Low airfares dent Flight Centre’s profit

FLIGHT Centre has warned that the days of super-low airfares may be coming to an end, with a “more normal” environment emerging.

Flight Centre on Queen Street in Brisbane. Picture: Peter Wallis

SIGNIFICANTLY lower airfares and political uncertainty were behind travel agent Flight Centre’s six per cent fall in full-year profit to $230.8 million.

Flight Centre co-founder and chief executive Graham Turner says price competition during the first half of the 2017 financial year was the most challenging with the group “advertising some of the cheapest international airfare deals” it has ever offered.

Adding to its first-half woes was political uncertainty sparked by the United Kingdom’s Brexit vote, and US and Australian elections which resulted in subdued trade.

Flight Centre said the low-fare environment had begun to normalise in Australia during the second half of the financial year.

Underlying profit before tax in the second half rose 4.7 per cent, staging a dramatic turnaround from the first half’s 22.4 per cent fall. “In terms of airfare pricing, Flight Centre currently expects a more normal trading environment during FY18 in Australia, with modest decreases or increases in average fares, rather than steep declines across the board,” Mr Turner said.

Mr Turner said the lower airfares did boost ticket volume growth with total transaction value (TTV) growth hitting a record $20.1 billion in 2016/17, up from the prior year’s record of $19.3 billion sales.

In Australia and New Zealand, sales increased in both leisure and corporate travel, with the company achieving record ticket volumes and record room nights. International ticket sales in Australia increased 10.5 per cent, well above Australia’s official 4.1 per cent outbound travel growth rate.

The group’s Americas business accounted for about 10 per cent of Flight Centre’s profit thanks to record profit from the US and Canada’s strong turnaround. The company’s underlying profit before tax of $329.5 million hit the top end of its guidance released in July but was at the lower end of its initial target of $320 million to $355 million.

Shares in Flight Centre had jumped $5.20, or 11.7 per cent, to $49.57 at 1230 AEST.

FLIGHT CENTRE PROFIT FALLS:

* Profit down 5.6pct to $230.8 million

* Revenue up 1.3pct to $2.7 billion

* Fully franked final dividend of 94 cents, up two cents

Originally published as Low airfares dent Flight Centre’s profit