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Flight Centre (ASX:FLT) shares just took flight: here’s why

The Flight Centre Travel Group Ltd (ASX: FLT) share price took off this morning but it seems today’s half-year results (HY21) reflect a challenging period for the business.

Flight Centre is one of the world’s largest travel agencies and has company-owned operations in more than 20 countries, while its corporate travel management network spans more than 90 countries.

Its brands include Flight Centre, Corporate Traveller, 99 Bikes, Travel Money Oz and more.

Focus on cost savings

In response to the adverse impact of the COVID restrictions, Flight Centre implemented cost-savings measures during the most recent half year and managed to reduce its cost base by 66%, equating to an annualised saving of $1.9 billion.

Flight Centre notes it has maintained a $1.2 billion kitty to ensure the business remains resilient. This kitty was mainly bolstered by the sale of its Melbourne office, a debt restructure, and a $400 million convertible note issue (debt capital).

Financial results low but domestic travel on the way up

Flight Centre recorded $1.5 billion in total transaction value (TTV) and the majority of this was represented by corporate travel given the restrictions imposed on leisure travel.

The heavier mix of corporate travel contributed to revenue margins of 10.4%, which was in line with Flight Centre’s expectations.

Flight Centre recorded a $317.3million statutory loss before tax compared to a $38.8 million statutory profit before tax for HY20 (prior to COVID-19).

Management highlights positive signs ahead

Flight Centre management noted a number of encouraging signs, in particular the pent-up demand for leisure travel.

The company highlighted that domestic leisure sales exceeded prior-year levels within two days of Queensland announcing plans (November 23) to reopen its borders.

Flight Centre’s FCM travel solutions business secured new customers, who have pre-COVID expenditure in the order of $700 million.

Another massive positive factor is the rollout of COVID vaccinations across the globe. If the vaccination is successful then it will likely be a huge catalyst for the re-opening of international borders.

Even though Flight Centre is being defensive at the moment, it is still investing capital into key corporate and leisure travel technologies.

My takeaway

I think the pent-up demand for domestic travel in November is a telling sign of what people really want to spend their savings on, instead of decorating the house.

It also tells me that people are more confident in travelling within a COVID environment. If the COVID vaccinations are successful and outbreaks continue to be managed effectively, this will encourage more people to travel.

Another question to address is whether corporate travel will return to pre-COVID levels. Given Zoom (NASDAQ: ZM) and other video conferencing technologies have replaced corporate meetings, I think there will be less corporate travel.

As for leisure travel, I think the continual pent-up demand will continue as long as borders remain closed. However, it appears Qantas Airways Limited (ASX: QAN)  has declared it’s aiming to provide international flights by the end of October.

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Afterpay, Zip Co, Sezzle…

Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

Rask's analyst has just finished a 7,500-word report, The Ultimate BNPL Sector Report, taking a deep dive into this booming ASX sector. It shines a spotlight on each of the major players. You can get the full analyst report for FREE by CLICKING HERE NOW.

Note: the report is 100% free.

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

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As we emerge from COVID-19, some tech companies are growing faster than ever. Rask’s investment analysts have identified 3 growth stocks set to benefit. Big time.

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