Viola Lee, an architect planning a holiday, is one reason that hedge funds and speculators are once again on the losing side of a trade betting on a collapse in shares of Flight Centre Travel Group Ltd.

She’s back again at one of the firm’s Sydney travel agencies, part of a network of 680 stores in Australia, for help planning a trip with flight stop-overs from Australia to Turkey via the Middle East and Greece. And she’s willing to pay up for the service, rather than buy the tickets herself online.

When Flight Centre released an improved earnings outlook on Wednesday it triggered a surge in the stock price, dealing a blow to short sellers who time and again have placed bets against the company despite its proven track record of higher profits every year since the financial crisis of 2008. Naysayers, burnt in the past on this trade, have boosted the level of bearish wagers to the highest of any stock in the Australian market as the shares climbed more than 40 percent this year.

“Those that are short the stock reckon the business model is redundant and they believe they shouldn’t be around,” said James Gerrish, a senior adviser at Shaw and Partners Ltd. in Sydney. On the other hand, “historically it’s done exceptionally well and on paper it looks like a good business.”

Bears are wagering that Flight Centre’s customers are finally moving online, where margins are lower, just as Australian consumers cut discretionary spending during a tough period for the economy. Bulls say the company’s current challenge is temporary because fares, pushed down by discount airlines, will rise again, and customers like Lee will keep coming back.

Short sellers have had some success over the years. Flight Centre is trading 21 percent below its all-time high of A$55.57 (U.S. $42.12 at current exchange rates) in 2014. But that peak was the culmination of a two-year rally when the stock more than tripled, capitulating the bears.

“You haven’t made your name in a long-short fund if you haven’t lost money shorting Flight Centre,” said Morphic Asset Management Pty’s Chad Slater, riffing on a joke about betting against Japanese government bonds. “People still use these businesses more than I expected them to.” Slater said he’s been in the losing camp before and currently doesn’t have a position in the stock.

Extra Service

Australia’s relative isolation in the South Pacific means travelers often combine a number of destinations in one trip abroad. Lee, the architect who visits Flight Centre once a year, says it’s worth paying a little extra for the service when she plans a vacation with multiple stopovers.

“It’s just easier,” she said. “Whenever Australian people travel, they have to travel very far and they want to make the most of their trip.”

On Wednesday, Flight Centre said pretax profit, excluding some items, for the year ended June 30 will be at the top end of February’s revised forecast. It cited record results in North America and the U.K. and said business in Australia and New Zealand improved. That helped push the shares up 10 percent, valuing the company at A$4.5 billion ($3.4 billion.) The stock slipped 1.2 percent to close at A$43.57 on Thursday.

Overseas Expansion

While Australia accounts for about 72 percent of Brisbane-based Flight Centre’s earnings before interest and tax, the company has been expanding overseas and into corporate travel, which now comprises about a third of sales. To be sure, Flight Centre isn’t one of a kind — travel companies Thomas Cook Group Ltd. and TUI AG also have retail outlets.

“The reason we have shops and people is that they remain highly relevant to travelers,” Flight Centre spokesman Haydn Long said. “If we get our results right, that’ll take care of the short sellers.”

Short interest rose to 31 percent of free float as of July 3, according to IHS Markit, the highest among the 977 Australian stocks for which data is available. Analysts are divided on the stock: two recommend buying, five suggest selling and five advise holding on to the shares.

For Bennelong Australian Equity Partners’s Julian Beaumont, Flight Centre’s ability to win market share and renewed focus on cutting costs make it a good investment as Australians continue to travel abroad. The company’s half-yearly results showed total transactions, an indicator of sales, topped A$5 billion (U.S. $3.79 billion) in Australia for the first time.

“They have grown their travel bookings not just in terms of gross value but also in revenue drop to the bottom line quicker than the market,” said Beaumont, whose firm built its entire 5 percent stake in Flight Centre this year. “That flies in the face of all those stock-short bear arguments.”

©2017 Bloomberg L.P.

This article was written by Vivek Shankar from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].

Photo Credit: Pictured are travelers who booked a Flight Centre adventure in Antarctica. The travel agency released an improved outlook on July 5, 2017. Flight Centre Australia