Flight Centre shares drop on coronavirus update

Flight Centre shares drop on coronavirus update

Travel agency Flight Centre (ASX: FLT) expects the coronavirus (2019-nCoV) outbreak will make it difficult to meet its earnings guidance of $310-$350 million for FY20, especially as profits tend to be weighted towards the second half.

The company has encouraged staff in China to take leave while uncertainty surrounds the virus, in a move managing director and founder Graham Turner believes will put Flight Centre on a good footing once the sector rebounds. 

"It is impossible to predict the virus's impact on our business or on leisure and corporate travel in general at this early stage, but it will impact travel patterns to some degree in the near-term," says Turner.

"To date, the impact has largely been felt in our Greater China corporate travel businesses, given that business activity and the country's inbound and outbound travel sectors have temporarily shut down as part of the focus on containing the virus."

The outbreak has already affected Flight Centre's small corporate travel operations in China, Singapore and Malaysia - a business that accounts for around 2.5 per cent of group total transaction value (TTV) at $625 million.

"Within this challenging environment, we are taking steps to ensure we can meet our customers' needs while also minimising the impact on the business on Mainland China and in Hong Kong by encouraging our people to take leave over the next few weeks, while the outlook remains uncertain," he says.

"By preserving our workforce in China during this uncertain period and carefully managing our cost base, we will be well placed to capitalise on any rebound in the travel sector when the situation improves."

The announcement came as the group reported expectations profit before tax (PBT) for the first half would be slightly above the mid-point of it $90-110 million guidance.

Adjustments to PBT will include $7 million in costs associated with helping customers when Thomas Cook collapsed in the UK, as well as a $46.4 million impairment charge relating to the London-based Topdeck Touring Business which has which has underperformed recently.

FLT shares were down 3.02 per cent at $39.49 at 14:01pm AEDT.

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