Flight Centre on a corporate-travel high and climbing, as air fares tipped to dip

Business travel has taken off in a big way for Flight Centre Travel Group (ASX: FLT), with the key sector now trading above pre-pandemic levels and helping the company drive underlying earnings above expectations in the first half.

And in good news for holidaymakers, Flight Centre’s CEO Graham Turner says increased airline capacity and scheduling globally could soon take the heat out of the hefty ticket pricing that has hit travellers over the past year.

Flight Centre posted underlying EBITDA of $95 million for the six months to the end of December, a massive turnaround from the $184.1 million EBITDA loss reported a year earlier.

However, the bottom line remains in the red to the tune of $18.3 million – a vast improvement on the $276.1 million loss this time last year.

The turnaround for Flight Centre is reflected in the 203 per cent increase in total transaction value (TTV) to $9.9 billion for the half year putting travel volumes around 80 per cent of the record FY20 first half result – although that could be partly attributed to higher ticket prices.

Group revenue surged 217 per cent to top $1 billion during the half year.

Flight Centre says it is now profitable in its corporate and leisure travel divisions and across all geographic segments, apart from Asia where it says it broke even thanks to improving conditions.

But corporate travel is outpacing growth in all other sectors with TTV of $5 billion, up almost 150 per cent from a year ago and forecast to exceed $10 billion for the full year.

Flight Centre says its corporate travel business has recovered to be at 88 per cent pre-COVID levels, with transactions back at 90 per cent and TTV at 103 per cent.

Accelerated corporate activity from mid-January has pushed its FCM USA division to deliver its first ever $US100 million ($146 million) TTV month.

“Flight Centre Travel Group has delivered a solid start to FY23 in an improved, but not fully recovered, trading environment,” says Turner.

“The sales momentum that helped drive our recovery last year continued throughout the 1H, with TTV and revenue both tripling compared to the previous corresponding period.

“Our corporate business is trading at record TTV levels – ahead of industry growth rates – and winning large volumes of new accounts.”

While Flight Centre reveals that high airline prices and lower commissions from domestic airlines have impacted margins, the company is confident the tide is starting to turn for the travelling public.

The company notes that airline capacity is “gradually recovering, which is expected to deliver cheaper fares and higher volumes, in addition to positively impacting supply margins in a more competitive environment”.

Flight Centre is expecting international flight capacity in Australia to be at 85 per cent pre-pandemic levels by the end of June this year as key airlines such as Emirates, China Southern and Cathay Pacific increase services.

“Lower cost models are gaining scale and capturing a larger share of sales to complement our mass market Flight Centre brand, which continues to resonate strongly with on and offline customers,” says Turner.

“Looking ahead, we expect further 2H recovery and we continue to target underlying EBITDA between $250 million and $280 million for the full year.”

Turner says there are no signs that the recovery is slowing with the leisure business currently trading at post-COVID highs and corporate travel on the rise since the holiday period.

“This underlines both the significant pent-up demand that still exists for travel in this early recovery phase and the sector’s proven resilience,” he says.

“While travel is a discretionary purchase, customers typically view it as essential and prioritise it above other discretionary items, which is one of the reasons why the market typically grows year-on-year and why prolonged downturns in the sector are relatively rare.”

Flight Centre is not paying an interim dividend.