Issues & Trends – September 2010

FLT rebounds from 2008/09 slump with record profits and ticket sales

FLIGHT Centre has reported record profits and ticket sales and improved margins in the 2009/10 financial year despite “significantly lower” yields and key markets remaining in the financial doldrums.

Other factors that had to be overcome in the financial year ending June 30 included a $10 million reduction in year-on-year interest income, reflecting the lower rates in Australia during the first half, and short-term disruption from the volcanic ash cloud in Europe, airline strikes and unrest in some major international markets, the company told the Australian Stock Exchange.

The company’s $139.9 million net profit after tax was not only a record result, it was a 267 per cent increase on the previous financial year. The huge profit increase was achieved on a total transaction value (excluding India) of $10.9 billion, the same as in 2008/09 “Underlying pre-tax profit (before impairment and non-recurring items) was $205.1 million, a result well above the initial target of $125 million-$135 million,” Flight Centre’s statement said.

After allowing for non-recurring items including $6 million in expenses incurred in the USA and $600,000 in impairment relating to the company’s head office property in South Africa, the actual profit before tax was $198.5 million.

The global retail giant said significantly lower ticket prices (yields) were a legacy of the unprecedented airfare discounting that has taken place since the second half of 2008/09.

However ticket sales increased healthily, the company said, attributing this not only to cheap fares stimulating demand but also to Flight Centre increasing market share.

Flight Centre reported “minimal economic recovery” in the UK and US markets where it has its second and third largest operations.

Nevertheless it achieved “near record” profits in the UK ( measured in local currency). However the US operation continued to lose money ($2.3 million at EBIT level), albeit the company says losses are “significantly reduced” and wholesaler GoGo was profitable and should improve during 2010/11.

US corporate business has also returned to profitability over the second half of the year and has started 2010/11 well after five consecutive months of profit, according to the Flight Centre statement, while the Liberty retail business was profitable overall during the second half.

Flight Centre managing director Graham Turner said the company’s results had rebounded from 2008/09 when it returned only the second year-on-year profit decline since it listed on the ASX in 1995.

“FLT’s results and achievements in several areas during 2009/10 have surpassed those of any other year,” he said.

He also expressed satisfaction with “encouraging” results from emerging businesses.

“These include:

• Cruiseabout, which contributed almost $1million in profit during a period of considerable expansion. We now have 15 shops in Australia;
• The online leisure businesses, which contributed good profit growth in addition to delivering enquiry to our global retail shop network;
• The Intrepid retail joint venture, which was profitable in its first full year and is expanding in Australia and overseas; and
• The joint venture cycle business, Pedal Group, which includes retailer 99 Bikes and wholesaler Advance Traders Australia (ATA). In their second full year, these businesses generated more than $20 million in sales and $230,000 in EBIT, with ATA’s sales almost doubling during 2009/10.”

On the outlook for 2010/11, Turner said Flight Centre has started the year with good momentum and achieved healthy profit and sales results in July.

“It is often asked when FLT will reach saturation point in Australia, but the reality is this business continues to set new levels of sales and we see ongoing growth opportunities for the foreseeable future – both in travel and in our other sectors and in online channels as well as offline.”