Flight Centre raises $700m, cuts costs to combat coronavirus downturn

Flight Centre is facing its most challenging time in 30 years of operation, as Graham Turner shuts 40pc of local stores for good.

Flight Centre has already aid it plans to close 250 stores in Australia. Picture: Britta Campoin.

Flight Centre has negotiated a fully underwritten $700m capital raising and will close more than half of its leisure stores around the world for good, including 40 per cent of its Australian retail outlets.

Under siege from COVID-19, the travel agency has also negotiated a further $200m from its existing lenders, adding that its new cost-cutting regime would slash its annual operating expenses by $1.9bn from July 2020.

Flight Centre will shut 40 per cent of its Australian stores or around 428 retail outlets across its Flight Centre, Universal Traveller, Travel Associates and Travel Money brands. It had previously told the market it would close 30 per cent of its Australian operations. Offshore, it has increased the number of retail closures from 35 per cent to 50 per cent.

“This is about business survival,” Flight Centre founder and managing director, Graham Turner told The Australian yesterday.

“There are things you have to do to survive whether you are an airline, hotel, or tour operator. “This is about survival and unfortunately not a lot of companies will survive,” Mr Turner said. Companies without a lot of cash behind them would not survive the pandemic, he said, adding that Flight Centre was in a reasonable position.

“However, we would have preferred for this whole thing not to have happened.”

Mr Turner said the current time is “the most challenging period we have encountered in over 30 years in business”.

“With this funding in place and additional liquidity, we are in a much stronger position and are well placed to weather a prolonged downturn.”

Mr Turner conceded that Flight Centre probably had too many retail locations and he was looking to consolidate staff into larger stores.

“This obviously has hastened that because it will be quite a long time before shopping centres — in terms of traffic — get back to where they used to be. I think the market will be down for a year or two.”

“Around the world we have got to get to the right size and obviously we will have less shops, they are not retrenchments they are stand downs, and we have to get it right.”

Mr Turner said business would immediately improve once the federal government lifts its travel restrictions.

Domestically he thinks it will take a couple of months before the restrictions are lifted, while internationally it could be six months, by September or October.

Mr Turner said the fact that his equity raising was fully underwritten reveals the market’s “100 per cent” confidence in the travel agency. But the normally acquisitive company would not be looking to buy other businesses at present. However Mr Turner said that over the next year if “someone has got something that fits us strategically we will look, but we would not be acquiring things that are not strategic.”

Flight Centre will also access the federal government’s JobKeeper initiative if it would help retain more staff.

Meanwhile, Flight Centre is close to selling its Melbourne building on the leafy St Kilda Road boulevard for about $62m, in a deal reflecting a price close to what it would have traded at before the coronavirus struck.

The transaction, which is still being negotiated behind the scenes, comes after a rapid process the company ran in which it invited bids and also took unsolicited offers, with at least six purchasers stepping up to bid.

The keenly-contested nature of the sale shows investors are willing to snap up office blocks even as shopping centres face a deeper slowdown.

Mr Turner said he had previously looked at selling the $62m building. “It is better to have the money in our bank accounts.”