Skift Take
Flight Centre Travel Group is a worldwide travel bureau so it ought to be able to handle Air New Zealand and Qantas navigating to slashing travel representative commissions two decades after Delta Air Lines began the pattern in the U.S. It will not be without some pain, however.
Dennis Schaal
20 years after U.S. airlines got rid of base commissions for travel agencies, Australia’s Flight Centre Travel Group, an online/offline leisure and business travel agency, and others in the region are coming to grips with the issue.
Here are 6 takeaways from Flight Centre’s first half of fiscal year 2022 monetary report, which it delivered Thursday.
1. Flight Centre Said It Can Offset the Airline Commission Cuts … But Can It?
Flight Centre said airline base commissions to take a trip agents stood at about 3.7 percent usually pre-Covid. Now that Air New Zealand and Qantas cut commissions to around 1 percent or two on long-haul flights and no on short-haul flights, those typical commissions have fallen around a point or two worldwide.
Melanie Waters-Ryan, Flight Centre’s CEO of Leisure, told analysts the business can offset those commission slashes by working with the airlines on personal fares and offering supplementary services, such as seats and bags, where margins can be 40-50 percent. In addition, she stated, margins on leisure travel have been rising.
2. Rival ‘Hibernations’ Might Be Helpful
Waters-Ryan stated the company’s Flight Centre leisure brand name, which is 40 years of ages, has been growing in Australia, South Africa and New Zealand.
A business presentation deck described the “continuous hibernation of some rivals,” consisting of the failure of competing STA Travel, as a chance. Some 15 percent of travel agents in Australia left the market throughout Covid, and Flight Centre Travel Group’s Trainee Universe has made the most of STA Travel going under.
3. Travel Representatives Are Still Essential in Australia
Travel agents in Australia are still quite part of the trip-planning material.
“First of all, we have a structurally lower expense base, which is permanent,” Waters-Ryan stated, speaking of the Group’s benefits in leisure travel. “We have likewise retained a strong and extremely available shop network. I keep reminding everyone, I think in Australia, 90 percent of clients are still within a 10-kilometer physical access of a shop.”
4. Service Travel Was 60 Percent of Sales But It Won’t Come Back one hundred percent
Flight Centre’s FCM brand services big business accounts such as Spotify, AXA, JTI, KPMG, Procter & Gamble, Electronic Arts, Sony, Verizon, BASF, and organization travel represented almost 60 percent of the Group’s total sales in the last six months of fiscal year 2021.
Relying on market consensus, consisting of price quotes from airline companies and the Global Business Travel Association, Chris Galanty, the Group’s CEO of corporate, said business travel will likely rebound to 60 to 75 percent of pre-Covid levels in 2023.
Although he believes that price quote may be a little bit low, Galanty is bearish on a full recovery of business travel.
“I do not believe business travel will ever return, certainly not in the short- to medium-term future to one hundred percent,” Galanty stated. “I believe it will be lower.”
He argued that large corporate accounts are searching for options to the huge three travel management business, namely American Express Global Company Travel, CWT and BCD, and there is also a chance to win smaller accounts now that Amex acquired Expedia Group’s Egencia.
Flight Centre targets smaller sized service accounts with a handful of regional brands.
5. China Was a Bright Area
In China, where most of business travel is domestic, the FCM brand has actually done relatively well, Galanty said. Sales have actually reached 45 percent of pre-Covid levels. Although China, Hong Kong, Singapore and Malaysia still have some strict Covid travel restrictions in place, the expectation is that they will be lifted in 2 or three months, the company stated.
6. Still Losing Money
Flight Centre Travel Group’s earnings before interest, taxes and devaluation loss widened in the first half of financial 2022 (July to December 2021) to Australian $184 million (U.S. $132 million) compared to Australian $156 million (U.S. $112 million) a year earlier. The year-earlier loss, however, was minimized by Australian $65 million (U.S. $46 million) in federal government subsidies. Income increased Australian $156 million (U.S. $112 million) in the first half of fiscal 2022 compared to the pre-Covid duration.
The Group’s financier discussion was fairly positive. It said the company sees “favorable indications re-emerging in essential areas of the Americas, UK, Europe & Australia after the omicron downturn in between December & January — strongest signs of go back to normalcy because start of pandemic.”
The Group said it targets its Americas and Europe, Middle East and Africa regions going back to profitability in the third quarter, although it didn’t provide overall fiscal year 2022 guidance since of “the absence of visibility” into the “timeframe and degree of the healing, the effect of future variations, removal of staying restrictions, and instability in Ukraine.”