Flight Centre sits pretty as airlines slug it out

Flight Centre’s chief, founder Graham Turner, isn’t worried about the war for market share currently being waged by Australia’s two major airlines, Qantas and Virgin Australia.

“It’s not necessarily a bad thing [for us],” he told investors this morning, noting that Flight Centre does business with both airlines. “With the extra capacity, pricing may come off and encourage more travel.”

Falling ticket prices in Australia don’t seem to have done much damage to Flight Centre’s profits. The travel-booking company today posted a 43.1% increase in net profits after tax for the 2011-12 financial year, up to $200.1 million from $139.8 million. Its income margin was steady from last year at 13.8%.

“Leisure travel still has a way to recover from its levels just before the GFC. It might not be great news for the airlines, but it’s quite positive for us, and positive for domestic tourism and for corporations who might save a bit of money [on travel].”

A large part of Flight Centre’s growth came from its corporate bookings business, which Turner said was growing “in the double digits”. Like the airlines, Flight Centre is targeting the corporate traveller. It’s the largest provider of corporate travel in Australia, and currently gets 35% of its profits from the corporate market. This is set to grow as Flight Centre expands its network overseas.

In India, for example, where Flight Centre launched in 2005, it primarily targets the corporate market.

Over the next year, Flight Centre is pinning its hopes on organic growth in these rapidly growing markets rather than acquisitions or forays into new markets.

“We’re targeting the same sort of growth we got last year, in terms of shop and sales staff numbers… You might say it’s conservative, but we’ve had a couple of good years since the GFC. We see it being a tough year overall, particularly in Australia.”

Shop numbers grew 5% to 2362 in the past financial year, while sales staff numbers grew 6% to 12,130 (80% of Flight Centre’s staff hold sales positions).

Taking advantage of the high Australian dollar, the company plans to pay down debt.

Investors queried what the company planned to do with its money once the debt is payed off, but Turner said the company was being prudent. “Remember the GFC, four years ago? It did have an impact. We want to make sure we’re well prepared in the future, because it will happen again. It might be another 20 years, but we want to be ready.”

The company will also spend on its IT systems to make it easier for customers to book online.

Chief operating officer Melanie Waters-Ryan said the move was likely to boost Flight Centre’s bottom line without cannibalising its existing store network. “Research shows customers who transact both online and face-to-face spend, on average, three and a half times more than those who do so on a single channel.”

Online also has the potential to diminish time spent on paperwork for Flight Centre’s in-store consultants, a productivity-improving and commission-boosting factor Waters-Ryan says has resulted in many of them embracing the company’s rollout of online systems.

“We’re a regulated industry, and so our consultants can spend a lot of time on admin. We want to see them spending less time on the ridiculous admin that travel businesses require.”

In this financial year, the company is well on track to open its 2500^th store.