With a narrowing pool of viable customers, in the form of governments and other essential service providers, the competition's going to be tough out there.
It’s a tale of two halves for Flight Centre Travel Group.
The Australian travel giant on Thursday posted an overall loss of $370 million for its 2019/20 financial year, with a total transaction value of $11.1 billion, down 36 percent compared to the prior year.
The Australian financial year ends June 30, and — like the rest of the world — things were going well up until the end of January. Prior to the coronavirus outbreak, the group achieved $109 million in global profits for the first eight months.
It’s also a tale of two halves for its leisure and corporate divisions, with the latter managing to post a full-year $54 million profit, buoyed by a strong first-half performance.
Flight Centre Travel Group’s corporate divisions pride themselves on their diverse client bases. Corporate Traveller specializes in small and medium-sized companies, while FCM caters to larger corporate clients. However, just 25 percent of its total transaction value comes from that all-important sector essential services arena, with government, mining/resources and health/pharma clients.
That could be about to change.
Over the next few years, these are likely to be the sectors that not only maintain travel volumes, but could actually grow. Rival CTM, which is also headquartered in Brisbane, has a large presence in the essential services sector, a factor it said helped it post a relatively healthy $6 million full-year loss.
“We’ll focus on key services … it’s clearly where recovery will be strongest in the next two months,” said corporate travel division CEO Chris Galanty.
FCM already won a considerable amount of business in the 2019/20 financial year — clients with a total projected annual spend (pre-Covid) of $1.3 billion.
It’s currently implementing clients worth $605 million in annual travel spend, and since July this year has signed up customers worth $282 million.
New clients include AXA, KPMG, Tupperware and the UK’s Foreign & Commonwealth Office. The latter ticks the essential services box, and Galanty said the customer was due to go live in the next few weeks.
It’s also eyeing another $544 million in new wins, with FCM down to final shortlists with decisions due to be made in the next three months. Corporate Traveller has won business worth $400 million this year.
Speaking to Skift the day before the financial results update, Galanty said that looking to grow was the only realistic strategy, because the business travel market is going to be smaller. “There’s no point just waiting for it to come back, because if we do that we’re a diminished company,” he said.
As well as targeting essential services, Flight Centre has been investing, and has had one of its busiest implementation periods.
Earlier this month, it acquired travel booking platform WhereTo for an undisclosed sum.
The San Francisco-based startup simplifies and improves business travel planning for corporations, and pulls in content from dozens of sources and uses artificial intelligence-based algorithms to guide users to the optimal trip options within policy.
“What we’re looking to do with Whereto is put together an industry-leading digital solution for customers, data driven, with machine learning — it’s not just about having a good app. We’re pretty excited about what we’re bringing to market later this year. It reflects our commitment to keep investing, even in tough times. We want to keep investing in the customer experience.”
Meanwhile, in February the group acquired a 21.7 percent interest in TP Connects Technologies, a travel distribution platform, for $10 million.
What Could Have Been…
The two corporate divisions had their eyes on a combined total transaction revenue of $7.25 for the year before coronavirus struck. In the end, this came to $5 billion.
There have also been tough decisions to make. In early April, anticipating the difficult period ahead, Flight Centre Travel Group took the decision to cut its staff levels by 6,000, which included redundancies, from a workforce of 20,000.
In its full-year update, it revealed overall two thirds of its global workforce have stood down or those positions made redundant, and warned of further workforce reductions if travel restrictions are maintained and government support is removed.
Galanty would not share how the corporate divisions fared. “We had to cut costs, we had to make some tough decisions,” he said. “We don’t have exact numbers there, but we’ve taken advantage of government schemes around the world. We have some people still furloughed. The UK is ending in a couple of months, but most others have been extended until next year.”
Speaking during the full-year earnings call, Galanty said green shoots were emerging, with domestic business travel in China back to 60 percent of pre-Covid levels, with France and Canada also recovering well. All markets were expected to be back up to 20 percent “pretty quickly”, Galanty added, and customers were looking to pick up travel again in September and October.
The market is also big enough to win business new, Galanty believes, and not always necessarily at the expense of customers. “The travel management category plays an important role in the economy. It’s a big market, and highly fragmented,” he said, but did add: “Inevitably, we will take business from customers.”
There’s an aggressive plan ahead for the business travel divisions, and considerable pressure to deliver after winning record amounts of new business. The challenge they face is moving away from international travel, and focusing on domestic.
Rival CTM laid claim to being unique in its position to operate a domestic-only model, and that it would be profitable doing this while waiting for an international recovery. Flight Centre Travel Group’s corporate travel divisions are weighted towards domestic/regional travel, which comprises about 60 percent of its total transaction value.
The pressure’s now on for FCM and Corporate Traveller to deliver.
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Photo credit: Flight Centre Travel Group posted an overall loss of $370 million for its 2019/20 financial year. Flight Centre