The Flight Centre Travel Group Ltd (ASX: FLT) share price has been hammered on the back of the coronavirus pandemic, trading more than 61% lower since the start of the year.
Flight Centre released an announcement to the market on Friday highlighting the impact of subdued consumer demand, travel bans and cost reductions as a result of the virus pandemic.
Despite the unfavourable trading conditions, management is adamant it can still protect and grow its market share. In the announcement, Flight Centre highlighted its healthy cash balance and experienced management team that has previously dealt with SARS and the GFC.
What did Flight Centre announce?
Given the increasing uncertainty surrounding the coronavirus pandemic, Flight Centre announced that the company has suspended its guidance for FY20. In late February the company had advised the market that the virus would have a significant impact on second-half earnings for FY20 and lowered its full-year guidance for underlying profit before tax between $240 million and $300 million.
In order to combat the short-term challenges posed by the virus pandemic, Flight Centre announced additional strategies. The company announced that it would accelerate the planned shrinkage of its Australian store network by culling 100 underperforming stores by the June 30 this year.
In a bid to further reduce costs, Flight Centre also plans to reduce trading hours, encourage staff to take time-off and freeze short term bonuses for executives.
What is the strategic outlook for Flight Centre?
Flight Centre remains uncertain on the timeframe for a recovery, however, management is adamant that the company is well placed to overcome the challenges.
To reflect its resilience, Friday's announcement cited the company's experiences with SARS in 2003 and the GFC of 2009. According to management, Flight Centre was able to re-ignite demand whilst also implementing cost reduction strategies to maintain a strong balance sheet.
Part of the company's short-term strategy to stimulate demand is to expand the leisure market-share by investing in sales and marketing initiative for low-risk areas such as domestic travel and South Pacific holidays.
Should you buy Flight Centre shares?
Interestingly Flight Centres total transaction value (TTV) for February actually increased compared to the same month last year, however, the company expects to see significant softening to continue until April.
Flight Centre also boasts a strong balance sheet, with an impressive $1.3 billion in total cash and investments and has a positive net debt position of $189 million.
Solace can also be found in the fact that the company and international travel was able to bounce back sharply following the SARS outbreak in 2003 and the GFC in 2009. These factors make me think that the company's share price could be a speculative buy for the long term.
However, these are uncharted times and although past performance can be useful the outlook looks very cloudy. Given the travel bans and other precautions, the travel and tourism industry could be facing a very difficult outlook.
Along with the likes of Qantas Airways Limited (ASX: QAN), Flight Centre's share price has been heavily sold and I think it would be prudent to keep these companies on a watchlist and wait for consolidation before making an investment decision.
