Flight Centre profit nosedives

By: Graham Gardiner

Global travel retailer Flight Centre’s profit before tax and interest charges nosedived by nearly 85 percent to $28.7 million in

Global travel retailer Flight Centre’s profit before tax and interest charges nosedived by nearly 85 percent to $28.7 million in the year to June 30, 2009.

While the bottom-line result was down by nearly 72 percent to $38.2 million, gross profit – and, hence, income margins – were slightly up at $1.5 billion (2008: $1.45 billion) and 13.49 percent (2008: 13.34 percent) respectively.

The results were achieved on total transaction value of $11.2 billion, up from $10.9 billion in the previous year.

Impairment charges and write-downs of $59.4 million (2008: $11.3million) dragged down the profit result.

A highlight was its US business breaking even in the fourth quarter, following the closure of 40 stores in the period. The group generated transaction value of $2.3 billion in the US during 2008/09, but incurred $62 million in losses, impairment and non-recurring expenses.

Managing Director Graham Turner says trading highlights included:
  • Continued healthy customer enquiry during 2008/09
  • Some leisure sectors performing well, including online, youth and adventure
  • Business development managers winning new corporate accounts to partially offset reduced client spending
  • Continued wholesale and global product contracting expansion, which should create future margin improvement opportunities.

"The year to June 30, 2009 was a turbulent period for the travel industry, with turmoil on world financial markets, flu, the short-term unrest in some international markets and unprecedented airline discounting all affecting results," he says.

"In these very challenging conditions, FLT traded solidly, improved income margin and finished the year with a stronger balance sheet than it had 12 months ago.

"The company proactively cut administrative costs and slowed new store growth, but maintained investment in advertising, sales staff development and growth in specialist areas to create market-share opportunities.

FPT also launched a new sales conversion program to capitalise ion the healthy customer enquiry generated throughout the year and initiated significant change in the US to improve performance, particular in Liberty."

Looking ahead, Turner says Flight Centre is targeting a pre-tax profit of $125-135 million in 2009/10 in what he describes as an "uncertain trading climate".

"While FLT has not yet seen conclusive evidence of a full recovery, the company has started the year with some positive momentum from the fourth quarter, particulary in the US, and has achieved encouraging trading results in July and August," he says.

"Cheap airfares and holiday deals have started to stimulate demand, which has led to improving sales volumes, albeit at lower-than-normal yields."

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