FLT - Flight Centre Travel Group

[McLovin]

Re: FLT - Flight Centre

I designed a European holiday in Europe for the two of us. It was too complex for me to arrange alone but by providing the ideas, FLT filled in the details. It was like a conversation, both of us made mistakes but these were corrected and it was a great trip. Costs were trimmed down in the planning.
To me this to me is great FLT territory, person to person, design your own itinerary and shun pre-digested overpriced journeys.

Yeah that's what I thought. I guess I travel enough that I'm pretty comfortable organising all my own stuff but can certainly appreciate why people like having someone else handle the logistics.

I do wonder though if people use FLT for domestic travel as much as for OS travel. The corollary being what happens when/if the AUD falls and international travel isn't as cheap as it currently is?

 

[matty77]

Re: FLT - Flight Centre

I am surprised that the bricks and mortar stores still do so well, especially when the internet was designed for things like travel (one big searchable database). I guess like most things as complexity and price increases people still like having someone to talk to. $10k on a holiday <> as buying a $50 shirt on line. Most people would probably still find organising a three week holiday daunting (working out times/schedules/hotels etc) and a lot of people just can't be bothered, so they go to a travel agent. Plus, they grey nomads love doing tours and places like FLT certainly offer plenty of those.

I think you need to look at what customers they are getting though, also it depends on what country you are going for, if you have connecting flights, Visas required etc.

I have just been to Singapore and Kuala Lumpur for 2 weeks and did it all online by myself with the wife and 2 kids and had no issues at all. But if I was going to China I would do it through a travel agent just to make sure if anything goes wrong I can put it back on the travel agent.

I think you will find most people over 50 use a travel agent still now days, the younger generation tend to just book it themselves - hell last time I went to Thailand I booked 2 nights out of 14 and worked the last 12 nights out when I got there! (Just dont tell immigration that or they will reject you lol)

So my point is - they do still play a role depending on what location you are going to and the difficulty of that location, and if you want peace of mind and not have to worry that things have been missed.

The good thing about this business is it wouldnt be hard for them to shed some of the staff if needed and still have a good 100% online business.

I do not hold.

 

[Ves]

Re: FLT - Flight Centre

...coffee is the first thing people stop drinking
when they short of cash

Didn't someone use that argument to Buffett regarding Coca Cola back in the 80s? I'm sure it was in one of his speeches. Some of his ideas about the Coke purchase are fantastic lessons, with thinking models than can be translated into other ideas.

 

[JTLP]

Re: FLT - Flight Centre

Yeah that's what I thought. I guess I travel enough that I'm pretty comfortable organising all my own stuff but can certainly appreciate why people like having someone else handle the logistics.

I do wonder though if people use FLT for domestic travel as much as for OS travel. The corollary being what happens when/if the AUD falls and international travel isn't as cheap as it currently is?

My point/question before. When/if the AUD falls - will their international travel earnings be affected adversely? I would imagine so; the allure for a lot of people (especially young people) is a strong AUD all round.

 

[tinhat]

Re: FLT - Flight Centre

I am surprised that the bricks and mortar stores still do so well, especially when the internet was designed for things like travel (one big searchable database). I guess like most things as complexity and price increases people still like having someone to talk to. $10k on a holiday <> as buying a $50 shirt on line. Most people would probably still find organising a three week holiday daunting (working out times/schedules/hotels etc) and a lot of people just can't be bothered, so they go to a travel agent. Plus, they grey nomads love doing tours and places like FLT certainly offer plenty of those.

You've got to think about who are a big segment of the market - the Grey Nomads as you mention. My mum is one and is about to head off on an overseas trip with another grey nomad friend of hers. Now some people amongst that group (and probably younger) would still want to do everything through a travel agent, but my mum and her friend are quite good at researching and finding deals online. Here is the clincher though - they are terrified at paying for anything online. They don't have the smarts to be confident that they are handing over their credit card details online to a legitimate business versus someone dodgy. They are scared of paying online unless it is through their internet banking. At the end of the day, I am the one that goes over everything, does a bit more googling to find if there is any better deal, vets everything and then I actually do all the online ordering for her using her credit card details. She is too scared of making a mistake or getting scammed.

