Flight Centre still losing but air capacity gaining

Flight Centre has declared a pre tax loss of $18.3m for the half year, a major improvement on the $276m loss produced during the previous corresponding period adding that all divisions were profitable except for Asia.

Flight Centre CEO Graham Turner. Picture: Tara Croser.

Flight Centre has declared a pre tax loss of $18.3m for the half year, a major improvement on the $276m loss produced during the previous corresponding period adding that all divisions were profitable except for Asia which has lagged the rest of the world in its post covid recovery.

The global travel agency foreshadows international airline capacity will increase to 85 per cent capacity by June 30 as key airlines including Emirates, China Southern and Cathay Pacific increase services while Flight Centre’s major partners in China and Hong Kong including China Southern and Cathay are already flying Sydney and Melbourne to Guangzhou as well as UK and European routes.

Flight Centre managing director Graham Turner says he is hiring 300 to 400 new staff in Australia a month for both his retail shops and fast growing corporate divisions, adding that he has people moving from leisure to his booming business divisions.

“Every month is improving...we are winning business in corporate and leisure,” Mr Turner told The Australian on Wednesday. “(But) covid shut us down for two years, obviously we are on the road back, it’s not going to be easy, we think the conditions will be back to normality probably in 12-18 months time.”

Mr Turner said Flight Centre’s three major profit drivers are Australia, the UK and America. “The UK and Australia are going quite well at the moment, the US is picking up quite strongly and quickly, the next 12 months will be strong.”

“Asia is only just coming back, China was basically locked down, same with Japan only in the past few months it has come back, Asia has a lot of recovery to do. It will come back this calendar year. The Chinese government says it wants airlines back to 80 per cent (capacity) by the end of this calendar year.”

Flight Centre, like other travel agencies, has lost airfare commissions from airlines including Qantas and Air New Zealand, but it has picked up higher margins from other travel products it sells such as cruises, tours and hotel rooms.

All up, Flight Centre’s total transaction values (TTV) for the half year grew 203 per cent to $9.9bn with its corporate business delivering record TTV and is set to top $10bn during the 2023 financial year. Flight Centre’s leisure division contributed 44 per cent of the group’s total revenue.

Flight Centre delivered earnings before interest, tax, depreciation and amortisation (EBITDA) of $95m for the six months to December 31, 2022 which was higher than initially expected. Flight Centre’s online business contributed a record $770m towards the result.

Mr Turner said the trading environment was improved but not fully recovered.

‘The sale momentum that helped drive our recovery last year continued through the first half, with total transaction volumes and revenue both tripling compared to the previous corresponding period,” Mr Turner added in a statement.

“While we continue to monitor market conditions we are not currently seeing evidence that the recovery is slowing with the leisure business currently trading at post-Covid highs and corporate travel activity escalating after the traditional holiday period.”

Flight Centre noted that its business travel arm, Corporate Traveller has won large volumes of business from competitors, disruptors and accounts that were previously unmanaged.

Prior to covid Mr Turner said leisure travel was stronger than business travel for the group but now both divisions produced similar results. “Corporate has caught up. Both areas are contributing to the EBITDA profits.” Mr Turner said he would take a look at pitching for any federal government travel contracts when they come up for grabs. “We will probably look at those contracts but for us it has to be profitable, we won’t do it on low margins.”

No interim dividend was declared. As previously announced Flight Centre will target an underlying 2023 EBITDA of between $250m and $280m compared to its $183m underlying loss in the 2022 financial year.