Flight Centre plots slower network growth as profit dips 5.7%

By Hannah Edensor

The Flight Centre Travel Group’s financial results are in, with the company posting a $325.4 million statutory underlying profit before tax for 2017.

The results have landed squarely in the $320-$355 million range that Flight Centre initially targeted, despite being down on 2016’s financial results, which saw the Group reach $352.4 million underlying profit before tax.

The overall statutory profit before tax was 5.7 per cent lower than 2016, impacted by factors like significant airfare deflation in key markets, currency fluctuations, and political uncertainty (think Trump and Brexit) resulting in a soft first quarter trading globally.

Flight Centre also blamed general underperformance in Asia, Middle East and UK-based touring businesses for the dip in profit.

“In a challenging trading cycle, characterised by record low airfares, we achieved our major sales targets of topping $20 billion in TTV for the first time and growing online leisure TTV beyond $1 billion,” Managing Director and CEO, Graham ‘Skroo’ Turner, said.

“Flight Centre has now delivered 21 years of TTV growth in 22 years as a listed entity, a statistic that highlights its diversity, the strength of its continuously evolving omni-channel network and its ability to change strategic direction and target new growth opportunities.”

Following on from the launch of its business transformation program, the Group confirmed cost-saving measures are top priority, with a goal of having all brands worldwide become profitable by 2020, or else be “pivoted” or closed.

Flight Centre’s business transformation program involves a specialist team led by Chief Operating Officer Melanie Waters-Ryan to focus on digital commerce growth, investment in growth brands and business models, globalising air, land and IT businesses, and reducing cost growth and network inefficiencies.

This strategic move has already seen new business approaches, including the pivoting or closure of some loss-making businesses around the world.

However, Flight Centre assured that in Australia, significant changes are unlikely – but only mentioned short-term – citing high profit levels.

Flight Centre did say some shops will close, with teams moving to better locations, while a small number of shops with sub-standard profit and sales histories are also being filtered to ensure they meet performance metrics. This will lead to either improved results or final closure.

With further cost increases inevitable, Flight Centre’s focus on face-to-face customer service, cost-cutting measures will be implemented through:

Lower occupancy costs through things like slower network growth and, where appropriate, reducing the number of physical sites and relocation of teams if lease terms are unacceptable.
Growth in lower cost models
Outsourcing some functions to lower cost centres, as Flight Centre has done in Indonesia and the Philippines, and increasing productivity via system enhancements
Streamlining head office support structures, which already saw numerous support roles made redundant in recent shake ups.

In Australia, the company confirmed consultant numbers will decrease through natural attrition during the first half of the year, as the company rolls out new in-store systems and focuses on implementation and training, before upstaging during the second half of the year.

“We believe we are well placed to improve, given the investments we have made, the strategies that have been implemented and the benefits that we have started to see from the transformation program,” Turner added.

“We will be disappointed if we don’t grow sales and profits globally during FY18 as we work towards achieving the high level, medium-term goals that we are targeting.”

Flight Centre’s investment into Aussie based Travel Partners and NZ Travel Managers has delivered stronger growth platforms in these emerging leisure sectors, however as the businesses will continue to run independently, will have lower cost bases than traditional shops, given the different commission and occupancy models.

Turner admitted that despite the underlying profit landing within forecasted range, it was “towards the lower end of the range”, which he said was largely due to the tough first half of the financial year on a global scale.

“In addition to starting FY18 with stronger momentum, we have also started the new year with stronger foundations,” Turner added, citing Flight Centre’s many acquisitions.

In the Australia/New Zealand market, sales in both leisure and corporate sectors increased, while strong account wins and client retention in the corporate side saw the corporate TTV reach $2.6 billion.

Aussie leisure profits were down, with international airfare deflation impacting results, while international ticket sales down under jumped more than 10 per cent.

The Americas businesses also generated about 10 per cent of the total FY17 profits.

Flight Centre said it’s too early to gauge likely trading conditions, and chose not to provide any predictions for FY18 results.

Advertise with us

Email the Travel Weekly team at traveldesk@travelweekly.com.au

flight centre