Flight Centre Travel Group (FLT) shares fell 9% to $33.55 yesterday after the travel group produced another earnings downgrade.
The country’s leading travel group warned its full-year underlying earnings before tax are expected to fall by 2% to 5% from last year’s $366.3 million, down from an earlier forecast of a 4% to 8% rise in profit for the year to June.
Flight Centre told the ASX that it expects to "surpass its annual sales record by $1.4 billion during 2015-16 as all countries/regions track towards new milestones."
The company said total transaction value for the year to June 30, 2016 was expected to exceed $19 billion globally (FY15: $17.6billion), despite subdued trading conditions.
But that wasn’t enough. Flight Centre said that underlying profit before tax (PBT) "is, however, now likely to finish below the initial target for 2015/16 as profits during the seasonally stronger second half are being affected by: Trading results for the 10 months to April 2016 and preliminary estimates for the key May and June periods indicate that full year underlying PBT may finish about 2%-5% down on the $366.3million PBT recorded during 2014/15.”
“While the likely result will be FLT’s third best ever, it will be outside initial guidance of a 4%-8% underlying PBT increase during 2015/16,” the company said. And the shares were sold off as a result.
The travel group said political uncertainty in Australia and the United Kingdom, falling airfare prices, poor trading in the United States leisure market and investment in growth would affect its results.
Earlier this month, Flight Centre had warned meeting its profit guidance "would not be a formality".
The Flight Centre downgrade contrasts with Friday’s confident statement from smaller rival, Webjet (WEB), which reaffirmed it expected strong growth across all of its businesses. Webjet’s total transaction value growth has continued at around 28% in the current the half, consistent with its first half growth rates.
“There has been various commentary about trading conditions in the travel industry, however, we continue to achieve market share gains underpinning the strength of the Webjet business with performance consistent with our expectations,” Webjet managing director John Guscic said in a statement to the ASX.
FLT vs WEB 1Y – Flight Centre faces some headwinds
Flight Centre said its statutory profit before tax (PBT) will differ from underlying PBT and will include the following non- recurring items:
“A $US19 million non-cash impairment charge, which was foreshadowed at the half year, relating to the US leisure business; An $11 million gain that the ACCC refunded to FLT in July 2015, following FLT’s successful appeal in the long-running competition law test case; and a $AU6.3 million gain on the sale of FLT’s New Zealand head office.”
“While we will be disappointed to miss the short-term profit target we set in August last year, we are investing significantly in our future and in the strategies that will underpin our longer term growth,” Flight Centre CEO Graham Turner said yesterday.
"While these investments are ongoing, we are developing strong platforms and are now starting to see tangible returns.”For example, StudentUniverse.com’s results have exceeded expectations so far and the business has given FLT access to better digital capabilities that can be utilised throughout North America and elsewhere in the world in the longer term,” Mr Turner said yesterday.
"Sales of the unique Journeys and Escapes ranges that have been launched in the UK should reach GBP40million this year and the International Airfare Packages that were introduced in Australia last year have now been rolled out in key leisure markets overseas.
“In relation to current trading, we are experiencing some uncertainty heading into the final six weeks of the year and during what is traditionally our busiest sales period, which makes it difficult to forecast final results,” he said.
"On a positive note, all countries/regions were tracking towards sales records at the end of last month and South Africa, New Zealand and the UAE could deliver record full year profit. The Canada business has also returned to profit after disappointing results last year."
"In Australia, turnover during the 10 months to April 30 has increased in both leisure and corporate travel and has exceeded the 4%-5% growth rate in Australian outbound travel during the nine months to March 2016 (Source: Australian Bureau of Statistics).
"Overall profit in Australia is now likely to be in line with last year, after being up during the first half, which in part reflects the significant investments that are being made. These range from the new shop design roll-out to increased online activity,” Mr Turner said.
"The US is set to deliver its second best full year result, behind last year’s $US16.5 million earnings before interest and tax (EBIT) contribution.
“In the UK earnings have been adversely affected by investments made in new wage systems and unique product ranges that have exceeded sales expectations during their start-up phase. EBIT in local currency is expected to be down slightly over the full year, despite solid TTV increases,” Mr Turner said.
And in a similar vein, Ryanair, Europe’s biggest and most aggressive cut price airline, has warned of a slowdown in 2016-17 earnings and activity.
Ryanair said overnight that it was expecting profit growth to slow this year after it posted a 43% rise in full-year net profit.
The airline said net profit for the year to March 31 was 1.24 billion euros ($US1.39 billion), up from 867 million euros for the 2014-15 financial year. Earnings were boosted by the sharp drop in fuel costs, fuller planes (higher loan factors) and a focus on higher paying business passengers.
Sales rose to 6.5 billion euros from EUR5.7 billion as the airline carried 106.4 million passengers, 18% more than the previous year and a new Ryanair record. The airline’s load factor, a measure of seats sold, rose to 93%.
But after the record year, Ryanair forecast a more modest 13% rise to 1.43 billion euros.
Other airlines have warned that bookings have been impacted by the terror attacks in Brussels in March and that ticket prices are expected to weaken amid rising price cutting.
Some carriers, including British Airways parent International Consolidated Airlines Group have cut capacity growth and stepped up cost cutting efforts to compensate for the fall in ticket prices and their impact on revenue growth.
The crash an EgyptAir flight last week flying from Paris to Cairo with 66 people onboard, could cut more airline bookings. Ryanair said ticket prices in the final quarter of the last financial year suffered because of the Brussels attacks and strikes.
The start of the new financial year also has been hit by air traffic control strikes in several European countries and the weakness of the British pound ahead of a June 23 referendum, which could see the UK exit the European Union. Britain is a major source of Ryanair bookings and it says if the country votes to leave the EU it could impact business for two to three years.
