Flight Centre’s profits rebound in travel resurgence, but shares slump

Flight Centre has seen a strong earnings recovery after deep cost cuts and a resurgence in leisure travel, with its net profit climbing more than sixfold over the December half. However, it was less than what the market had expected, sending its shares tanking.

The travel booking behemoth’s result swung to an $86.7 million net profit in the six months ended December 31, a jump of 533 per cent. The company posted a $20 million loss in the prior-year period. Earnings before interest, tax, depreciation and amortisation almost doubled to $189 million and were buoyed by $11.3 billion in transactions, 15 per cent more than in the same period last year, Flight Centre said in a statement to the ASX on Wednesday.

Its shares were trading down 8 per cent to $20.38 in mid-morning trade.

Chief executive Graham Turner said he was confident in Flight Centre’s long-term strategy.

Managing director and founder Graham Turner said the swing back to profit highlights the resilience of the travel industry amid the cost-of-living crisis, which was allowing the group to lift its full-year earnings targets.

“At a time when discretionary budgets are typically tightening, travel remains an outlier and a priority spend for many,” Turner said.

“We are seeing ongoing solid demand for leisure and corporate travel, leading to our second-strongest start to a year in total transaction value terms […].”

Underlying profit before tax was up 565 per cent at $106.2 million in the December half, the travel agent said.

Flight Centre expects to post an underlying profit before tax of between $300 million and $340 million for the full year to June, up from $270 million and $310 million forecast earlier this year. It is targeting a 2 per cent profit margin across its corporate and leisure arms by 2025.

The earnings rebound comes after Flight Centre closed hundreds of its stores as part of a cost-cutting drive after COVID-19 threw the travel sector into turmoil.

The group’s cost margins fell below 10 per cent and are expected to further reduce in the second half, with Flight Centre using $365 million to reduce its bank debt and overdraft facilities.

“We are comfortable with our amended guidance … We strongly believe we are a 2 per cent business and are working very hard to reach that level by the end of the 2025 financial year, but without adopting a short-term approach that will hinder either our longer-term ambitions and future growth prospects or our ability to maintain growth,” Turner said.

RBC Capital Markets analyst Wei-Wei Chen said the half was “weaker than expected” when accounting for amortisation costs and said the heavy reliance on earnings in the second half means a potential for a downgrade later in the year.

“Flight Centre has confidence in its guidance range, adding trading in January and February has been in line with expectations. However, management cautioned the months comprising [the fourth quarter] remain the most critical for achieving guidance,” he said after the group’s investor call.

Flight Centre will pay a 10¢ fully franked interim dividend per share on April 17.

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