Riding Flight Centre’s (FLT) share moves in the past year is a bit like taking a plane trip.
There’s a period of gathering acceleration, a rapid ascent to a peak, then a long slow descend and a landing.
In the case of Flight Centre shares, shareholders would have preferred the shares stay around the all time high of $32, instead of retracing the ascent to that level over the five months or so since that peak in early January.
The market’s rough treatment of the travel business operator came despite signs the airline’s business was picking up and earnings were doing very nicely.
In fact it would be true to say that Flight Centre is one of the few easily identifiable businesses that have made money off the stronger Aussie dollar as more and more Australians have ventured into foreign lands in the past year.
The number of foreign bound departures in the year to April was up 8.6% and the number of arrivals was only up around half a per cent in the year to May.
Flight Centre makes more money when more people are booking to go overseas, and that’s what directors told the ASX yesterday
The company has raised its annual earnings forecast 5% on increased overseas holiday bookings.
The company said that pretax earnings will be $210 million in the 12 months ending to June 30, up 39% on the 2007 year profit and $10 million up on the February forecast of $200 million for the full year.
The Australian dollar has risen 12% against the US currency over the past year and that has enticed more Australians to travel offshore, and helped the company raise its earnings forecast for four times since last July.
Flight Centre shares jumped $2.10, or 12.6% to $17.85 before falling back to be up $1.07 at $17.50. That left the shares down around 46% from the peak of $32.48 reached in early January.
Chief financial officer Shannon O’Brien said in a statement to the ASX that further growth was expected during 2008-09.
"While our company continues to monitor market conditions globally, we are yet to encounter the challenges that retailers in some sectors have reportedly experienced, he said.
"In Australia demand has been healthy during the second half of 2007/08 and various factors point to further opportunities for the travel industry.
These factors include:
"Continued near full employment and the desire to make the most of a limited amount of holiday time; the resource sector’s ongoing health; the Australian dollar’s strength encouraging further outbound tourism growth; and extreme affordable airfares with heavily discounted fares still available, not only domestically but in particular on highly competitive international routes.
"Demand has also been healthy in our overseas businesses, which are likely to generate about half of our overall total transaction value from next year.
"With the opportunities we have for further improvement overseas, we would be disappointed if we did not achieve 10%-15% pretax profit growth during 2008/09."
Even though the shares have swung wildly in the past year, it’s clear that shareholders are still better off for rejecting two attempts to sell control of the company to private equity in 2007.
Flight Centre managing director Graham Turner also said in the statement that the company would continue to invest in the company’s core travel, niche travel, travel-related and non-travel businesses in the year ahead.
"During 2008/09, the company expects to invest up to $60 million in the expansion of its travel-related businesses and up to $5 million in its non-travel businesses," he said.
Mr Turner said investments in non-travel businesses represented solid future growth opportunities.
"Although relatively insignificant currently, they are important elements in our planned strategy to transplant our (business) model’s core strengths to complementary businesses, without taking our focus away from future travel-related opportunities," he said in the statement.
