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24 July, 2019

Flight Centre nixes notion mass store closure would lead to stronger profits

Melbourne, Australia: April 12, 2018: Street view of a Flight Centre shop window. Flight Centre is Australia’s largest travel agency selling international flights, holidays and tours. A man walks past.

Flight Centre has confirmed it will not be following advice from financial analysts that would see the brand close one in 10 stores nationwide.

The notion was put forward by Citigroup analyst Bryan Raymond who suggested closing stores in locations where more than one existed would lead to higher levels of profitability through lower rent and labour costs.

“Following Flight Centre’s brand consolidation, 83 per cent of the ~950 store bricks-and-mortar network is now branded as Flight Centre. This has resulted in a high store density for a single brand, particularly as online penetration is rising,” Raymond said, according to Inside Retail.

“Our geospatial analysis of Flight Centre’s network has identified 259 Flight Centre branded stores that are located within 1km of another Flight Centre.”

Raymond said further consolidation could pay off to the tune of $8 million before tax over two years.

However, Haydn Long, Flight Centre’s global media and investor relations manager said that while Raymond presents an interesting argument, it misses some important points.

“In essence, there will inevitably be a concentrated network of shops and teams within CBDs and major shopping centres. This reflects the high foot flow and also the proximity to the targeted customer base,” Long said.

“Often, these clusters of shops and teams will be among our best performers because of their high profile positioning and the convenience they offer to nearby customers.

“For example, many of the CBD locations will be specialist Flight Centre Business Travel teams, who work closely with the neighbouring businesses.”

However, Long admitted the brand had some temporary duplications as a result of a rebranding exercise in 2018 that saw 90 Escape Travel and Cruise About stores close, with remaining stores rebranded into Flight Centre, Travel Associates and Student Flights stores.

“In these situations, we look to close shops as leases expire or we shift them to better locations as vacancies arise,” Long said.

“As part of our normal network planning, we close some shops every year, relocate some others and, when good opportunities arise, we work closely with landlords to secure new sites and open new shops.

“Within the Flight Centre brand in Australia, most of these openings in recent years have tended to be specialist shops and teams, rather than traditional Flight Centre shops.”

In April, Flight Centre lowered its FY19 profit expectations, despite record sales levels, due to underperforming local leisure operations.

The company said the record sales stemmed from its corporate travel division, which was performing strongly in most key markets.

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Citigroup flight centre store closure