Ticket discounting to boost leisure travel has affected Flight Centre’s outlook, with the company warning yesterday that its full-year earnings would not match the record result it brought home in 2013-14.
The mining downtown, which has depressed corporate spending, is having an effect.
Shares in Australia’s largest travel agency company dived more than 16% yesterday after the company said underlying profits before tax would be between AUD 355 million and AUD 365 million for the year to June.
Analysts generally felt the downturn in share price was greater than warranted and considered investors had over-reacted.
Flight Centre managing director Graham Turner said demand was strong for travel to the US and so were sales. “This looks set to continue into the new year with a price war currently underway on the Australia-Honolulu route,” he said.
However, discounting to stimulate demand, slower-than-usual sales growth and higher costs had meant lower gross margins and revenue, contributing to the softer-than-expected results. Australia leisure turnover climbed by just 2.7%, far less than the bonnie 8.5% compound annual growth rate attained over the past five years.
Turner said international operations would produce growth but Australian operations would “not achieve its normal growth trajectory”.
“Corporate travel results have generally been reasonable, although the downturn in the resources sector has again affected performance in Western Australia and the Australian corporate travel market as a whole,” he said.
Flight Centre sees signs of recovery in the second half of this financial year, with the market returning to modest growth after a flat first half.
Written by Peter Needham