Flight Centre (ASX: FLT) set to fly higher in FY 23

Flight Centre (ASX: FLT) has been one of the most obvious ‘re-opening plays’ as the pandemic waned. Its share price has grown with vaccine rates and its own ever-improving financial results, or just the hint of them. This morning, shareholders received news of the latter once again and FLT’s share price rose 4%, but it is still well off its all-time highs. 

 

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Who is Flight Centre? 

Flight Centre is a travel agency, serving both the leisure and corporate sectors, online and through bricks-and-mortar stores. It has several brands beyond its namesake flagship brand and even other business ventures, including forex service Travel Money Oz and a stake in bike retailer 99 Bikes.  

Flight Centre remains headquartered Down Under, but just 33% of its global TTV (Total Transaction Value) comes from Australia. It is still ~25% owned by its three co-founders, but only one – Graham Turner – is still involved on a day-to-day basis. 

 

Flight Centre still in the red, but closer to getting Back in Black 

You don’t need us to tell you again that it’s been a slow recovery ever since the pandemic eliminated travel demand. But this morning, Flight Centre announced it expects to breakeven on an underlying EBITDA basis for 2HY22 – the 6 months to June 30, 2022. 

Flight Centre still expects an EBITDA loss for the full year – the 12 months to June 30, 2022 – it expects $180-$190m. This would be a significant improvement on the $337.9m loss it made in FY21, as well as the initial FY22 guidance of a $195-$225m loss. Furthermore, TTV exceeded $10bn, more than two and a half times the size of FY21. 

 

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Results due in a few weeks 

Flight Centre will release its final results on 25 August. Paradoxically, flag carrier Qantas (ASX: QAN) will also release its results on that day.  

Flight Centre will likely provide guidance for FY23 at that time. Consensus estimates call for a more than doubling of its revenue to $1.9bn, up from $930m in FY22. FY22’s revenue would likewise be a solid gain from FY21 where statutory revenue was only $395.9m. Consensus estimates also expect positive EBITDA for FY23, at $316.5m. 

Flight Centre is trading at just 11.8x EV/EBITDA for FY23, although its P/E looks big at 31.5x. Bear in mind, however, that it is still below its pre-COVID highs. 

 

Still potential headwinds in FY23 

Considering the first half of FY22 contained the Delta lockdowns, Flight Centre will inevitably achieve better results in FY23 than it did in FY22. But the extent of the results are subject to a number of factors.  

Although much of the world has tried to put COVID in the rear-view mirror, there is still the potential for disruptions. For several months, the images of staff shortages in the industry and consequential disruptions to passengers have gone viral. High oil prices have impacted the travel industry as well.  

And it doesn’t take much to ruin the appetite of individual destinations. Certain travel agents have reported that the outbreak of foot and mouth disease in Indonesia has caused a slowdown in new bookings. 

 

Flight Centre has potential to achieve  

Ultimately, we like this company not just because of the exposure to the recovery of travel, but its position in the industry.  

We like how it has a presence in several countries, exposure to both leisure and business travel (with a 27% market share for the latter in Australia) and its management team with significant skin in the game for an ASX 200 company.  

But with less than a month to go until its results, we think investors should wait for the results to see two things. First, what sort of guidance it will give for FY23. Second, if there is any update on how current industry headwinds (namely staff shortages and air travel passenger delays) are impacting the company. 

 

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Frequently Asked Questions about Flight Centre (ASX: FLT)

• Is Flight Centre an Australian company? 

  Yes, Flight Centre is headquartered in Australia.  

• Does Flight Centre pay a dividend? 

  FLT does not pay a dividend at the moment and is unlikely to until it is profitable again. 

• Is Flight Centre a BUY right now? 

  We think Flight Centre could be a buy after its FY22 results, provided it can show it is overcoming the current industry headwinds.  

• Is Flight Centre ethical? 

  Ultimately this question is up to individual investors. But we observe that ESG investors do not like travel stocks because of the environmental impact of travel.