Flight Centre has slashed monthly operating costs and raised capital. Brokers expect a leaner enterprise with greater market share is likely to emerge.
-A
-Monthly operating costs reduced significantly
-Global recession expected to affect passenger demand over longer period
As travel around the world abruptly shuts down,
The company intends to reduce monthly operating costs to just
Transaction value will be lost but this will be a more efficient network, brokers suggest. The company has undertaken a
On the positive side, Flight Centre has a diversified debtor book and no material exposure to one particular customer, industry or geography.
There will be
Management expects eventually to divert lost store transactions to online, call centres and home-based agents. Flight Centre is also considering the possible sale of its
Citi agrees cash burn could be less than the
Earnings Recovery?
March total transaction value (TTV) fell materially and was down -70-80%, expected to be down -90% in April. There is some revenue being generated through long-term travel bookings, local travel, repatriation and essential services. However, the focus is now on the timing of an earnings recovery.
Flight Centre has indicated Chinese business is re-starting as conditions there gradually return to normal and highlights the improvement in earnings margins that occurred after both the SARS epidemic and the GFC.
On the positive side, those companies that are able to trade through the current crisis will emerge with a higher market share, in the broker's view. Initiatives are expected to pivot the business towards a corporate, online travel operation. This should be a long-term positive for margins.
Citi downgrades FY22 TTV by -29% to reflect a smaller store network but does not believe TTV will fall commensurate with store numbers. Growth in corporate business, which is independent of physical stores, online and market share gains are likely as the industry consolidates after the crisis. Moreover pent-up demand for travel should come once the crisis has ultimately passed.
Morgans upgrades to Add from Hold, now incorporating a large loss in FY20 and FY21 and anticipating a recovery in FY22-23. The broker does not expect the company will return to original FY20 guidance until FY24, although stresses earnings uncertainty remains high.
Flight Centre believes restrictions on domestic travel could be lifted in 2-3 months time and corporate travel start to pick up in July. International travellers are likely to take longer, returning in September/October.
The extremely attractive airfares currently on offer are expected to stimulate strong demand, although IATA (
FNArena's database has five Buy ratings and one Hold (
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