Qantas (QAN) certainly felt it (see separate story), but compared to the damage done to Flight Centre (FLT), it was only a glancing blow. Flight Centre, the country’s biggest travel agency group took a head-on whack from the global air fare war and the weak local travel market in the six months to December.
And so hard was the whack that it was forced to hack its interim dividend to shareholders by 25%, or 15 cents a share to 45 cents.
The travel agency group has been warning now for months of the damage the rise in global capacity and the discount war that has triggered, as well as the battle to get growth in weak local business and tourist travel markets.
That has seen the company downgrading its outlook and earnings estimates, and yesterday the full accounting revealed the damage.
And it has already started pulling back on its earnings guidance and outlook for the year to June, so don’t be surprised if we get more downgrades from the company in coming months.
Flight Centre reported a 36.2% slide in net profit to $74.4 million despite record first half sales of $9.34 billion.
Flight Centre shares slid by around 7% in early trading (the result was released before the market opened at 10am), but the loss was slowly trimmed back until the finished the day down 1.5% at $28.84.
“While we were disappointed that our record sales didn’t translate to record first-half profits, our (result) was a decent outcome, given the conditions,” Flight Centre chief executive Graham Turner said yesterday.
An added factor was the impact of the Brexit vote in the UK last June which saw the value of the pound plunge against the US and Australian dollars. Flight Centre said that turned a profit of half a million pounds into an Australian dollar loss of $3.9 million.
“Widespread airfare discounting, particularly on Australian outbound routes and in the US, New Zealand, Singapore and India, also impacted short-term results,” Mr Turner said.
“This discounting, which was driven in Australia by rapid airline capacity growth during the 2016 calendar year, has delivered unprecedented airfare bargains to our customers, but has affected total transaction value and revenue comparisons, given that fares were higher during the first-half of fiscal 2016.”
The group’s underlying pre-tax profit fell 22% to $113 million, with the fall driving a revision to its full-year outlook.
Flight Centre now projects underlying pre-tax profit of $300 million-$330 million in the full-year, as against a prior forecast range of $320 million to $355 million.
“While we still believe that a full year profit before tax towards the bottom of our initial range is possible, we are not yet seeing tangible evidence that the factors that affected 1H profits are abating quickly and that the benefits will flow through during FY17,” Mr Turner warned in yesterday’s statement.
“Translation of UK results remains an issue and the year-on-year differences in average airfare prices are not yet narrowing to the extent that we anticipated.
“As a result of these external factors, we now believe that underlying FY17 PBT is likely to be at the lower-end or below our initial guidance.”
