Flight Centre goes home brand in profitability push
Flight Centre will try to sell customers more of its own tours, hotel rooms and other products as the nation’s largest travel agent tries to improve its profitability in the notoriously margin-thin industry.
The company told shareholders at its annual general meeting on Thursday that it wanted to make selling its own “in-destination” products a core pillar of business growth, along with leisure and corporate travel bookings.
“It is about the vertical experience,” managing director Graham Turner told Fairfax Media.
“You deal with the customer instore and then they go on your own products as well.
“Still, 80 to 90 per cent of our business will be on other suppliers’ product, but because we’ve got the distribution network it is quite important that we sell our own product as well.”
Travel agents take a relatively thin cut from airline bookings compared to hotel rooms and other products, and Mr Turner said selling more ancillary products would improve the business’ profitability.
The company, which has been on an acquisition spree in recent years, owns a number of tour operators, a hotel management business, and “destination management” businesses which arrange services such as airport transfers.
Owning these businesses meant Flight Centre had more control over the quality of what it was selling customers, and could market unique products, Mr Turner said.
Flight Centre is targeting a return to a 2 per cent profit margin within three to five years, up from 1.6 per cent last year, along with 7 per cent average transaction growth over the next three years, and cost growth of less than $100 million this year.
The company said it was on track to return a profit before tax of between $120 million and $135 million in the first half of the financial year.
That will be growth of between 6 to 19 per cent on the same period last year, when profit grew at 1.8 per cent, and will set it up for a full-year profit of between $350 million and $380 million – up 6.2 to 15.6 per cent on 2017.
Mr Turner said its international businesses would be the core growth driver in 2018, as its n and New Zealand stores undergo booking system upgrades that are expected to disrupt sales and see first local half profits dip “slightly”.
North America, which delivered about 10 per cent of the group’s $329 million underlying profit last year, was seeing improvements in the challenging leisure and wholesale markets. That was a result of closing under-performing outlets, which would likely continue as more shop leases expire.
n leisure travellers account for about half the company’s profits, and Mr Turner said that while “very few” of its local shopfronts were unprofitable, it would look to close or relocate struggling stores.
Record low international airfares out of have hurt the company’s earnings over the past year but Mr Turner said fares appeared to have stabilised.
Shaw and Partners analyst Darren Vincent said Flight Centre’s performance update on Thursday gave credence to the performance targets it first revealed in August.
“Investors have been reluctant to factor in some of those aspirational targets,” said Mr Vincent, who has a bullish outlook on the company.
“With today’s announcement you’ve seen Flight Centre management pretty much saying: ‘we’re on track for delivering the start of what we said we’d deliver’. So I think that’s why you’ve seen the share price react pretty positively.”
Shares rose 2 per cent to close at $47.45, up from $29.50 a year ago.