Travel group, Flight Centre Ltd has produced its first earnings downgrade in more than a year.
After seven or eight upgrades in 2008 (thanks to the surge in offshore travel because of the high value of the Aussie dollar), the slump in the currency and the downturn in consumer confidence and spending has hit earnings.
The AGM was told in Brisbane yesterday that the company expects lower first half earnings and says it will be hard to achieve its targeted full year pre-tax profit growth.
"While it is difficult to predict future results in the current climate, we believe we will be modestly down on the $92.9 million result achieved during the first half of 2007/08," Flight Centre CEO Shannon O’Brien told shareholders,
"This means it will be difficult to achieve the level of pre-tax profit growth we initially targeted for the full year," he said
The shares fell almost 7% to $13 on the news.
"Having said that, there are certainly opportunities for our company, and we will keep the market updated with regard to material developments.
"Recently, we have experienced significant volatility in world financial markets and other macro-economic shifts that have eroded consumer confidence globally.
"While passenger growth has slowed gradually over several months, the effects have been particularly evident during the past 30 days, as travellers digest the current bad news in the United States and elsewhere.
"Weakness in the Australian dollar has also been in the spotlight, although we believe its impact on consumer behaviour in the travel sector is sometimes misunderstood.
"Our experience has shown that currency fluctuations typically lead to a shift in holiday spending habits, class of travel, style of accommodation etc;. Rather than an ongoing shift away from unique destinations like the United States or Europe.
"From an outbound tourism perspective, it is also relevant to note that the Australian dollar still has considerable buying power in a number of key international markets including Thailand, Fiji, Bali and New Zealand.
"Also, a decrease in the Australian dollar’s value will have a positive impact on inbound tourism numbers.
"Just how significant this impact will be is yet to be seen.
"With company-owned operations in ten countries, Flight Centre has an opportunity to benefit from any increased interest in Australian holidays.
"So far this year, we have seen sales growth in the order of 5% during the first quarter, followed by a slowdown in October; credible profit results from our established businesses; and ongoing business investment and improvement.
"Based on current conditions, at the half year we expect that our organic businesses will be modestly up on last year, which was an exceptionally strong period; and losses from Liberty in line with those recorded during the second half of 2007/08, while further restructuring and integration is underway.
"The inclusion of up to $15 million in Liberty losses during the first half means we are likely to achieve a reduced profit result in comparison to the previous corresponding period.
"While it is difficult to predict future results in the current climate, we believe we will be modestly down on the $92.9 million result achieved during the first half of 2007/08 This means it will be difficult to achieve the level of pretax profit growth we initially targeted for the full year."
