Flight Centre shares hit turbulence as post-COVID recovery fades and sugar hits from buybacks end

Flight Centre has hit turbulence as it tries to lift margins and revenue after enjoying a partial recovery from COVID-19 horrors.

Shares in the travel agent plunged more than 11 per cent on Wednesday after it disclosed modest 3 per cent revenue growth and a 31 per cent fall in net profit to $60.5 million.

Flight Centre was hit by lower margins on big supplier payments in the December half, as well as being deprived of a big sugar hit from buying back low-interest convertible notes issued in the depths of COVID-19 crisis.

Growth in cash outflows to employees and suppliers far outstripped receipts from customers in the December half as its management spoke of ongoing attempts to contain worker costs and boost productivity.

Flight Centre chief executive Graham Turner said it was a tale of two quarters, with the group’s transaction volume rebounding in the December quarter after a “challenging” September quarter.

Mr Turner said the group’s foundations were strong and it was well-placed to deliver a better second half profit as volumes increased during its busiest trading period of the financial year.

Flight Centre was “trading in a reasonably normal environment, after rapid recovery post-COVID,” he said.

Releasing its profit result, the company tried to highlight its measure of underlying profit before tax — which it said grew from $109.3m in the December 2023 half to $116.8m in the last half.

When unveiling its half-yearly results a year ago, Flight Centre said underlying profit before tax for the December 2023 half was 565 per cent higher at $106m.

In its celebration of its best start to a financial year since the December 2019 half, Flight Centre announced its statutory profit before tax was up 756 per cent to $120m for the December half of 2023.

The latest net profit before tax result was down more than one quarter to $88.24m as gains shrivelled from the group’s partial buyback of $800m in convertible notes issued in November 2021.

The December statutory pre-tax profit had included a $48m gain linked to its November 2023 buy-back of convertible notes, which were only partially offset by $15.9m by the ongoing amortisation of the debt instruments that expire in 2027 and 2028.

Its $75m buyback of low-interest convertible notes in November 2023 not only resulted in a $10.98m purchase gain, but also allowed for $37m pre-tax profit from the revaluation of the remaining debt-based instruments.

The latest statutory net profit before tax was down 27 per cent to $88.24m as just $11.5m of pre-tax gains were created by a $200m buyback of convertible notes in November 2024. There was $14m of ongoing note amortisation.

For the December half, the shopfront and online travel agent’s own total transaction value measure increased by 3.2 per cent to $11.7 billion.

This was accompanied by group revenue also increasing 3.2 per cent, or $41m, to $1.33b.

In its result announcement, Flight Centre said pressure on its big supplier payments and revenue margins were easing as airfare price deflation eased in Australia.

After a 2.3 per cent increase in underlying profit margins in January, it predicted further improvements from “productivity and efficiency” initiatives in its leisure and consumer operations.