Flight Centre shares jumped sharply yesterday when a profit shortfall became a positive.
The company told the ASX in a trading update that a stronger second half of the 2016-17 financial year will see underlying full-year profit at the top of its (lower) guidance.
Flight Centre said it expects to achieve an underlying profit before tax of between $325 million and $330 million for the 12 months to June 30.
While is well be below the $352.4 million the company posted in 2015-16, it is at the top of the guidance range of $300 million to $330 million provided in February at the half year results update, and in the guidance range the company originally provided for 2016-17, of $320 million to $355 million.
As a result concerns at the end of last year and in early 2017 that the company would see earnings slump in the June half were dispelled, sending the shares more than 10% higher to $44.10.
That compares to a price around $31 at the start of the year. Thanks to yesterday’s leap the shares are up around 42% year to date.
Some of yesterday’s sharp rise could have been short sellers abandoning their positions and being forced to buy shares to cover their positions.
Flight Centre cut its full year guidance when profits were hit by discounting of airfares under economic uncertainty in its key overseas markets, especially to the US and Europe.
The better second half will see the company post a total transaction value of more than $20 billion for 2016-17, beating last year’s figures of $19.3 billion (that’s the total value of tickets and other travel related deals, not revenue).
Cost cutting and containment in the second half and improved sales volumes, which helped offset falling international ticket prices, had helped the company deliver an improved result, it said.
For the second half underlying profit growth is expected to be 2.5%-4.9% above the prior corresponding half thanks partly to a reversal in the fortunes of the group’s key overseas markets of the US and UK Notably, both these major economies have been in robust shape, despite some political upheaval (Brexit and President Trump) over the period.
As well average ticket prices rebounded over the six-month period ending June 30 2017, after a major slump in tandem with jet fuel prices over all of calendar year 2016. Jet fuel prices have fallen in the first half of this year with falling oil prices.
