Flight Centre targets return to monthly profitability on ‘flurry’ of travel activity

Flight Centre says the reality of Covid has not ‘hit home’ to Western Australia and has reinvigorated its plans for a constitutional challenge over domestic border closures.

Flight Centre has recorded some of its best booking days in months says chief executive Graham Turner. Picture: Lyndon Mechielsen

Flight Centre says the reality of Covid has not ‘hit home’ to Western Australia and has reinvigorated its plans for a constitutional challenge over persistent domestic border closures in some Australian states.

“At least Queensland has a plan, with Western Australia I don’t think the reality has hit home they are just trying to bury their head in the sand,” said Flight Centre managing director, Graham Turner speaking after the company’s annual general meeting in Brisbane this morning.

“If you look at Western Australia they are not even prepared to make a decision (on reopening its border).”

Mr Turner said he would lead the legal challenge, and had attracted a reasonable amount of corporate support from a major Western Australian chemical company which is ‘’desperate to get the borders open.”

He said Qantas was not involved in the potential legal action against the recalcitrant states whose borders remain locked down, adding that the national carrier ‘will do their own thing in their own way’ in relation to Western Australia’s persistent border closure.

“These sorts of challenges to section 92 (of the constitution) do take time, we have started the process and assuming Western Australia does not give us a reasonable plan we will continue down that track. At least with the other major states they have a plan, Western Australia does not have a plan.”

Meanwhile, Mr Turner backed Queensland’s announcement it would re-open its borders on December 17, but he doubts whether the Sunshine State, which is highly decentralised, would ever reach 90 per cent vaccination. Using his own modelling, which he said was conservative, he believes the state will be 80 per cent vaccinated by December 6.

“But the real issue for us is international travel. Effectively what is the difference between a family coming from interstate into Queensland who are fully vaccinated and tested negative to family arriving from the United Kingdom who are fully vaccinated and tested negative?”

On the vaccination front he said 95 per cent of his staff are fully vaccinated and those that are not jabbed would be asked to work from home. Flight Centre has not made a definite decision on the vaccination of its customers entering its bricks and mortar travel agencies. “In the end we think it will be government regulations that will (make the decision).

“We would like to avoid having to look at everyone’s vaccination certificate particularly when there is not a standard system at the moment.”

But Mr Turner is taking heart from his operations in Europe, North America and South Africa saying life is back to normal.

“OK they are getting quite a few infections, but providing you are double vaccinated you can travel, Australia has a long way to go and NSW has set the standard, I think by Christmas Australia wide we will open up and New Zealand will open up.

But he believes the local travel industry is poised to take off with Australia’s plan to reopen its borders sparking a “flurry of activity” and a “significant uplift” in customer inquiries and bookings.

As a result, the company is now looking to hire new full time staff, as well as targeting a return to monthly profitability within the financial year, but stopped short of providing specific guidance.

Mr Turner outlined how NSW’s plan to resume international travel from next month and Queensland’s road map to reopen its borders by Christmas have boosted demand for travel to the US, Fiji and into the Sunshine state.

“The Australian reopening plan has sparked a flurry of activity and created a genuine buzz, leading to a significant uplift in leisure inquiry and quotes in recent weeks,” Mr Turner said.

“International leisure bookings have now surpassed domestic bookings in Australia for the first time since the start of the pandemic and almost tripled between July and September.

“Booking numbers this month have already surpassed the September total with more than a third of the month still to come.”

Flight Centre CEO Graham ‘Skroo’ Turner says the travel industry is poised to take off. Picture: Andrew Henshaw

Flight Centre is now targeting a “return to monthly profitability in both corporate and leisure” travel sectors, which in September saw sales sitting at 41 per cent and 14 per cent of their pre-Covid levels respectively.

Lockdowns and travel restrictions have smashed Flight Centre’s business, with the company recording a before tax statutory loss of $602m in the 2021 financial year and $848.6m in the 2020 financial year.

In September, the business was burning through $41m every month, up from $32m in June while revenue slipped from $54m to $52m as government subsidies reduced and variable costs increased.

Mr Turner said timing of the company’s return to profitability “is uncertain and remains largely in government hands’, meaning formal earnings guidance for the 2022 financial year cannot be provided.

Investors reacted negatively to Flight Centre’s financial update, with its shares closing at $21.65, down 4.79 per cent.

Mr Turner said NSW’s plan to open up to international travel from November 1 and the US’s plan to welcome fully vaccinated international tourists from November 8 has “effectively relaunched two-way trans-Atlantic travel,” and will prove to be a major earning opportunity for the company.

“The US was, in fact, the largest outbound market for our UK and Canada businesses pre- Covid and the second largest outbound market for our Australian business,” he said.

Fiji is also proving to be a destination of interest for Flight Centre’s customers, with bookings up more than two and a half times September 2021.

Meanwhile, Queensland’s plan to reopen its borders to fully vaccinated travellers by Christmas saw Flight Centre’s specialist Queensland division web page views increase 663 per cent above the average.

The announcement also saw flightcentre.com.au record its largest day of online sales since June 2021, when Australian borders were open, with inbound Queensland bookings doubling compared to the previous week.

Mr Turner said reaching break-even requires around 50 per cent of total transaction value (TTV) in its corporate business, and around 40 per cent in its leisure business, based on current cost bases.

Long-term, the group is targeting a return to pre-Covid 2019 TTV monthly levels by June 2024.

In the first quarter of the 2022 financial year, Flight Centre generated almost $1.6bn in gross TTV, up 8.1 per cent on the prior quarter.

At the end of September, gross TTV was around 27 per cent of pre-Covid levels.

A number of its markets “are now profitable or approaching break-even on a monthly basis”, Mr Turner said, pointing to South Africa, the United Arab Emirates, Mexico and France.

Non-executive chairman Gary Smith told shareholders the recovery of the business will be supported by growing demand for travel agents in a more complex post-Covid travel environment, and a faster pace of reopening overseas.

“While Australia-New Zealand remains our largest region by sales, generating about half of our pre-Covid TTV, our profits are now significantly leveraged to larger overseas markets like the Americas and Europe, Middle East and Africa,” he said.

RBC Capital Markets analyst Chami Ratnapala said the group’s $41m monthly cash burn rate was “slightly higher” than expected and its $791m liquidity position is now “three months less in terms of supporting the current cash burn.”

“But we expect cash flows to improve which should build up the cash balance in the coming quarter as we expect to see improvements in bookings from (the) end of September.”