Travel agency giant Flight Centre Travel Group has forecast a double-digit drop in profit for the 2019 financial year due to its underperforming local leisure operations.
The company revealed that while sales are tracking at record levels and its corporate travel division performing strongly globally and in most key markets, Australian leisure results have not yet recovered in line with expectations.
Flight Centre is blaming the underperformance of its local operations on subdued trading conditions continuing to impact total transaction value (TTV) in the lead-up to the crucial May-to-June trading period.
This is despite the company making a raft of changes over the last two years, which included deploying a new sales system, introducing a new wage model for its front-end sales staff, consolidating its brand structures and initiating and ongoing review of its shop network.
Flight Centre has now revised its underlying profit guidance for FY19 to between $335 million and $360 million – down significantly from the initial $390 million-to-$420 million range it released in October 2018.
The mid-point in this new range – $347.5 million – is 10 per cent lower than the company’s record $387.4 million profit it achieved in FY18.
Flight Centre managing director Graham Turner said: “Our FY19 result will highlight the challenges we are addressing in Australia, but will also underline two of our great strengths: our emergence as a world leader in corporate travel and our changing earnings profile.
“For the first time, businesses outside Australia are expected to generate more than half of group profit, and earnings globally will be weighted more heavily towards corporate travel.”
Turner said the company had recently started to see some modest signs of recovery in Australia, with margins stabilising and customer enquiries growing steadily.
“But this has not yet converted to increased bookings, which is a trend that has been evident in the past when consumer confidence has been relatively low.”
The accelerated expansion into newer models outside of the traditional bricks and mortar is at the centre of Flight Centre’s leisure plans globally.
The company noted that recent ventures into these new models (such as online, specialist call centres, independent contractor and flash sale) are delivering solid growth in Australia, albeit off a lower base.
Next month, Flight Centre will expand its online brand stable with the launch of StudentUniverse, a specialist online travel agency that targets the youth sector and already has a presence in the US and the UK.