Coronavirus forces Flight Centre to revise guidance

Coronavirus forces Flight Centre to revise guidance

Flight Centre (ASX: FLT) has confirmed its bottom line in FY20 will be significantly impacted by the outbreak of coronavirus Covid-19.

The company now expects to lose potentially $100 million in earnings as a result, downgrading its outlook to $240-$300 million (previously $310-$350 million).

The announcement follows a trading update issued by Flight Centre earlier this month which detailed how the company is encouraging staff to take leave while coronavirus uncertainty reigns supreme.

Flight Centre says Covid-19 has impacted its Greater China and Singapore corporate business which accounts for about 2.5 per cent of total transaction volume.

Since the company's early February announcement Flight Centre says the outbreak has affected its corporate business as companies amend travel policies to prevent employees from travelling to China and other travel hubs in the short-term.

The company's leisure customers have also been reviewing or reconsidering short-term holiday plans as the virus spreads to locations outside of China and Asia.

"It is impossible to predict the virus's impact at this time, but FLT expects it will lead to subdued activity through to the end of FY20," says Flight Centre.

The group says it is using the 2003 outbreak of another coronavirus, SARS, as a model to predict how the market will rebound.

"The SARS outbreak, which coincided with unrest in the Middle East following the US's invasion of Iraq in March 2003, led to a four-five-month international travel downturn," says Flight Centre.

"This temporary downturn was followed by strong outbound travel growth, particularly in Australia, during the fourth quarter of the 2003 calendar year and throughout 2004."

Record TTV for Flight Centre

In conjunction with its Covid-19 update Flight Centre released its 1H20 results, with the company posting its largest first half total transaction volume (TTV) ever at $12.4 billion.

The TTV result was buoyed by its strongest 1H growth rate since FY16 at 11.2 per cent despite a challenging global travel market during the half.

Flight Centre recorded $102.7 million in profit before tax, down from $140.4 million in 1H19, which the company attributes to superior trading conditions in the previous year.

"Various world events that affected global travel patterns and contributed to the high profile collapses of Thomas Cook, Cox & Kings and several smaller operators adversely impacted FLT's results for the period," says Flight Centre.

"These events included Brexit, US-China trade wars, unrest in Hong Kong, a safety-related downturn in travel to the Dominican Republic (a key market for the United States leisure business) and a subdued Australian consumer market."

TTV growth was underpinned by 34 per cent growth in Asia, with the segment propped up by 51 per cent growth in its emerging India business.

India also overtook Canada to become Flight Centre's fourth largest country by TTV.

The North Americas corporate business continued its strong trajectory in the half, delivering 24 per cent TTV growth during FY20 to $1.66 billion.

In Australia, leisure TTV increased by 8.4 per cent despite a slowdown in outbound travel.

It's leisure business generally included 46.5 per cent e-commerce growth, with online sales now representing about 13 per cent of leisure TTV during the period.

Shares in Flight Centre are up 0.02 per cent to $35.01 per share at 10.27am AEDT.

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