Global travel agent Flight Centre Travel Group took a beating on the Australian stock market Monday as it tried to put a positive spin on its results at a Brisbane shareholders’ meeting.
The stock plunged 10 percent, from a day’s high of $36.64 (A$51.80) to close at $32.59 (A$46.08), after its Annual General Meeting featured predictions of lower profits for its Australian operations, which have traditionally provided the lion’s share of surpluses.
Founder and CEO Graham “Scroo” Turner told shareholders that changing market conditions, restructuring costs, staff wage negotiations, “and the associated disruption resulting from the ABC story, mean that Australian profit is currently down compared to the same period last year.”
The travel giant was the subject of an Australian television expose, which aired former employees’ claims of staff underpayment and rampant gouging of customers.
Flight Centre Chairman Gary Smith used the gathering to again strongly deny the allegations, saying the report did not provide an accurate or fair reflection of the company, its culture and its people.
“We categorically deny any allegation that our people are paid below the minimum award,” he said.
Smith also denied various other allegations that were made in the media, explaining that Flight Centre is “very proud of our unique culture and we believe the overwhelming majority of our past and present employees share this view.”
Turner detailed the significant changes and challenges the group has been facing. Turner believes the disruption is now abating and that this, “coupled with various other initiatives and refinements that are under way, will lead to better second-half results.”
FLIGHT CENTRE NO LONGER RELIES ON ITS HOME MARKET
The CEO attempted to put a positive spin on the reduced contribution of the Australian operations, saying the results “clearly show we are very much a global company.”
“Almost half of our FY18 sales were generated outside of Australia and that percentage should reach or exceed 50 percent for the first time this year.
“We also expect profits from our overseas businesses to approach 50 percent of our total earnings for the first time during FY19, given these businesses’ solid start to the year and given that some disruption has continued into the first half in the Australian leisure operation.”
Turner said the shift means that Flight Centre no longer relies on its Australian business – and its leisure business in particular – to drive overall growth.
And that’s a good thing, given Turner’s fears about rising airfares in Australia due to increased oil prices. The group also faces increased labor costs as it negotiates a new company-wide bargaining agreement.
After rationalising and consolidating its leisure operations in Australia and New Zealand, Flight Centre continues to refine its retail footprint, with Turner explaining that the group is “focusing on improving the performance of shops that were rebranded last year … and will also look to move about 35 shops to better locations.”
Also affecting the bottom line is Flight Centre’s biggest-ever staff recruitment drive aimed at topping up sales staff levels, which were down 350 at the end of the last financial year. “It will, however, be several months before we start to benefit from this growth,” Turner said.
While the founder remained confident of maintaining the company’s growth and achieving a full-year profit of around $283 million (A$400 million) – a rise of 9 percent on last year’s performance, the market was unimpressed, with close to $41 million (A$58 million) wiped off the company’s market capitalisation in a single day. The stock recovered somewhat Tuesday, but not enough to make up Monday’s big drop.