The Flight Centre Travel Group Ltd (ASX: FLT) share price crashed almost 7% to $28.27 after the company released disappointing half-year results. Despite delivering record Total Transaction Value (TTV – a measure of travel services sold), profits plunged 36%. Here's what you need to know:
- Revenue fell 0.6% to $1,250 million
- Net profit after tax fell 36% to $74 million
- Earnings of 73.5 cents per share, down from 115.7 cents previously
- Dividend of 45 cents per share, down from 60 cents previously
- Further acquisitions including a small travel agent in mainland China
- Outlook for continued uncertainty due to foreign exchange movements and airfare deflation, despite acceleration in TTV growth
- Underlying profit before tax (PBT) forecast amended to $300 million to $330 million for the full year, from $320 million to $355 million previously
So What?
Although investors were previously warned that a weak result was in the works, today's results are still tough. Despite a number of acquisitions in promising markets, and record local currency TTV in 9 out of 10 regions, Flight Centre still delivered significantly lower profit due primarily to heavily discounted airfares.
Overseas though, the company continues to expand, and some of its smaller ventures in the Destination Management Company (DMC; i.e. tour guides) appear quite profitable. There were a number of other bright spots, with many of the smaller ventures like Aunt Betty and byojet reporting big increases in TTV.
The Australian sector delivered record TTV, and Flight Centre's ticket sales grew faster than the rate of outbound travel, suggesting that the company actually grew its market share. Long-term shareholders might recall the sell-off a while ago when Flight Centre lost some market share to smaller competitors like Webjet Limited (ASX: WEB). Today's half then was encouraging in that it may be gaining market share.
Now What?
Flight Centre appears to be doing all the right things, investing in the customer experience and developing a variety of new products to complement its existing offerings. Increasingly, the company doesn't just sell airfares but also travel money products, hotels, and in-destination experiences. With such a big global footprint, Flight Centre has a respectable and growing ability to up-sell products to its customers. Its balance sheet is weaker than last year but remains very strong, and management is capable and motivated.
However, there's no getting past that weak headline result, or the fact that full year forecasts rely on a much stronger second half. Yet given the work that management is doing and their progress so far, I'm not willing to bet against Flight Centre just yet. I continue to hold my shares.
