FY20 Trading Update – Why The Flight Centre (ASX:FLT) Share Price Is Sinking

The Flight Centre Travel Group Ltd (ASX: FLT) share price is down 10% after giving a FY20 trading update.

Flight Centre is one of the world’s largest travel agencies and has company-owned operations in more than 23 countries, while its corporate travel management network spans more than 90 countries. The Group employs more than 19,000 people and owns 2,800 businesses.

Flight Centre’s Disappointing Trading Update

Flight Centre has given a presentation to the Morgans Queensland conference and it said that it has recorded strong growth in online leisure sales in Australia during the first quarter of FY20.

In the presentation the company said that Total Transaction Volume (TTV) has continued to increase “solidly” across the group.

Flight Centre also outlined growth in other new and emerging leisure travel models in Australia, it also reaffirmed the company’s plan to release FY20 profit guidance at its annual general meeting (AGM) on 7 November 2019.

But what may be worrying investors is that the company said there have been challenging market conditions in Australia and some other key markets early in FY20, which makes beating FY19’s strong performance quite hard.

Underlying profit is expected to be below the prior corresponding period’s during the first half and is likely to be heavily weighted towards the second half.

Flight Centre blamed Brexit for a slowdown with the UK and safety concerns about the Dominican Republic as reasons for slowing profit growth from the US leisure business.

The travel business also outlined that costs have increased in early FY20 with a new wage model leading to an additional $4.2 million of wages during the first quarter of FY20.

Profit was lower than expected from its emerging in-destination businesses and Flight Centre has generated lower interest earnings due to lower Australian yields, but it’s making higher interest payments because it has used debt to fund recent acquisitions.

The Thomas Cook collapse has had minimal on Flight Centre, but the company expects to incur $7 million in costs to ensure its customers were re-accommodated and not adversely impacted by the collapse of Bentours and Tempo Holidays in Australia.

Flight Centre has not seen tangible benefits from the recent interest rate cuts or tax refunds – but this may be seen in the second half of the year.

I don’t like investing in businesses when they’re reporting slowing conditions because things could get worse, leading to even lower share prices. I’d rather invest in businesses that are seeing better conditions such as the growth shares in the free report below.

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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