Global travel bounce back helps Flight Centre

Buoyed by a solid rebound in global travel, Flight Centre has upgraded its guidance and now expects to post an underlying annual loss of around $185m.

Flight Centre, led by Graham Turner, has upgraded its guidance and now expects to post an underlying annual loss of around $185m, helped by a solid rebound in global travel. Picture: Lyndon Mechielsen

Buoyed by a solid rebound in global travel particularly in the Northern Hemisphere, Flight Centre has upgraded its guidance and now expects to post an underlying loss of around $185m for the year to June 30.

In a release to the stock exchange, the international travel agency said the company now expected to break even for the six months to June 30, a major turnaround after booking significant losses for the prior six months.

“Demand accelerated after concerns about the Omicron strain abated and as governments globally relaxed or removed the restrictions that had grounded most non-essential travel since the start of the pandemic,” Flight Centre said.

“With this acceleration, total transaction value for FY22 topped $10bn – more than 2½ times the $3.95bn FY21 result – and on a monthly basis was tracking near or above pre-Covid levels in a number of businesses by year-end. TTV recovery has, to date, been fuelled by both an uplift in demand and higher than normal ticket prices linked to a lack of airline capacity, particularly on international routes.”

Flight Centre managing director Graham Turner said the turnaround had been achieved in both leisure and corporate travel.

“There will inevitably be ongoing challenges for the industry over the next six to 12 months as new strains of the virus emerge, airline capacity returns and as we rebuild staff numbers to required levels, but we feel that we are well placed to overcome these concerns given our corporate business’s continued rise and our leisure business’s ongoing strength.

“In the corporate sector, we are gaining market share globally through high customer retention rates and a multibillion-dollar pipeline of new accounts won across our Corporate Traveller and FCM brands during the pandemic.”

Flight Centre previously forecast an underlying loss of between $195m and $225m for the 2022 financial year. It booked an underlying loss of $337.9m last year.

In a note RBC Capital Markets said Flight Centre’s 12 per cent improvement at the midpoint had come despite ongoing challenges for the industry including new Covid strains, insufficient airline capacity and the difficult of hiring staff. But the broker believed Flight Centre was “well placed to overcome these challenges”.

In an interview Mr Turner cautioned not to get “too excited” about the result, adding that it was a “good start.”

“The northern hemisphere is getting back to normal pretty quickly, they have reasonably good air capacity. Whereas Australia has a problem in that we took a much harder line with Covid and our rebound is not as fast,” he said.

“Australia’s outbound air capacity will still be down by Christmas, we reckon we will be operating at about 80 per cent. Australia is lagging because Australia had much tougher restrictions than most other countries except for China and Japan.”

Pre-Covid Chinese carriers accounted for 15-18 per cent of Australia’s air capacity.

“Basically they are accounting for very little at the moment,” Mr Turner said.

He added that the company’s air, cruise and land sales were back to two-thirds of pre-Covid levels but prices were higher. Corporate business was back at 100 per cent of pre-Covid levels.

Mr Turner said the biggest travel problem was getting people to North America, the UK and Europe in July and August, but he said it would be easier to travel by October and November.

“If people want to go anywhere at Christmas it will be tight. People will have to book now and the fares will be quite expensive at Christmas.

“If you do want to holiday then there is less capacity.”

Flight Centre’s total transaction values won’t be too far off pre-Covid levels by Christmas and the company will feel more confident over the next year.

“But the next six to 12 months will be lumpy. We still have Covid around, it won’t come back to normal immediately, although the transatlantic markets are looking pretty good.

“We don’t know how it will go with the different parts of the market with the Covid waves, some older people probably won’t travel as much as they once did.

“All we need in Australia is more flight capacity, prices will come down, it will happen, it is happening, there’s a shortage of trained staff. It takes time.”

Pre-Covid Flight Centre employed 21,000 staff globally and lost 14,000 during the pandemic. It now has a staff of 11,000 and still needs to employ an additional 2000 to 3000. “We can’t do it overnight,” Mr Turner said.

The upbeat trading update pushed Flight Centre shares up 5.6 per cent to $18.07 during intraday trade, making them the top performer on the ASX at one point. They closed 3.6 per cent up at $17.72. Shares in online travel agency group Webjet was nearly 2 per cent higher at $5.16.

Flight Centre will release its annual results on August 25.