You may have heard recently about the scammers who are hijacking the emails of legitimate accommodation providers and then posing as the legitimate business owner, taking incoming enquiries and orders and defrauding the customer of their money. They get the customer to pay by internet transfer and it is impossible to recover the money. The customer turns up to their destination and only then do they (and the accommodation provider) become aware of the fraud. A young Aussie bride was on the tele only a couple of weeks ago. She had booked a villa in Bali for her entire bridal party and it was only when they turned up and someone else was staying at the villa that they found out the had been scammed.

 

[clowboy]

Re: FLT - Flight Centre

You've got to think about who are a big segment of the market - the Grey Nomads as you mention. My mum is one and is about to head off on an overseas trip with another grey nomad friend of hers. Now some people amongst that group (and probably younger) would still want to do everything through a travel agent, but my mum and her friend are quite good at researching and finding deals online. Here is the clincher though - they are terrified at paying for anything online. They don't have the smarts to be confident that they are handing over their credit card details online to a legitimate business versus someone dodgy. They are scared of paying online unless it is through their internet banking. At the end of the day, I am the one that goes over everything, does a bit more googling to find if there is any better deal, vets everything and then I actually do all the online ordering for her using her credit card details. She is too scared of making a mistake or getting scammed.

You may have heard recently about the scammers who are hijacking the emails of legitimate accommodation providers and then posing as the legitimate business owner, taking incoming enquiries and orders and defrauding the customer of their money. They get the customer to pay by internet transfer and it is impossible to recover the money. The customer turns up to their destination and only then do they (and the accommodation provider) become aware of the fraud. A young Aussie bride was on the tele only a couple of weeks ago. She had booked a villa in Bali for her entire bridal party and it was only when they turned up and someone else was staying at the villa that they found out the had been scammed.

And the last part of this post is why flight centre is so sucessful. I think people struggle to understand flight centre. flight centre is your bunnings of the travel industry. Since FLT came into existence margins on all travel bookings have been squeezed enormosly.

FLT offers several different things to the market, business, full service and budget. People who think they will have to pay more using their service are wrong. FLT policy is too beat any available offer, that means, if u research your holiday as so many say they are good at, you will pay less at FLT. Often they may mean that if your trip is going to cost you say $3000 you will only save $1 by taking it to flight centre (but the other bonuses are much better), but I personally booked a client his $3000 accomodation package to Malaysia and saved him $1000 on the best price he could get himself (on a price beat).

The bigger advantage to booking with FLT (ie if you only save a $) is you eliminate risk, for example turning up to your wedding and having no were for 100? guests to stay. Fraud, not getting what you paid for, your booking disapearing or you simply making a mistake can cost $100's - 1000's of dollars.

Two examples, my parents booked through an agent and when there accomodation and tour did not match thier booking they had to fork out an extra $800 for 2 nights accomodation - all reimbursed by the agent.

I also ad a client that took his family to bali and there was an error in his booking (through the airlines onseller) where by his flight was the day before he expected to come home. The mistake cost $12,000 on a $15,000 holiday, again covered and again, he didnt have to do anything to fix it.

Anyway, no Idea if this stock is a buy or not and no longer work for them, but just think it is relevant to point out that the internet will not kill their business.

cheers

 

[McLovin]

Re: FLT - Flight Centre

An FLT policy is too beat any available offer, that means, if u research your holiday as so many say they are good at, you will pay less at FLT.

I once went to Tripoli. While I was there, I discovered that I could buy a return ticket in first class on Qantas, via London for $1,800 (the Colonel used to subsidise all ex-Tripoli airfares). Could FLT have beaten that?

 

[VSntchr]

Re: FLT - Flight Centre

My point/question before. When/if the AUD falls - will their international travel earnings be affected adversely? I would imagine so; the allure for a lot of people (especially young people) is a strong AUD all round.

FLT have said that the AUD is not the reason behind their strong performance. They believe that travellers scope their remaining spending around the dollar strength. I.e. they will have more left over to spend if dollar is strong, and will have to skimp more if it is weak...but they do not believe it is the sole factor for people travelling.
How true this is in reality is up for your own interpretation.

 

[fiftyeight]

Re: FLT - Flight Centre

My first chance to contribute something (although only small), instead of being a leacher and only asking questions.

