Rivalry for cheaper airfare prices has clipped the wings of Australia’s biggest travel agency with Flight Centre suffering a 36 per cent drop in half-year profit.
Despite record ticket sales in Australia – where volume outpaced market growth and total transaction value (TTV) topped $5 billion for the first time – net profit for the six months to December 31 fell to $74.4 million.
Revenue was down slightly, by 0.6 per cent to $1.25 billion, for the company which has outlets in Australia, New Zealand, the US, Britain, Europe and Asia servicing leisure and business travellers.
Flight Centre said first-half ticket sales rose strongly, particularly in Australia, but a seven per cent fall in average international fares and a four per cent decline in domestic fares amid heavy discounting by both local major airlines, had hurt.
As a result, first-half earnings fell 10 per cent for Australia.
The result was also hit by adverse foreign exchange movements, economic certainty and reduced earnings in the emerging Asia, Middle East and UK-based tour operating businesses which led to that segment suffering a combined $12.5 million fall in profit.
Flight Centre has cut its full-year underlying pre-tax profit guidance to between $300 million and $330 million, from $320-$355 million, amid continuing global trading uncertainty, fare discounting and currency volatility.
“We are still concerned about some of the challenges, particularly airfare pricing and yield, and the various implications of foreign exchange,” managing director Graham Turner said on Thursday.
“There are some positive lead indicators, but there are still those x-factors that will lead to some ongoing uncertainty.”
Mr Turner said that despite issues with yield, Flight Centre expects a more stable trading environment heading into the second half of the year.
“We get paid on TTV not on ticket numbers, but we are reasonably hopeful that it will stabilise over the next six or eight months.
“We will only have to wait and see.”
Meanwhile, Flight Centre continues to invest in the digital space, including apps, online assistance and marketing, and aims to have $1 billion in online TTV this year, representing a revenue margin of around seven or eight per cent.
“When yields do correct we don’t want to leave ourselves short so we do continue to invest in things like marketing, in our technology, and that has helped us win business in the corporate space,” chief operations officer Mel Waters-Ryan said.
“You always look at costs in your business and you always wonder if you would have done anything sooner but I doubt whether we would have changed any of the major investments that we were making.”
The company declared an interim fully franked dividend of 45 cents a share, down from 60 cents.
Flight Centre’s shares were down 3.83 per cent to $29.14 at 1223 AEDT.
DISCOUNTS CLIP FLIGHT CENTRE’S WINGS
* First-half net profit down 36.2pct to $74.4m
* Revenue down 0.6pct to $1.25b
* Interim dividend 45 cents, fully franked, down 15 cents.