Flight Centre sees its corporate businesses as ‘well placed to break even on domestic and regional volumes’ despite ‘the most challenging trading environment’ ever

4 September, 2020

The Flight Centre brand is one of the most recognised in travel circles. The company, through its retail and corporate brands, provides a complete travel service for leisure and business travellers alike in Australia, New Zealand, the US, Canada, the UK, South Africa, Hong Kong, India, China, Singapore and Dubai and its corporate travel management network, FCM Travel Solutions, extends to more than 40 other countries through strategic licensing agreements with independent local operators.

So news that the company sees its corporate businesses as 'well placed to break even on domestic and regional volumes' despite 'the most challenging trading environment' ever is good news. Despite the heavy restrictions related to Covid-19 and traveller confidence, the company reported it achieved about AUD17 million in gross revenue in Jul-2020 as total transaction value exceeded AUD200 million globally for the month. This was mainly fuelled by its corporate travel businesses given that essential services have generally continued during lockdowns.

The company says that the corporate businesses, which were growing strongly and on track to deliver more than AUD10 billion in annual total transaction value before restrictions were imposed, traded profitably (underlying) during its 2020 financial year and have "established a solid platform for future growth" by winning a record amount of new business during the year.

The FCM Travel Solutions business alone secured new accounts with a new annualised spend of USD1.3 billion, with the majority of these wins coming in the second half of the financial year. As a whole global corporate business delivered a AUD74 million underlying profit before tax in FY2020.

But Covid-19 and, specifically, the government responses to it "have clearly had devastating impacts on businesses worldwide and on the airline, travel, tourism and hospitality industries in particular. This has severely impacted us and our people and some very tough decision have been made over the past four or five months, explains Graham Turner, founder and managing director of Flight Centre Group.

Speaking this week during the CAPA - Centre for Aviation Australia Pacific 2020 Aviation Summit, he highlighted a major cost reduction programme that saw monthly costs progressively lowered to less than a third of their pre-Covid-19 levels.

The business even considered if it really needed to be in all the countries it is active, but found it would not have made significant savings to exit any of those countries. "So far I don't think we would have done anything differently as we didn't have a lot of options," he acknowledged.

The potential impact of the pandemic was clear to Mr Turner at an early stage. When Australia's prime minister Scott Morrison encouraged people not to travel out of Australia in Mar-2020 and Trump stopped flights from Europe, he said "that is when we knew we had a serious problem on our hands". "From that day on it was about survival initially, I think a lot of other people felt the same way," he added.

But, he has found it a frustrating journey. "In the industry, we all have to be proactive, businesses have not had any positive input," he explained. "At the moment some of these states are run by chief medical officers who are not interested in the economy, that is why our economy will be ruined if we're not careful. As business leaders, particularly in travel and tourism, we have a responsibility to be proactive about that and we all need to pull together."

Despite the ongoing global restrictions "revenue has now started to increase, particularly in Europe," acknowledged Mr Turner and which means the company has now "surpassed its initial cash flow target "thereby extending our liquidity runway," he noted.

Domestic and regional travel is a key driver for the company's corporate businesses and traditionally account for the majority of corporate total transaction value across many markets. This heavier domestic weighting, coupled with a lower cost base and a strong pipeline of account wins, is "likely to lead to the corporate business returning to profit ahead of the leisure business," according to Mr Turner. A really positive outlook when we consider the continued subdued global demand for business travel.

The virtual CAPA Australia Pacific 2020 Aviation Summit took place on 02-Sep-2020 with over five hours of content, including exclusive interviews with Alan Joyce, group CEO, Qantas; Paul Scurrah, managing director and CEO, Virgin Australia; Cam Wallace, chief commercial and customer officer, Air New Zealand; Akbar Al Baker, group CEO, Qatar Airways; Tadashi Fujita, director and vice chairman, Japan Airlines; Campbell Wilson, CEO, Scoot; and Graham 'Skroo' Turner, CEO, Flight Centre. It is not too late! You can still sign up to view the exclusive content on-demand.
Find out more: CAPA Australia Pacific 2020 Aviation Summit