I know of someone who recently started working for FLT and I said to watch out as they will be going through tough times soon. I now think although margins are being squeezed they are in no danger.

The "Price Beat Policy" actually means that the consultants end up working to try and find a better to deal so they can ear the commish. The online sites are using the same wholesalers as far as I can gather.

Simple trips yes I agree are easier online, but the amount of young people who still want the added security/(not insurance, but if a hotel has f*cked your booking, its nice to have a 24 hour number to call) does not appear to be falling.

No idea about the share price as it has been on the charge, but I dont think the net will be the death of FLT as I first assumed.

Fiftyeight

 

[Clansman]

Re: FLT - Flight Centre

How does the internet adversely affect their business model?
Spend hours scouting the internet looking for the best deal and they beat it anyway.
They even beat the specials the airlines offer when opening new routes.
Can't lose.

 

[prawn_86]

Re: FLT - Flight Centre

People need to also remember that FLT gets a discount from virtually all airlines, which enables them to offer a price beat.

There was a time 4 or 5 years ago when FLT refused to sell Singapore Air (if i remember correctly) tickets due to the fact that Sing Air stopped giving them the discount, meaning they were losing money on price beats

 

[mreversion]

Re: FLT - Flight Centre

I'm shorting this sucker. Tread with extreme caution because in my view this is the most highly leveraged company on the ASX.

Whatever happens to Flight Centre in the near term, this stock is in for a major major correction to the downside eventually.

Why?:

1. The obvious and usual criticism of this company (it will lose out to online competitors that will chip at its margins, whilst FLT continues to pay salaries and store costs). This is going to ring true eventually and is just a matter of timing. It hasn't happened over the last decade, but unless we can explain why it should be cheaper, quicker or more desirable to have a person standing in between a customer and an airline then in the long run it just will not make any sense.
2. The second plank of that criticism is that because there is little value-add in the off-line model for most of their bookings (about 70% are just simple domestic flights), the company is subject to huge online competition from other travel aggregation websites or the airlines themselves.
3. The airlines are still haemorrhaging huge amounts of money. It's not going to be long before they figure that they would be better off with FLT's commission in their own pockets.
4. Flight Centre has been successful in negotiating lower priced fares with the airlines to now. Those margins are now relatively well established and assuming they can't continue to negotiate better deals with airlines that are already losing money on half of their flights then risk is either neutral or to the downside if the airlines take back some ground.
5. The ACCC is suing FLT for anti-competitive behaviour that picks up the gist of the pricing issues above. The principle - ultimately, consumers should not be forced to pay a third-party commission to FLT to get the same ticket that they shoould be able to buy at the same price or for less directly off the airline. Whilst the ACCC is historically very unsuccessful in running proceedings like this, the fact that this behaviour is on the radar is a huge concern. Read: ACCC wins and FLT (along with a whole heap of other similar commission- based industries) tanks or the ACCC lose and then promote legislation to curb this anti-competitive behaviour.
6. The climate has been ripe for FLT but the macro outlook is significantly worsening, particularly in Australia where over 2/3 of the EBIT is made. A lower AUD, rising unemployment level, tighter corporate belt and pressured housing market leading to reduced discretionary spending are all but given and could all independently hurt FLT.
7. Updated profit increase is about $15 - $25m in EBIT. That's say $10 - $15m after tax and interest (and the company's market cap is up about $500m?).
8. The updated profit increase announcement had far more worrying concerns that only highlight what has been said above, noting weakness in a number of different markets, with increased leisure travel accounting for the increased margin. They've been spared this time but probably won't be if any of the matters in point 6 above kick in (noting that corporate tightening is already acknowledged - but wait and see what happens when companies get serious about this, if I were a betting man then I'd imagine that a serious reduction in FIFO workers for instance would probably put a bit of dint in the 30% take that FLT take from corporate travel now). But I recommend actually reading the details of the profit upgrade, the headline figure is good, the rest is pretty bad.
9. FLT are trying to replicate their company around the world. In many of these markets they are only just in front of breaking even, in some cases with huge revenue risk. Check out page 13 of the half-yearly reports. India has a margin of about 1.5% or $2.2m on $152 in revenue. New Zealand has a margin of about 0.6% or $2.1m on $298m in revenue. The US made a loss. All of this before tax. Whilst it makes sense to expand as there are no growth options in Australia, there is no reason to expect that what has worked well in Australia will work well around the rest of the world. At best it may offset declining Australian EBIT at worse it will be executed poorly and could create serious risk for the company.
10. Insiders hold huge holdings of the stock. Unless they want to hold on and risk losing their paper net worth (which is now in the billions) like they did in the GFC when the company went sub-$5 then they can only realise by selling down or orchestrating a buy out with some stupid company at such inflated prices (the latter is always a possibility).
11. If you seriously look at the dividend, we're talking at best $1.50 on next years earnings (assuming a massive hike in dividends) on a $40 company. You can buy the bloody banks today (at their peak) with much better yield than that (noting they have their own massive issues too).
12. And finally, the company has run a ridiculous course. Every day it trades up and down 5% on hardly any volume. That's the reason for the price run not the fundamental economics of the company.

