Flight Centre Share Price Plummets 11% with Revised Profit Guidance

Shares of Flight Centre Travel Group Ltd [ASX:FLT] are hovering scarily close to their 52-week low after today’s shocking 11.12% drop to $39.25 per share.

The leisure and corporate travel retailer released an amended FY19 guidance on the ASX early this morning. Flight Centre has lowered their FY19 profit before tax (PBT) to a range of $335–360 million, significantly lower than their initially targeted $390–420 million range back in October 2018.

This revision comes just two months after their half-year results release, which confirmed the company had delivered a PBT ‘within its target range for 1H of FY19’.

Naturally, investors have reacted negatively to this sudden downgrade.

Why Flight Centre profits are struggling

The company have attributed the PBT decrease to the ‘challenging trading climate in Australia’, which has impacted total transaction value (TTV) — or ticket sales.

This ‘challenging’ trade environment is likely referring to our struggling housing marking, which in turn is pulling down consumer spending on big ticket items.

Flight Centre’s managing director Graham Turner says of the trading conditions:

We have started to see some modest signs of recovery in Australia recently, with margins stabilising and customer enquiry growing steadily, but this has not yet converted to increased bookings, which is a trend that has been evident in the past when consumer confidence has been relatively low.’

Flight Centre say these ‘subdued trading conditions’ have coincided with ‘a period of significant change and disruption’ for the company. Changes include introducing a new sales system, wage model and brand structure, as well as initiating an ongoing review of its bricks-and-mortar shop network.

While the company insist the benefits of these changes ‘are not yet being realised’, they also admit that the ‘Other’ segment of Flight Centre’s accounts will see significantly increased losses, derived from increased tech expenses, higher interest payments, and the recent $211 million dividend cash payment.

What this means for Flight Centre

Ironically, such a guidance revision — while no doubt more accurate — is likely to make investors sceptical on the fruition of any further guidance updates.

Using the midpoints of the two ranges, we’re seeing a 14% downgrade today in a figure that was hitting its target as recent as February. This will likely give Flight Centre the stigma of having unreliable forecasts, thereby depleting their potential to boost investor morale.

And with a federal election just around a corner — where a Labor win will see major changes to tax brackets and negative gearing — consumer spending is likely to remain soft for the next few months. So, Flight Centre profits aren’t positioned to ‘exceed expectations’.

That being said, Flight Centre’s US and UK sectors are performing well, with American business looking to close FY19 with a profit of over $100 million. And while ticket sales are down in Australia, overall TTV for the company is currently tracking 9% over FY18 range.

Then again, this figure could be revised at any moment.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

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