Flight Centre shares jumped 11% yesterday – hitting a three-year highs in the process after the travel group suggested that the heavy discounting of international airfares was ending.
At the same time the company revealed a revamp plan aimed at restring profit margins to past levels.
The shares ended up 10.7% at $49.10 after touching a high of $49.87.
Helping boost the reception of the report (which contained a turnaround plan) was a 94 cents a share final dividend (up 2 cents a share), after the interim was chopped to 45 cents from 60 cents.
That made for a 2016-17 full year payout of $1.39 a share, down from $1.52 a share in 2015-16.
Significant airfare discounts hurt earnings as the company takes a percentage of each transaction, but the trend started to normalise in the June half year.
The company said overall result was hit by significant airfare deflation (that’s price discounting and lower pricing) in key markets in the first half, but the low-fare environment began to improve in Australia during the second half of the financial year.
Flight Centre says it now expects reasonable growth in first quarter of the current financial year, with modest price increases and decreases, rather than the steep discounting seen previously.
Flight Centre said it "currently expects a more normal environment, with modest fare decreases or increases, rather than steep discounting across the board", for 2018.
The company revealed on Thursday its profit before tax was $325.4 million for the 2017 financial year, down 5.7% from the previous year.
Flight Centre’s full year profit fell 6% to $230.8 million.
While total revenue increased 1.4% to $2.7 billion in 2017, the group’s income margin – or how much of a cut it got from each airfare or other products sold – slipped 0.3%.
That was because the company was moving more towards corporate travel and online sales, which both have lower margins.
But the announcement that grabbed attention was Flight Centre’s revealing a business transformation program designed to grow revenue, make the company more efficient and cut costs by boosting sales volumes (scale).
This would be achieved by increasing the company’s average sales value by 7% a year and returning its net profit margin to 2%, from 1.6% in 2016-17. (That’s if its competitors such as Webjet allow it to do so)
As part of the turnaround plant, Flight Centre said it would be exiting all unprofitable businesses as part of the turnaround plan. If that happens, investors will be convinced the company is on the track to rebuilding margins.
Flight Centre said underlying pre-tax profit of $329.5 million, excluding one-off costs, was at the top-end of its own forecast, which it had downgraded last November from between $320 to $355 million to between $300 million and $330 million.
