The Flight Centre Travel Group Ltd (ASX: FLT) share price has plummeted this afternoon, falling 3.05% following the release of a trading update. Flight Centre warned that the emergence of the coronavirus has made it more difficult to deliver the strong second-half earnings implied in its full-year guidance of $310 million to $350 million.
Flight Centre reported record sales for 1HFY20 with total transaction value growing by 11% to $12.4 billion. Previous total transaction volume milestones were surpassed in all geographic segments (Australia/New Zealand, Americas, Europe, Middle East and Africa, and Asia).
This rate of growth is the strongest for the first half since FY16, and comfortably above Flight Centre’s target of 7% annual growth. Underlying profit before tax is expected to be $100 million to $105 million, slightly above the mid point of Flight Centre’s guidance of $90 million to $110 million for the 6 months ending 30 December 2019.
Despite the impressive growth in sales, results are expected to be below those of 1HFY19, where $140.4 million in profit before tax was delivered. Total transaction value of $11.16 billion was recorded in the first half of 2019, the previous record for the period. According to Flight Centre, results for 1HFY20 have been adversely impacted by various world events including Brexit, unrest in Hong Kong, trade wars, and a relatively subdued consumer environment in Australia.
Underlying profit before tax for 1HFY20 will be subject to a number of adjustments. These include a $46.4 million impairment charge relating to the underperforming London-based Topdeck Touring Business, and $7 million in non-recurring costs associated with Flight Centre’s decision to re-accommodate customers who would have otherwise lost their money as the result of the collapse of wholesalers Tempo and Bentours in Australia and New Zealand.
Flight Centre has advised that while it is too early to predict the impact of the coronavirus outbreak, it has already adversely affected Flight Centre operations in China, Singapore and Malaysia, which together generated $625 million in total transaction value in FY19 (about 2.5% of Flight Centre’s total).
The virus is also expected to impact corporate travel, with companies worldwide amending their travel policies to prevent travel to China. Leisure travel is also likely to be impacted, with travellers altering plans in coming months especially if larger scale outbreaks emerge outside China. While Flight Centre does not manage any hotel properties in China, Chinese travellers are a key target market for hotels managed in Thailand, Bali, and Vietnam.
Managing Director Graham Turner said, “it is impossible to predict the virus’s impact on our business or on leisure and corporate travel in general at this early stage, but it will impact on travel patterns to some degree in the near-term.”
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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