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Cheaper airfares are stimulating growth in overseas travel volumes for Flight Centre Travel (ASX: FLT) which today revealed a 15 per cent lift in international airfares sold in Australia during the first quarter of FY25, with the momentum increasing sharply in October.
Sales volumes were spurred by an average fall of 9 per cent in international fares during the first quarter compared to a year earlier.
Flight Centre founder and CEO Graham Turner told shareholders at the company’s annual general meeting this morning that the group has experienced a “marked recovery” in October across key metrics of TTV (total transaction volumes), profit and profit margin.
Turner says this follows a “patchy” first quarter of trading after reasonably strong and more consistent trading in FY24.
“We view cheaper fares as very positive and they are starting to stimulate sales,” says Turner.
“There is also opportunity to regain some of the lost ground in relation to first quarter super over-rides by delivering stronger leisure and corporate TTV growth in the months ahead.
“Within our Flight Centre leisure shops, basket sizes have increased, and enquiry has generally remained healthy ahead of the year’s busier booking periods.”
However, Turner says conversion of that enquiry into sales had been slower during the traditionally quieter months early in the year, as “cautious consumers” curbed discretionary spending.
“Travel has typically outperformed these other sectors and has remained a growth industry, which has again underlined its resilience,” he says.
“It is, however, reasonable to assume that more people, particularly families and lower income earners, will travel when cost-of-living pressures ease and airfares become more affordable, which is what we are starting to see.”
The fall in international airfares comes amid a broader increase in domestic airfares revealed this week in a quarterly report by the Australian Competition and Consumer Commission.
The report found that domestic airfares on major city routes increased by 13.3 per cent in the September quarter after Rex Airlines halted its capital city services at the end of July.
Turner says that Flight Centre’s preliminary trading results point to “a solid top and bottom-line rebound in October, after a reasonable July but relatively soft August and September” for the group.
Flight Centre has reported a 6 per cent lift in total transaction values in October, boosting the year-to-date growth rate to more than 1.5 per cent.
Underlying profit before tax is also up about 30 per cent on a like-for-like basis for the month, while underlying profit margin up about 30 basis points compared to October last year.
Flight Centre is targeting underlying profit before tax of between $365 million and $405 million in the current financial year. This compares with $320 million in FY24.
“The mid-point of $385 million represents 20 per cent growth on FY24 and, if achieved, will be a record, eclipsing the $384.7 million underlying FY18 result,” says Turner.
“It is also broadly in line with adjusted market consensus for the year, based on the research notes published by sell-side analysts who cover FLT following our most recent market announcement.”
Turner anticipates the broader travel industry to return to a normal growth trajectory, noting that the International Air Transport Association has forecast 3.8 per cent compound annual growth in passenger numbers globally between 2023 and 2043.
The Asia Pacific region is set to grow faster at a 5.3 per cent compound annual growth rate.
“Through our established and emerging brands, we are well placed to capture more than our share of this growing market,” says Turner.
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