The Problem Flight Centre Is Having With Flights

Australia’s Flight Centre Travel Group has a few issues with airlines at the moment.

They’re lowering the commission they pay to travel agencies. Revenue margins during the four months to October 31 was “adversely impacted by reduced front-end commission payments from some airlines in Australia and New Zealand from July 1,” said managing director Graham Turner at the company’s annual general meeting on November 14.

As a result, it's securing better arrangements with "those carriers who are keen to work closely with us during the recovery phase," he added in a trading update.

Another problem is high airfares.

Flight Centre predicts its revenue margin will increase from its current level, but in the near term is expected to remain below pre-Covid levels due to costly tickets.

Australia is its biggest leisure market, but it said outbound travel remains below pre-Covid levels with short-term resident departures in August 2022 at 63 percent of August 2019 levels, according to the Australian Bureau of Statistics.

“Outbound travel recovery, which is crucial to our offline businesses, is being impacted by a lack of competition and capacity, which is leading to a lack of seats to sell and abnormally high airfare prices,” Turner added.

Meanwhile, there’s been a “heavier than normal” weighting of travelers visiting friends and relatives, rather than booking a vacation that typically comes with a higher margin.

Looking to an Omnichannel Future

What the managing director calls “offline” relates to retail stores. Flight Centre hasn’t deviated much from the journey it set out on at the start of the pandemic, when it closed hundreds of shops. A reduced store footprint means fewer overheads.

The reduced high street presence is being offset by its independent contractor business, which is now roughly three-times its pre-Covid size. The group's websites also now feature broader ranges of bookable products.

"Flight Centre brand is now complemented by a diverse range of leisure brands and channels that are capturing an increased share of our leisure total transaction value and that are relatively low cost (compared to a traditional shop) and highly scalable," said Turner.

The plan is to help customers on their booking journey with a more seamless experience, that will include online, phone and app retailing.

Demand is no doubt picking up, and during the four months to Oct. 31 2022, the group's total transaction value was $4.6 billion, a 246 percent increase on the prior corresponding period. Revenue increased 248 percent to $451 million.

As a result, the company is upstaffing, and reopening hibernated shops, with 42 stores in Australia and the UK coming back by Dec. 31. But as the travel industry keeps its eye on the bigger macroeconomic picture, including technology sector's mass layoffs, Flight Centre's more pressing concern is its supply chain.