Flight Centre takes the controls

The travel agency's plan to further integrate online and in store offerings builds on the same strengths that have delivered today's exemplary result.

For the past decade, travel agencies have been preparing to go the way of the dodo. With the rise of the internet and the ease of online booking, travel agencies’ days were numbered. They knew it, and we knew it. Flight Centre must have missed the memo.

Flight Centre’s continued strength despite being part of a so-called dying industry is no small feat. The company’s net profit jumped 43 per cent in fiscal 2012 to $200.1 million. This marks the first time in the company’s 17-year history that net profit exceeded $200 million. With profit before tax of $290.4 million, Flight Centre easily beat its full-year target figure of between $265 million and $275 million, and came in just above the upgraded guidance given last month.

Adding to the good news, Flight Centre reported profitable EBIT in all 10 countries in which it operates. And expectations were well surpassed in both the US and the UK markets.

These trends would be welcome from any company reporting this season. But coming from a travel agency they are a much bigger accomplishment, especially in the current environment both at home and abroad.

Before the rise of the internet, travel agents earned their keep by charging hefty commissions on holidays and flights. But from the mid 1990s, the general public began to move toward online bookings. This meant cheaper prices and allowed a much broader scope of choice than the average package holiday offered by travel agents.

In the years that followed, high street travel agencies saw their market share diminish rapidly. Online travel agents saw the opportunity and became commonplace as the public looked to get the best deal.

The fact that Flight Centre began operating around the same time that the internet became popular is perhaps part of the reason for its acceptance of the online revolution. This has afforded the company the determination to incorporate an online presence into its business model without getting rid of its existing bricks and mortar stores.

Flight Centre has become the litmus test for finding synergies between the new and old. The travel agency prides itself on offering the cheapest prices to its customers and matching online prices. And its newest strategy takes this a step further.

Flight Centre’s latest plan is to focus on the importance of a new "blended strategy” that will marry both its bricks and mortar business and its online presence. The so-called "bricks and clicks” interplay allows customers to begin their bookings online and finish them in store, and vice versa. Customers who book online will be allocated a dedicated travel agent that they can then go to with any issues.

It can’t be ignored that part of Flight Centre’s success is due to the fact that its competitors have largely dropped away in the past few years. Flight Centre took advantage of this reduced competition to expand its market share.

Expansion plans are still going strong. The company is looking to grow its global store network and sales force by between 6 per cent and 8 per cent in the coming year. And it is not far off introducing hyperstores into the US and Australian markets, having had great success with its UK hyperstore this year.

But the company still sees a challenging year ahead, with continued economic uncertainty a worry. To reflect this, Flight Centre is targeting just 5 per cent growth on profit before tax in the next financial year. Looking forward, the company sees its leisure travel business as a concern, as leisure travellers remain cautious in the current environment.

Nevertheless, Flight Centre is determined to achieve its goals despite the difficult market conditions. In focusing on improving the customer experience, Flight Centre is moving forward with a strategy that it can control even in a tough economic environment.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles