Flight Centre Travel Group Ltd (ASX: FLT) celebrated its 20th year this morning and forecast a record underlying profit before tax between $380 million to $395 million for the 2016 financial year, a 4% to 8% increase on the prior year.
As usual, the annual general meeting address by Chairman Gary Smith and Managing Director Graham "Skroo" Turner was packed full of useful information for investors, but here is a summary of the important details.
FY16 Strategies
Flight Centre will rapidly expand its network in Greater China, Singapore and UAE. Although these businesses contributed only 5% of total transaction value (TTV) in FY15, they are making an increasingly valuable contribution.
Additional commercial agreements were finalised with low-cost carriers including Air Asia, Scoot, easyJet in the UK and JetBlue in the USA. Until recently, these budget airlines provided little or no margin for Flight Centre to sell their products but that is changing and will benefit both the businesses and consumers.
The Travel Money shop has been a great success story in recent years and is now the fourth largest business by sales in Australia. Travel Money will launch in the USA next month and further expansion overseas is earmarked in the future.
The Top Deck business, acquired during FY15, is expanding into Asia, adding to its popular tours that operate across Europe, Australia and New Zealand, North America and the Middle East.
Cash hoard
Flight Centre's impressive cash stockpile increased 18% to $565 million and it is "continuing to look for opportunities to utilise any excess cash to create additional shareholder value", noted the Chairman.
The principal uses of its cash would be additional network enhancements and acquisitions, with the group currently looking at a number of prospects.
"If our cash position exceeds our perceived needs at a point in the future, we will look to return funds to shareholders via the method that we believe creates the greatest benefit."
The careful consideration and allocation of capital is a win for shareholders.
Outlook
Skroo Turner confirmed that business is trading in line with expectations during the four months to October.
In profit terms, the UK and South Africa businesses have been top performers to date while a reduction in losses from the Canada business has been achieved following a recent change in leadership.
"In Australia, consumer confidence remains fairly subdued and the outbound travel market is growing at a slower rate than normal." However, the number of travellers departing Australia increased 2.3% during the first quarter of FY16 and outbound trips to the USA increased more than 7%, despite the lower Aussie dollar.
Foolish Takeaway
Flight Centre should outline its digital strategy at its meetings as this is an important battlefield for the business to win. Its online competitor, Webjet Limited (ASX: WEB), announced this morning that earnings are expected to increase by 20% compared to FY15. This rapid growth indicates that Webjet is increasing its market share of the online booking space, which should be addressed by Flight Centre.
Flight Centre is a globally diversified business and its international segments increasingly represent a larger proportion of revenue and profit, limiting the impact of subdued business conditions in a single market, such as Australia. Flight Centre is positioned to provide healthy returns to long-term shareholders.