On any value assessment it is now wildly overvalued and at the very least ready for a serious correction. It has a PE of around 20 (dividend of around 3%), earning you less at current prices (let alone higher prices) than a bank account. It has gone up 1200% since its GFC lows. It has had a great run, but if you buy this stock now then the upside is probably the magic $45 this thread is talking about (at which prices the yield is about 2.5%. The downside is far far worse.

 

[chops_a_must]

Re: FLT - Flight Centre

Strong first post is strong!

 

[ROE]

Re: FLT - Flight Centre

Hard to predict what happen to FLT, some of the point you raise look valid but FLT been down this path before
they have a spat with Singapore airlines sometimes ago and refuse to move when singpare want to cut its commission... FLT took Singapore airline off their prefer list of airline and all ticket sale go to someone else... Singapore airline lost this battle with massive loss of ticket sale...

FLT in travel is Coles and Woolies in Retail...they have massive buying power, they can dictate their term
you can go up against them but you may get a bleeding nose...

As long as Uncle Graham Turner running the ship, he's not an easy man to step over ...he knows his travel stuff and he know his market like a back of his hand..and to prove this, sometimes ago a small IT company won the work to do improve FLT system, they promise
X but couldn't deliver X, so FLT not messing around, he kick this lot out, not paying them, want all the money back he paid them up to that point not only that Uncle Graham Sue them for lost productivity I think they went bankrupt that IT firm

 

[RottenValue]

Re: FLT - Flight Centre

Picked this up back in April 2012 so have been a very happy holder - other than wishing I had of been more committed and picked up more than 1000 shares. Anyway, cant sneeze at 100% return in a year.

Great company but my view of expected return at a price of $40 is only about 3% pa so hard to justify continuing to hold. Another good stock that has got way ahead of itself so looking to offload half my holding today.

 

[VSntchr]

Re: FLT - Flight Centre

Picked this up back in April 2012 so have been a very happy holder - other than wishing I had of been more committed and picked up more than 1000 shares. Anyway, cant sneeze at 100% return in a year.

Great company but my view of expected return at a price of $40 is only about 3% pa so hard to justify continuing to hold. Another good stock that has got way ahead of itself so looking to offload half my holding today.

Seems like a lot of people in this thread think that FLT has "run too hard" or "got ahead of itself".

What is this based on? Purely the fact that it has been rising?
FWIW, I think its around fair value now...wouldn't call it overly expensive. That said, I wouldnt be suprised to see it go back to ~$20 within 6 months :

 

[Klogg]

Re: FLT - Flight Centre

Seems like a lot of people in this thread think that FLT has "run too hard" or "got ahead of itself".

What is this based on? Purely the fact that it has been rising?
FWIW, I think its around fair value now...wouldn't call it overly expensive. That said, I wouldnt be suprised to see it go back to ~$20 within 6 months :

From my limited knowledge of FLT, I'll add this:

It's at a P/E or around 19 from memory, with a long-run average of 15 for the market (not sure what the current P/E of the market is at).
If you believe what's mentioned around the AUD and their revenues, then you start to think the company has a big risk around currency which is not reflective of it's P/E.
(Not that this metric says everything, but it's a very basic way of looking at it).

