How This Australian Corporate Travel Agency Managed to Escape With Just a $6 Million Yearly Loss

In the early days of the coronavirus outbreak, Australia reacted quickly by closing its borders and enforcing a lockdown. It mostly worked.

Brisbane-headquartered Corporate Travel Management wasn’t all that different, swiftly cutting its workforce by 1,000 employees to reduce its overheads. This move, combined with a large market share of government and other essential services clients, has helped it weather the storm.

CTM posted a relatively strong set of full-year results Wednesday, just a week after rival Flight Centre Travel Group published its own upbeat statement to the Australian Securities Exchange. It was another early mover when it came to restructuring, unveiling plans to reduce its workforce of 20,000 employees by 6,000, closing 800 stores, in early April.

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However, the slimmed down agency duo are by no means bullet-proof against the virus, or the fallout from the suppliers they rely on to move their customers around.

A Resilient Client Base

CTM posted a full-year loss of $6 million for the 12 months to the end of June this year, and said this would have been much improved without several one-off items it incurred, including $11 million in severance payouts, and “bad and doubtful” debts of $9.5 million, in part due to supplier failures — including Virgin Australia.

Overall, revenue fell by 22 percent for the year to $254.3 million, compared to $326.7 million in the 2019 financial year.

For the fourth quarter, CTM said its results were better than expected, helped by the “rationalised cost base” and continued travel from essential services clients, such as government, police, construction, logistics, mining, energy, utilities and healthcare.

During the quarter, revenue was $8.3 million per month, while losses averaged $2.2 million per month. However, back in May it warned it was expecting these losses to be between $3.6 million and $7.2 million each month.

CTM was also buoyed over its second half by receiving global government grants that averaged $1.8 million a month.

Domestic Bliss

It would be hard to imagine a more challenging year, which in the first half included impacts from Brexit, Hong Kong demonstrations and the US-China trade war. But speaking during the company’s earnings call, managing director Jamie Pherous said CTM was in a strong position as it did not rely on international travel.

“This is a unique comment which I don’t think any of our peers can say. CTM is positioned to be a domestic-only model, and be very profitable doing that while we wait for an international recovery,” he said.  “We are not Australia centric, and of course the U.S. is our largest revenue contributor in the second half, and continues to be in July, which is positive for our business.”

Essential services certainly contributed a lot to CTM’s bottom line in the fourth quarter.

In Europe, they made up 99 percent of revenue from that region, and 38 percent to global fourth quarter revenue.

In the U.S., essential services contributed 38 percent of revenue from the region, and 35 percent to global revenue. “North America is really quite unique, because those Americans still love to travel despite Covid,” Pherous said. “There was a higher frequency of commercial scheduling, and a lot more travel outside essential services, and of course the good old resilience of the domestic market. That’s been very helpful to us.”

Overall, Europe and North America each contributed double the revenue compared to its home market of Australia and New Zealand. Asia contributed 8 percent to total fourth-quarter revenue.

Peer Pressure

Let’s not rule out the impact rival Flight Centre Travel Group could have. It is set to post its full-year results on August 27, but issued an update on August 13.

Losses were expected to reach $600 million to $635 million after one-off costs and write-downs. However, it expects its corporate travel agency division, which includes the FCM, Corporate Traveller, Stage & Screen, Flight Centre Business Travel and cievents brands, to record revenue above initial projections.

“(Our) corporate brands were growing strongly and on track to deliver more than $7.25 billion in annual total transaction value before restrictions were imposed,” the company said. “The brands were trading profitably (underlying) during FY20 and they have established a solid platform for future growth by winning a record amount of new business during the year.”

In its 2020 financial year, it said it had secured new accounts with an annualized spend of $1.3 billion, with most of these wins coming during the second half (January to June).

Flight Centre Travel Group had a cash balance of $1.37 billion as of June 30. This is significantly higher than CTM’s net cash balance of $40 million (as of August 17), although it has a $130 million undrawn committed finance facility.

The question is how long can CTM rely on its domestic dominance? And closer to home, international recovery could be hampered by Virgin Australia’s ongoing restructuring and rising prices if Qantas emerges as the only international airline for the region.

As with the rest of the travel industry, both Flight Centre Travel Group and CTM remain exposed to the spread of the virus. And as their home market of Australia has shown, nervously tackling recent outbreaks after thinking the worst was behind it, this is a pandemic that can cancel out even the best of plans.

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