Company overview - Flight Centre Travel Group Limited is engaged in travel retailing in both the leisure and corporate travel sector, and wholesaling. The Company's segments include Australia, United States, Europe, Rest of World and Other. The Europe segment includes businesses in the United Kingdom, Ireland and Netherlands. The United States segment includes businesses in the United States and Mexico. The Rest of world segment includes the aggregation of a range of geographic businesses. The Other segment includes Brisbane-based support businesses that support the global network. It operates retail, corporate and wholesale brands in Australia. Its leisure travel brands include Flight Centre, Escape Travel, Student Flights, Travel Associates and Cruiseabout. Its corporate business includes brands, such as Travel Money, Campus Travel and 4th Dimension. Its wholesale brands include Infinity Holidays and Explore Holidays. It is also engaged in activities, such as recruitment marketing and bike retailing.
 

FLT Details
Strategic move to create a new global business: Flight Centre Travel Group Ltd (ASX: FLT) has recently announced about its plans to create a new global business that will provide in-destination services to travelers. The company considers huge opportunities in the in-destination sector and has become one of the key strategic growth areas for the future. The plans would be implemented in conjunction with Vietnam's Thien Minh Group (TMG). Accordingly, FLT would make a huge Asia-based destination management company (DMC) immediately by combining TMG's Buffalo Tours business in Vietnam with the smaller joint venture DMC businesses the two companies currently operate in 10 other countries. The group would also enhance their equity in the new, larger venture and will acquire or launch similar businesses in other key regions in the short to medium term to create a world-wide DMC network. Moreover, FLT has taken the first significant step towards the creation of a global DMC as the company agreed to take a 58.5% holding in the expanded Asia business (FLT previously held 49% of the smaller JV, which did not include Vietnam). The agreement would fast-track the growth in this sector and establish the foundations for a global DMC that will deliver essential and valued services to travelers when they arrive at their destinations. Additionally, FLT will have a greater control over product offerings and customer experiences in-destination. FLT will get the ability to create new and unique products that can be sold through the global distribution channels. There will be opportunity to capture a larger share of the travel wallet, as FLT has not traditionally targeted in-bound travelers during their holidays and the company will have access to other new revenue streams, with the DMC to also provide services to third party businesses, including tour operators. Further, the Asia DMC is part of FLT's expanding in-destination travel experiences network, which also includes the company's tour operating businesses, Top Deck and Back-Roads Touring. FLT has planned further acquisitions and diversification, and had signaled its intention to consider hotel management opportunities or joint ventures in key markets in the future. FLT has already completed the acquisitions of corporate travel businesses in Germany, Sweden, Denmark, Finland and Norway last month and has also previously outlined plans for further corporate travel acquisitions in key global markets. In addition, the agreement between the two companies is expected to formally complete within the next month. TMG will also transfer the Vietnam business into the JV to create a larger Asia-based DMC and TMG will retain a 41.5% holding in the larger business. FLT will further increase its holding from 49% of the current JV to 58.5% of the new business. Moreover, the agreements are in place for FLT to increase its holding further in 2018 and for TMG to invest in the global DMC offering that the companies plan to create in the short to medium term. The new Asia DMC is expected to generate a turnover of about $US70 million and generate in the order of $US5 million in earnings before interest and tax during the calendar year 2017.
 
New Asian Leadership Structure: Flight Centre Travel Group’s DMC expansion and its growth in Asia has prompted a change in the company's leadership structure in the region. Suyin Lee, previously the head of FLT's businesses in Singapore, Malaysia and the Philippines, will become Buffalo Tours managing director and will continue to be based in Singapore. David Fraser, the managing director of FLT's Greater China (Mainland China and Hong Kong) business, will now take on a broader role as head of a regional Asia leadership team that will oversee the Greater China, Singapore, Malaysia and Philippines businesses, together with the FCM Travel partner network in the region. Rakshit Desai will continue as managing director in India. Both Mr Fraser and Mr Desai will continue to report to Rob Flint, while Ms Lee will report to the Buffalo Tours board.
 
Decent first half of 2017 financial performance: Flight Centre in the first half of FY 17 has posted strong ticket sales, particularly in Australia, where the volume growth had significantly outpaced market growth and 1H total transaction value (TTV) topped $5 billion for the first time. Nine of FLT's 10 regions have delivered record TTV in local currency, but year-on-year FX shifts resulted the overall TTV growth by 1.8% in AUD to $9.34 billion. The Underlying PBT was $113.2 million, just above the mid-point of the period's targeted range, and the underlying net profit after tax (NPAT) was $78.2million compared to $105.7million in FY 16. However, operating revenue was relatively flat as the airfare deflation impacted the short-term growth, along with FX FLT has achieved its goal of increasing sales per person and therefore improved their productivity. There is a growth in Europe and the company is expanding into new and important geographies on the Continent. So did the FLT’s businesses in South Africa and on Mainland China. Moreover, there is ongoing business transformation through the investment in new tools and systems, including the digital enhancements that have helped drive rapid online sales growth. FLT has a strong balance sheet, with more than $350 million in positive net debt. Additionally, the capex for the first half of 2017 was $66 million compared to $58 million in FY16 as FLT invested in systems and shop enhancements, plus head office relocations that have now taken place.

 
1H FY 17 Financial Performance (Source: Company Reports)
 
Driving business via acquisitions: Flight Centre Travel Group in the 1H 2017 has invested in Sunny and also three small acquisitions. These include a 49% interest in Ignite, an Australian retail business that specializes in holiday packages, exclusive "flash sale" travel vouchers and rewards programs; the European corporate businesses; and Bengaluru-based Travel Tours Group's (TTG) business assets, which included specialist FX, meetings and events, leisure, corporate and wholesale businesses.
 

Impact of Digital Commerce (Source: Company Reports)
 
Focusing on digital commerce capabilities and transformation plans: The group formed a Digital Commerce team that has Nicolas Brusson, CEO of the leading French technology company BlablaCar, and Hugh Crean joining FLT’s Chief Digital Officer (CDO). The team also has Advisory Board Chair Atle Skalleberg as the first board member. This team would help the group’s executives and board of directors to offer guidance regarding e-commerce, online marketing, mobile commerce, business intelligence and data management, as well as the interaction between offline and online channels.
 

Growth Drivers (Source: Company Reports)
 
Stock Performance: The stock price of Flight Centre Travel Group corrected over 19.2% in the last six months (as of April 07, 2017), impacted by the challenging trading conditions. Moreover, the group’s lower than estimated outlook weakened the stock sentiment slightly.The group has amended its FY17 guidance to an underlying PBT between $300million and $330million as compared to their earlier guidance of $320 million - $355 million. This is a relatively flat performance as compared to their fiscal year of 2016 performance. On the other hand, we believe investors could leverage the recent correction in the stock given the group’s long term efforts. These efforts could start generating results from fiscal year of 2018. FLT stock rallied over 3.5% in the last four weeks (as of April 07, 2017), and we expect the momentum to continue in the coming months. We give a “Buy” recommendation on the stock at the current price of – $ 30.27  

 
FLT Daily Chart (Source: Thomson Reuters)

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