPAT growth to $263.6m, and statutory PBT and NPAT impacted by positive and negative non-recurring items. Moreover, the Company reported for $431.2m positive net debt position (FY2013: $387.6m); $153m returned to shareholders via dividends (58% of underlying NPAT and 74% of statutory NPAT); and $227.1m operating cash inflow over full year. The recent updates of course represent a mix of ups and downs though.


FLT Daily Chart (Source - Thomson Reuters)

Even the recent decision that Helloworld subsidiary QBT will be the sole provider of all travel services for the whole Australian government, does not have any impact on FLT.

The overall picture appears to be intriguing given the facts such as solid contributions from overseas business etc., and accordingly, we put a BUY recommendation for this stock at the current price of $33.03.

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