Coronavirus set to change travel plans: Flight Centre

Flight Centre says the coronavirus is beginning to affect travel patterns and will make it harder to hit its profit targets.

Flight Centre warns of possible changes to travel plans in coming months. Picture: John Grainger

Flight Centre has warned shareholders that the coronavirus outbreak is beginning to affect travel patterns, particularly in Asia.

The nation’s leading travel company said it was too difficult to judge the virus’s impact on second half earnings but it would make hitting earnings targets that much harder.

However in an update, Flight Centre said the group was performing in line with expectations, with underlying first half profit before tax likely to be slightly above the midpoint of guidance of $90 million to $110 million.

Flight Centre is monitoring the situation but said the virus outbreak had already hurt its small corporate travel operations in China, Singapore and Malaysia, which together generated around $625 million of turnover in fiscal 2019, equating to around 2.5 per cent of total group turnover.

Flight Centre is just the latest in a growing number of companies to warn the coronavirus could be threat to its business activities or revenue. Furniture retailer Nick Scali is facing shipment delays of up to two weeks from China because of the virus.

Flight Centre managing director Graham Turner said other areas that could be affected in the coming months included corporate and leisure travel.

“A number of companies across all geographic regions have amended their travel policies to prevent travel to China and, in some cases, other countries in the near-term,” he said.

“While the virus has largely been contained within China to date and has not yet significantly affected demand for travel to other countries, travellers could potentially alter travel plans in the coming months if larger scale outbreaks were detected elsewhere in the world.’’

There could also be an impact on hotels and resorts and although Flight Centre does not manage any properties in China, Chinese outbound travellers are a key target market for the company’s hotel management business. Its Cross Hotels and Resorts arm manages 24 properties in Thailand, Bali and Vietnam.

“It is impossible to predict the virus’s impact on our business or on leisure and corporate travel in general at this early stage, but it will impact travel patterns to some degree in the near-term,” Mr Turner said.

“To date, the impact has largely been felt in our Greater China corporate travel businesses, given that business activity and the country’s inbound and outbound travel sectors have temporarily shut down as part of the focus on containing the virus.

“Within this challenging environment, we are taking steps to ensure we can meet our customers’ needs while also minimising the impact on the business on mainland China and in Hong Kong by encouraging our people to take leave over the next few weeks, while the outlook remains uncertain.

“By preserving our workforce in China during this uncertain period and carefully managing our cost base, we will be well placed to capitalise on any rebound in the travel sector when the situation improves.”

Flight Centre will release first half accounts on February 27.

In its trading update the company said it expects to report underlying profit before tax of between $100m and $105m for the six months to December 31, 2019, slightly above the midpoint of its targeted range for the period.

Flight Centre will also report strong first half sales, with total travel value increasing 11.1 per cent globally to a record $12.4 billion, surpassing previous milestones in all geographic segments.

As outlined at Flight Centre’s annual general meeting recently first half 2020 results have been adversely impacted by world events that have affected global travel patterns and contributed to the high profile collapse of Thomas Cook and several smaller operators.

These events have included Brexit, trade wars, unrest in Hong Kong, a safety-related downturn in travel to the Dominican Republic, a key market for the US leisure business, and a relatively subdued consumer environment in Australia.

The accounts will show a $46.4m impairment charge relating to the London-based Topdeck Touring Business, which has underperformed recently. About $7m in non-recurring costs are associated with Flight Centre’s voluntary decision to re-accommodate customers who would otherwise have lost their money as a result of the collapse of wholesalers Tempo and Bentours in Australia and New Zealand.