When people feel they don't have a lot of extra money, they start cutting back on paying extra expenses. We all do it. Maybe we eat out less in the week, or we do something close to home instead of a weekend getaway.
Companies in the leisure travel business can really feel the chill when customers do this. Bookings drop and spending budgets get trimmed.
So what's the outlook like for Flight Centre Travel Group Ltd (ASX: FLT) in 2015?
First, although the Australian economy is still not back to full strength, the company also generates revenue overseas, so it can benefit from stronger international markets. In addition, as the Aussie dollar slips down, it can get an earnings boost when US dollar denominated earnings get converted back to A$.
Share price slump
Back in April the stock was about $54, yet now it's $40.70, or about 25% down. At its AGM in October, the company said it was on track to reach its forecast 5% – 8% gain in underlying net profit for FY 2015. It expects more growth to come in the second half after a flat beginning to the new financial year.
International business expanding
It is expanding its international network and seeing good EBIT growth from its overseas businesses. The US corporate travel market is now the company's largest business outside of Australia and is projected to have turnover of more than A$1 billion in FY 2015.
Weak Aussie dollar isn't always bad
The fall in the Aussie dollar hasn't led to slower growth in Australians going overseas, according to the company. It also said that in the past outbound travel has increased when the A$ was both much higher and lower than current levels.
If it can maintain current revenue levels domestically and build upon its international business, then the situation may be just a short-term setback.
Long-term investors can take advantage of this at better prices now. The stock trades at 15x earnings, which is in the middle of its past PE range. It's not an incredible bargain at current prices, but the yield is 3.8% fully franked, so that's decent.
I think now could be a good entry point in this quality company as conditions improve.
