Flight Centre says it will be ‘difficult’ for the company to achieve its initial target of $395 million to $405 million for FY15 in the face of high costs, low margins and a lack of demand in the Australian leisure sector.
According to the group, trading conditions in Australia remain “challenging” resulting in FLT sales people resorting to reduce commissions to lower ticket prices and stimulate demand. According to a Flight Centre spokesperson, the decision to lower commission is at store-level and not a directive from head office.
“Within this subdued trading environment, FLT has altered front-end pay structures and continued to expand its network, which has led to increased wage, occupancy and sales and marketing costs in relation to the previous corresponding period,” FLT said in a statement on the ASX this morning.
Bottom-line results in its Australian leisure business are “lower than initially expected” and now puts its underlying PBT for 2014/15 to between $360 million and $390 million, representing a top growth of 4% on its record $376.5 million achieved in FY14, while the bottom figure will hit the company with a 4% decline.
The first-half is expected to wrap between a $136 million to $142 million mark, lower than what it achieved in its first half in FY14 of $146.3 million.
“While we expect solid contributions from our overseas businesses – the growth outlook for the larger Australian business is currently unclear,” managing director, Graham Turner said.
“When we set our full year growth targets in August, we expected the uncertainty surrounding Australia’s Federal Budget would have abated as the first half drew to a close and consumer confidence and spending would have started to rebound.”
“Unfortunately, we are yet to see tangible signs of a full recovery and the overall leisure travel market in Australia continues to be flat year-on-year.”
“We continue to see healthy consumer enquiry in Australia and attractive holiday offers,” Turner said, citing IATA’s speculation that fares will drop 5% globally in light of lower fuel prices.
“While it is impossible to predict a timeframe for recovery, we expect stronger demand as the financial year progresses as travellers start to take advantage of these cheap fares,” Turner said.
Turner said TTV for its Australian leisure business was up 2%, “significantly lower than the compound annual growth rate in the order of 10% that we have achieved over the past five years”.
Meanwhile, its corporate travel market has been “relatively stable” and shows “generally good growth” globally.
Turner said he believed the weaker Australian dollar has not affected outbound travel, saying its roots can be traced back to the decline in consumer confidence in late 2013/14 and the subsequent slowdown of in-store sales.
