Flight Centre sharply downgrades profit forecast as US tariff war hits consumer confidence

Flight Centre Travel Group (ASX: FLT) has downgraded its full-year profit forecast by up to 17 per cent due to volatile trading conditions and lower consumer confidence triggered by the US tariff war.

While the company says it remains on track to deliver record total transaction value (TTV), underlying profit before tax (UPBT) is expected to fall between $300 million and $335 million, sharply lower than the forecast range of between $365 million and $405 million.

The mid-range of the downgraded profit will be in line with the UPBT of $320 million that Flight Centre posted in FY24, which would indicate a flat year of growth for the group in FY25.

But at the top end of the forecast, the downgrade represents a 17.2 per cent shortfall in profit expectations due to “uncertain cyclical trading conditions”, which include the changes to US “trade and entry policies”.

Among the changes announced by the US are stricter requirements for those staying longer than 30 days in the country which has led to longer processing times for visas.

Flight Centre says trading in early April pointed to “ongoing uncertainty, which looks likely to slow FLT’s growth in the heavily weighted May-June period”.

The travel group notes that developments in the US have led to a spike in the volatile trading conditions already experienced during the year, resulting in lower-than-expected TTV growth for its core brands.

Overall margins have been impacted, with underlying earnings more severely affected because most of its TTV growth has come from lower-margin businesses.

Flight Centre had been banking on 14 to 26.5 per cent year-on-year growth to achieve its previous profit target, but the company says this is not likely because of continued uncertainty ahead of its busiest trading months of May and June.

“While FY25 has been a turbulent year, our fundamentals are strong and we are well placed to deliver more rapid growth and enhanced shareholder returns next year and into the future as the trading cycle stabilises,” says Flight Centre managing director Graham Turner.

“In the corporate sector, we are again performing reasonably well, given the challenging conditions and aside from the operational issues that are impacting FY25 results in Asia.

“Our corporate business is now materially larger than it was pre-COVID, its offerings are resonating strongly with customers and productivity gains of 15-20 per cent are expected between FY24 and FY26 if the business achieves its targets.”

Turner also notes that the corporate account pipeline remains strong, given that FCM Travel, the group’s corporate travel division, secured new accounts during the year with projected annual spends of more than $1 billion.

“Our leisure business has emerged from the pandemic as a more profitable and productive operation, with a more diverse brand stable and a more cost-effective growth model,” says Turner.

“Group-wide, we are maintaining cost discipline and implementing strategies to boost productivity and enhance the customer experience.

“Importantly, we are also maintaining a very strong balance sheet, which allows us to invest in key growth drivers, acquire businesses if attractive opportunities arise, or undertake further capital management initiatives.”

Amid the turmoil and inconsistent trading, Flight Centre says its global leisure business is on track to again exceed pre-pandemic profitability, while the company pursues productivity initiatives to support future profitability.

The group’s new Global Business Services division is working to cut its current cost base of $20 million per month, while Flight Centre has also announced cuts in the number of full-time employees in non-customer-facing roles and a recruitment freeze is in place across several businesses.

Flight Centre is also targeting a cut in capital expenditure of between 15 and 20 per cent in FY26.

The company is undertaking a review of its loss-making StudentUniverse business which is trading below pre-pandemic levels and expected to lose up to $10 million this financial year.

For its loss-making Canada leisure business, Flight Centre is looking at expansion opportunities in the independent agency and agent sector, similar to those in place in the US where the Envoyage business is growing strongly off a small base.

In Asia, the company is expecting a return to sustainable profitability from FY26, after a “challenging FY25 related predominantly to an internal system change that led to invoicing delays for some clients”.

Meanwhile, Flight Centre has accompanied its profit downgrade with plans for a $200 million share buyback which will be undertaken over the next year to boost shareholder returns.

“The $200 million buy-back we have just announced underlines both our belief in the strength of our business and our commitment to enhancing shareholder returns,” says Turner.

Shares in Flight Centre were trading at $12.10, down 36c, at 10.28am (AEST).