The Flight Centre Travel Group Ltd (ASX: FLT) share price has dropped 5% in response to a FY24 update.
Flight Centre is a large travel agent business with a large presence in Australia and overseas.
FY24 update
Flight Centre amended its profit guidance for the 2024 financial year after the end of FY24.
The company said its total transaction value (TTV) for FY24 is approximately $23.7 billion, which was in line with the record FY19 result. It represented a $1.7 billion year on year increase even though there was a significant reduction of airfare prices over the year, particularly in the FY24 second half.
Flight Centre expects to report an underlying net profit before tax (PBT) of between $316 million to $324 million, representing an increase of approximately 130% compared to the prior year.
However, this profit range excludes the $4 million in trading losses for the Discova Central Americas business after its decision to close the company.
The ASX travel share also said it’s expecting to report an underlying profit margin of between 1.3% to 1.4%, meaning the underlying PBT as a percentage of TTV, which was a “significant improvement” on the 0.6% margin in FY23 and 0.94% in the FY24 first half.
Excitingly, Flight Centre reported it has a strong margin runway into FY25, with the underlying leisure PBT margin exceeding 2% for the FY24 second half and the corporate business seeing a margin of more than 2% in the fourth quarter. Flight Centre has a goal of an overall 2% margin target.
Management commentary
The Flight Centre Managing Director Graham Turner said:
Average international airfares decreased by 6% globally during the 2H, compared to the FY23 2H, and by almost 13% in Australia to offset the circa 10% growth we recorded in ticket volumes in Australia during the six months to June 30.
While this has slowed our TTV growth, we welcome this deflation and believe it is a potential tailwind in the months ahead, given it is likely to stimulate further demand for international travel.
We expect further improvement in these key metrics in the near term, particularly as the corporate business’s productive operations initiative – a body of work that we have invested significantly in during FY24 to deliver future productivity and service benefits – gains traction.
From a sales perspective, the corporate business continues to out perform, delivering another year of record TTV and finishing FY24 about 35% larger in sales terms than FY19, despite customer activity in the sector globally still being about 20% below pre-COVID levels.
The global leisure business is also recovering strongly, following a major transformation initiated just prior to the pandemic, and is now more efficient, more productive and more profitable than it was pre-COVID.
Final thoughts on the Flight Centre share price
Flight Centre shares have rallied 15% in the last several weeks, so it’s not as cheap as it was.
I’m not sure if the company will regain market confidence like it had before COVID-19, however, the profit improvement work it has done in the last few years can certainly help future profits.
It’s not one of the ASX growth shares I want to buy for my portfolio, but it could do well if margins keep rising.
