As CTM profits dive, keeping costs down via AI could be key

As its profits dipped, CTM boss Jamie Pherous said AI holds the key to helping to grow revenue while keeping employee costs flat.

Corporate Travel Management has posted a record half year profit but the figure has failed to impress analysts after a full year guidance downgrade.

Corporate Travel Management’s share price plunged by a fifth after its interim results missed targets, despite the company announcing plans to double its profits in the next five years.

Chief executive Jamie Pherous said the group’s five-year target would be possible with the help of artificial intelligence to grow revenue while keeping employee costs flat.

Mr Pherous was confident of increasing revenue by 10 per cent a year and expanding profits at a rate of 15 per cent per annum, through client wins, retention and automation.

But his comments followed a half-year result which saw earnings before interest and tax of $101m, below consensus of $107m, and a downgrade to the full-year result from $260m to $220m.

CTM shares tumbled on the news, closing down 20 per cent or $4, at $15.85 each, their lowest level in just over a year.

A 17c a share interim dividend was declared.

Mr Pherous said the Middle East war and high airfares had dented the half year profit with many of CTM’s North American clients using up their travel budgets by mid-September.

But now airfares are falling and the impact of the Middle East war has eased, corporate demand is taking off again.

“Our January profits in North America are up 60 per cent on last year which is quite incredible when the actual market hasn’t recovered, Asia has doubled and in Australia-New Zealand revenue’s up 11 per cent on last year,” Mr Pherous said.

“We never expected to get double digit growth because we’re so big in the market, so I think what that tells us, is that we’re executing very well.”

He said even if the global corporate market did not recover beyond 75 per cent of pre-Covid levels, CTM was well-placed to increase its revenue and profits through the use of automation and acquisitions.

Artificial intelligence and machine learning meant CTM was growing its workforce at a much lower rate than revenue.

“Our goal is that 50 per cent of everything that’s not revenue facing is managed by AI and machine learning and it’s well on track to do that,” Mr Pherous said.

“What that means, is for example you could email what time’s my flight again or I want to change my flight or what sort of visa do I need for this trip and you get an automated answer. By getting tech to manage that, we can devote more time to clients who need to book last minute.”

Corporate Travel Management managing director Jamie Pherous is optimistic about the company’s future.

Acquisitions of other corporate travel agencies were very much on the cards in the next five years, with the expectation many would struggle to survive in the reduced global market.

Mr Pherous said everyone thought the market would be back to 100 per cent by now, but it wasn’t and consolidation was highly likely.

“To survive Covid, companies had to get loans at very high interest rates, so there’s a lot of debt and limited revenue,” he said.

“We’re set up really well in a market that hasn’t recovered yet, we have no debt, and a business that’s going to double in five years.”

Analysts were less positive about the CTM result, calling it “messy” and “not good” due to mixed messaging about the second half.

Citi analyst Samuel Seow said the downgraded full year guidance suggested the setbacks from the first half would not be a one-off.

“On face value, it doesn’t imply a return to normal trading,” Mr Seow said.

RBC Capital Markets analyst Wei-Weng Chen agreed the downgrade seemed inconsistent with prior messaging and comments about macro challenges not expected to impact the second half.

UBS analyst Tim Plumbe said the five-year plan helped to recover some of the downgrade but the market was more likely to focus on the result falling short of consensus.

Originally published as As CTM profits dive, keeping costs down via AI could be key