How rising oil prices, scathing reports and Brexit are worrying Flight Centre investors

How rising oil prices, scathing reports and Brexit are worrying Flight Centre investors

At Flight Centre's (ASX: FLT) AGM today, managing director Graham Turner (pictured) revealed key issues that are expected to impact the company's bottom line at HY19.

Turner has warned that lower profits from Flight Centre's Australian business, coupled with rising oil prices, could hit airfares and negatively affect financial performance.

"Overall, the company expects an underlying profit before tax between $140 million and $150 million for the six months to December 31, 2018," Turner said.

"It's likely though that airfare prices, which have remained fairly stable, will come under pressure if oil prices continue to rise."

The guidance range of between $140-150 million is only a slight improvement on the company's HY18 result of $139.7 million.

FLT shares fell by as much as 12 per cent following the guidance update but have since recovered slightly to trade 7.8 per cent down at $47.15 (as of 12:30pm AEST).

Speaking about Flight Centre's Australian leisure division, Turner said the segment has not yet benefitted from changes which were implemented in the business last year.

Turner also said a scathing report by ABC in August that Flight Centre had been accused of "ripping off customers" and "underpaying staff in an alcohol fuelled 'cult' workplace" had added to the company's woes.

"These changes, along with the EBA negotiations and the associated disruption resulting from the ABC story, mean that Australian profit is currently down compared to the same period last year," said Turner.

"We believe the disruption is now abating and that this, coupled with various other initiatives and refinements that are underway, will lead to better second half results."

Profits from Flight Centre's overseas businesses are expected to account for almost half of the company's total earnings during FY19.

Turner says this is because these overseas businesses had a "solid start to the year" and that "some disruption has continued into the first half in the Australian leisure operation."

Flight Centre is optimistic about its future in the American market and has confidence in the performance of New Zealand, South Africa, the United Arab Emirates, Asia and India.

While UK travel is expected to contribute significant revenue to the company in FY19, Turner is cautious regarding the impact of Brexit.

"While we currently expect the UK business to deliver another good full year result, there is also a degree of uncertainty in relation to Brexit and its possible impact on demand for corporate travel, in particular later in the year," he says.

Flight Centre is targeting an underlying profit before tax of between $390-420 million at the full year.

Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.

Business News Australia

Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support

How communications technology can raise the bar on customer service, employee experience
Partner Content
From capturing feedback early to providing messages with a higher rate of cut-through, ...
Advertisement

Related Stories

Apollo to divest large share of motorhome fleet to get Tourism Holdings merger over the line

Apollo to divest large share of motorhome fleet to get Tourism Holdings merger over the line

In an effort to appease Australian and New Zealand regulator concer...

Dexus awards John Holland building contract in $2.1b Waterfront Brisbane project

Dexus awards John Holland building contract in $2.1b Waterfront Brisbane project

After securing an $830 million contract from Dexus (ASX: DXS), Melb...

QLD to launch Star Entertainment review in July as former judge appointed to probe casino operator

QLD to launch Star Entertainment review in July as former judge appointed to probe casino operator

Casino operations that account for more than half of The Star Enter...

Collection House calls in administrators: Was Volt collapse the spark?

Collection House calls in administrators: Was Volt collapse the spark?

A recapitalisation plan has failed to save debt collector Collectio...