Signs of recovery put wind beneath Flight Centre's wings

Signs of recovery put wind beneath Flight Centre's wings

Tentative signs of recovery in the travel market have injected renewed confidence in Flight Centre Travel Group (ASX: FLT) after it revealed an interim net loss of $233.54 million for the December half.

Shares in the company surged more than 7 per cent on news there has been some recovery in corporate and domestic travel markets across Flight Centre's global network, even though its core leisure market remained grounded for the past 12 months.

Flight Centre says revenue in December reached its highest point since global travel restrictions were imposed in March last year.

Since March 2020, Flight Centre has also slashed its cost base by 66 per cent - or about $1.9 billion a year - giving the company breathing space to wait out the recovery.

The company has maintained what it describes as a $1.2 billion "liquidity runway" to confront an extended downturn and capitalise on potential recovery opportunities.

Liquidity has been bolstered by the $62.1 million sale of the company's Melbourne office, as well as a debt restructure and a $400 million convertible note issue.

However, the latest financial numbers show how far Flight Centre has to go for its business to return to full flight.

Revenue for the half year was $159.78 million, down 89.7 per cent from $1.54 billion in the previous corresponding period, before COVID hit. Total transaction value of $1.53 billion is down 87.6 per cent from $12.39 billion.

The statutory loss of $233.54 million compares to a profit of $22.1 million previously.

"The conditions we have encountered since March last year have undoubtedly posed the greatest challenge that our industry and many others have faced," says Flight Centre CEO Graham Turner.

"Rather than enter a holding pattern ahead of future domestic and international border re-openings, we are taking steps to ensure we are well placed for the eventual recovery.

"We have become a leaner and more efficient business with a long liquidity runway, which has been crucial during this challenging and uncertain period."

Flight Centre notes that despite a dramatic fall in revenue, it has increased market share with industry booking data from the GDS (Global Distribution System) platform indicating it had captured 16-18 per cent of total GDS segments booked in Australia in November and December last year, up from 15-16 per cent a year earlier.

Domestic tickets represented 94 per cent of Flight Centre's total ticketing volume in Australia in the December half, up from 57 per cent.

While Australian Bureau of Statistics data shows just 86,000 Australian residents travelled overseas for short-term departures, Flight Centre issued 35,000 international tickets in Australia during the period.

State border lockdowns and tighter global travel restrictions in January took some of the pace out of Flight Centre's momentum, with the company reporting a slowing of sales.

Due to the continued volatility of the travel sector, the company has not issued guidance for FY21, although it has declared it is well placed for any recovery.

"Within our businesses globally, we have invested in key growth drivers and controlled the business-critical factors that should pave the way for a return to profitability," Turner says.

"Based on what we have seen so far, travellers have been keen to take off as soon as they have been allowed to do so, which should ultimately lead to a very solid rebound.

"Assuming vaccination programs continue to prove successful against the virus and any variants, we expect travel restrictions will ease over the next few months given that high risk and vulnerable people, who are being prioritised in most programs, will be protected."

Turner believes this will lead to domestic travel restrictions being lifted permanently and a return to international travel for some countries later this year. As a result, Flight Centre expects a return to breakeven in both leisure and corporate travel this calendar year.

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