Shares plunge as Flight Centre managing director Graham Turner details profit hit

Flight Centre shares fall more than 10 per cent, with profit hit by higher labour costs, Brexit and wholesale travel company collapses.

Flight Centre managing director Graham Turner.

Higher labour costs, the spectre of Brexit and the collapse of two high-profile local travel wholesalers are impacting Flight Centre’s profits, with its shares plunging nearly 12 per cent in intra-day trade on Wednesday.

In a trading update the travel agency revealed on Wednesday its underlying profit was below the prior period and initial expectations, given trading conditions deteriorated significantly in Australia last November and December and remain subdued.

Commenting on Wednesday’s share price drop, Flight Centre co-founder and managing director Graham Turner said “people don’t see this as great news.”

“The share price fall is probably a bigger fall than what we anticipated, but nothing really surprises me anymore,” Mr Turner added in an interview with The Australian.

Offshore, Flight Centre said unrest and uncertainty had slowed profit growth in the United Kingdom due to Brexit and the United States, given safety concerns in the Dominican Republic -- a key US leisure destination.

It also blamed increased costs due to its new wage model introduced 12 months ago and the extra $4.2m wages now paid to its thousands of leisure sales staff.

While Thomas Cook’s high-profile collapse in the UK had a minimal impact on Flight Centre, the travel agency anticipated a $7m deficit in costs associated with the collapse of travel wholesalers Bentours and Tempo Holidays due to its decision to ensure customers, which numbered 150,000 in total, were re-accommodated and not adverseley affected.

However, Mr Turner stressed total transaction values were increasing in Australia.

“Generally, the main issue is leisure travel in Australia,” Mr Turner said.

“Outbound growth is negligible and obviously our costs have gone up with the Enterprise Bargaining Agreement,” Mr Turner said.

He said consumer sentiment was low and Flight Centre had started to see fall off in the second quarter.

“We expect there should be some improvement over the next quarter, we are hoping the results year on year will improve by November.”

However analysts said total transaction values for Flight Centre’s online businesses in Australia, including Aunt Betty and BYOjet were up about 95 per cent to $250 million in the first quarter of 2020, helped by the removal of online booking fees.

Flight Centre’s online businesses contribute about 5.5 per cent of total transaction values to the business.

Flight Centre will release its profit guidance at its annual general meeting on November 7.

However, analysts expect a risk of a lower than expected guidance range at the AGM.