Flight Centre in downgrade shock

Shares were pummelled as the travel group issued a stunning outlook downgrade just 17 days after affirming prior forecasts.

The ASX-listed travel agency, lead by Graham Turner, now expects annual underlying profit to fall. Picture: AAP Image/Dan Peled.

Flight Centre shares have tumbled close to 9 per cent after the group issued a stunning outlook downgrade just 17 days after affirming its earlier forecasts.

The ASX-listed travel agency said it now sees full-year underlying profit before tax falling 2 to 5 per cent below the $366.3 million reported last year, against earlier expectations for 4 to 8 per cent growth.

The group affirmed the initial forecasts in a presentation on May 6, albeit cautiously, with the turnaround in its fortunes coming amid a subdued travel market environment.

But chief financial officer Adam Campbell said better visibility about the company’s April numbers and “particularly May and June” had prompted the guidance change.

“We were cautiously optimistic .. a couple of weeks ago, but we’re just not seeing the pick-up we’d hoped to see,” he said, adding “swing factors” among leisure trade in Australia “was really hard to work out because of the size of the business”.

“We expected a pick-up after Easter and through May but we think the election coming up that has subdued a bit of confidence in market for us,” he said.

Beyond rising uncertainty in its key Australian and UK markets, the lacklustre outlook was also impacted by lower airfares owing to airline discounting and a “significant rise in capital expenditure”.

“While we will be disappointed to miss the short-term profit target we set in August last year, we are investing significantly in our future and in the strategies that will underpin our longer-term growth,” Flight Centre managing director Graham Turner said.

The group said the result would still represent its third highest profit and would come on record sales numbers.

Mr Turner added that turbulence could be expected through the remainder of the financial year, which created a risk its final numbers could differ from today’s outlook.

“In relation to current trading, we are experiencing some uncertainty heading into the final six weeks of the year and during what is traditionally our busiest sales period, which makes it difficult to forecast final results,” he said.

The hit to consumer confidence “for whatever silly reason” from the Australian election campaign was being compounded by “uncertainty” in its UK market over Brexit and the US election, he said. “That (the US election) is not a major issue, but it isn’t helping.”

“It’s a combination of things taking the edge of things, we believe.”

The group’s Australian results have mirrored that of the major airlines to a degree, with a strong first half giving way to a weak back end to the financial year.

In Flight Centre’s case it has led to a first half expansion in profit turning into a flat result for the full year.

The group also announced a number of one-off items that are not included in its downgrade to underlying profit, including a $US19m ($26.2m) writedown of its US leisure business.

This will be partially offset by an $11m windfall from its successful appeal of an ACCC fine and a $6.3m gain on the sale of FLT’s New Zealand head office.

Flight Centre shares closed 8.93 per cent lower at $33.55.