Then again, many stocks are in this category at the moment (DMP, BRG as examples).

 

[VSntchr]

Re: FLT - Flight Centre

From my limited knowledge of FLT, I'll add this:

It's at a P/E or around 19 from memory, with a long-run average of 15 for the market (not sure what the current P/E of the market is at).
If you believe what's mentioned around the AUD and their revenues, then you start to think the company has a big risk around currency which is not reflective of it's P/E.
(Not that this metric says everything, but it's a very basic way of looking at it).

Then again, many stocks are in this category at the moment (DMP, BRG as examples).

As I mentioned a few posts ago, Graham Turner has explained that FLT do not believe their strong AUS results are solely due to a strong dollar.
They believe that travel demand is independant of the currency and it is not the travel itself that changes as a result of the dollar - but the remaining spending money. Of course it then becomes your judgement to ascertain to what extent you believe this is true. But as ROE has pointed out, the man at the helm of FLT is no dummy - and his business accumen has seen FLT come a very long way thus far...

As for the foreign operations, yes I agree there is big revenue risk. But on the otherhand it could be viewed that a large portion of fixed costs are in place - and IF management can deliver growth, it will hit the bottom line very nicely. So the revenue risk works both ways - the main takeaway in my view is just to keep a close eye on progress

 

[mreversion]

Re: FLT - Flight Centre

Value snatcher - 'Seems like a lot of people in this thread think that FLT has "run too hard" or "got ahead of itself". What is this based on? Purely the fact that it has been rising?"

I think the better question is why it is not overvalued. In answer to your question:

- PE of 20 - that would be fine if this were a technology or biotech stock, but if it's the woolworths of travel then I don't think I should be paying 20x earnings for something that is giving me a 3% dividend.
- Well over all time highs (give me 5 other stocks that are 25% above their pre-GFC highs).
- Market cap is over $4bn now. So every percentage increase in its stock price means the current and future earnings need to support an extra $40m in market cap. So when the company goes up 5% in one day because the company has announced, a profit upgrade of $10 - $15m (after tax and interest) (that is also peppered with caveats about the overseas businesses) then I really need to question whether I should be paying that extra $200m for the company when I buy stock in it, especially after it's already rallied over 1000%.
- Even Turner has accepted that ticket prices are the lowest they have ever been (ie, the top of the cycle for FLT). You can find him toting this in quite a few articles.
- As for the AUD, FLT have continually said that they won't be affected by a lower AUD, presumably because revenue will be offset by the other offices around the rest of the world. I agree that it will be pretty interesting to see what happens, but there are a few points that shouldn't be missed here. 1. There is no doubt that currency affects willingness to travel (the ABS travel departure figures have consistently recorded record travel numbers at the Aussie dollars' high levels). 2. Even the RBA and Federal Government have accepted our currency is overvalued. 3. Two thirds of revenue come from Australia and the higher commissions on international travel with the airlines also comes from Australia. 4. Whereas the AUD has increased against nearly every currency, the same is not true of other currencies. For instance, it is now cheaper for other countries to travel to, for instance, Japan or Europe than it pretty much ever has been before. Therefore, a weakening AUD will just mean it is cheaper to travel to Australia, not necessarily the rest of the world. But it will definitely mean it is more expensive for Aussies to travel to the rest of the world, which is a massive flaw in the FLT analysis.
- FLT is more than ever vulnerable to a downturn in business because its cost base has steadily grown as it has expanded. This is the real crux of the online/offline debate because an online business has little in overheads and salaries whereas the blended business model has to pay for rent, salaries, etc even when the bad times come around. So if it is fair to say that FLT is at the top of the cycle then the cyclical downturns will hurt more.
- I thought that it would be interesting to also point out that FLT is now about 1/2 the value of Expedia in market cap. And on a USD equivalent basis closing in on 2/3.

Value snatcher, at what price would FLT become overvalued for you if it isn't now? And why?

 

[VSntchr]

Re: FLT - Flight Centre

Value snatcher, at what price would FLT become overvalued for you if it isn't now? And why?

It may be marginally overvalued, however, I would not be calling it expensive. Happy to continue holding for now.

If you want further comments on this feel free to PM me