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FY22 update: Flight Centre (ASX:FLT) share price drops

The Flight Centre Travel Group Ltd (ASX: FLT) share price fell around 5% today after giving a FY22 update at its AGM.

Flight Centre’s FY22 update

At its annual general meeting (AGM), Flight Centre said that it had started FY22 with a fair degree of optimism given the regular travel restriction relaxations that it’s seeing globally.

It noted that some very important routes are now open or are expected to reopen in the coming weeks, while travel is about to take off in Australia (again).

Flight Centre said that outbound Australian travel reopening has prompted a surge in leisure enquiries for most key locations, but particularly the UK, Europe, the Americas and Fiji.

The company said that when lockdowns are lifted and borders re-open, it sees that travel bounces back immediately and strongly.

FY22 comments

The company is targeting a return to monthly leisure and corporate travel profitability during FY22, though the exact timing is uncertain and remains largely in government hands because of borders being open and international travel returning globally.

Flight Centre had expected that restrictions would gradually and selectively ease as countries cautiously opened back up through travel corridors and bubbles. However, this has started to happen more rapidly and on a larger scale than expected.

One example of that is that the US would welcome fully vaccinated international travellers from 8 November, a move which has effectively relaunched two-way trans-Atlantic travel. Another example is that international travel would resume for Australians in November.

The company noted this was important because its large Australian leisure business is very heavily weighted towards international travel, which represented more than 80% of pre-COVID total transaction value (TTV). The US is a key destination for leisure and corporate customers globally.

To get back to breakeven, it needs to generate around 50% of its traditional TTV in corporate and around 40% in leisure. That’s based on current cost bases.

While returning to profitability is very important in the short-term, winning and retaining customers – which will be reflected in TTV – is “paramount” for the longer-term and will be a key focus initially.

Flight Centre said that it’s expecting strong returns on its pandemic-period investments, as it says it’s now a leaner and more efficient organisation.

The company said that international bookings have now surpassed domestic bookings in Australia for the first time since the start of the pandemic and almost tripled between July and September. Booking numbers in October had already surpassed the September total.

The first quarter of FY22 saw TTV of $1.6 billion. This was a 8.1% increase on the FY21 fourth quarter. At the end of September, gross TTV was tracking at 27% of pre-COVID.

Monthly operating cash outflow has been around $40 million during the quarter.

In summary, Flight Centre thinks it’s poised for a rapid recovery.

Thoughts on Flight Centre and the share price

Flight Centre has gone through a bit of recovery already and is poised to see good profit growth over the next 12 months.

However, whilst I’m bullish on the ASX travel share sector as a whole, I think there are other businesses – like Webjet Limited (ASX: WEB) – that may be able to achieve an even stronger recovery.

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