Flight Centre: Result 2016

So much for the internet threat. In 2016 Flight Centre's Australian business generated total transaction value (TTV) of $10bn for the first time. That's $10bn of travel products – such as airfares – that Australians bought during the year.

The number might have been a record, but Australia is no longer Flight Centre's growth engine. The Australian division grew TTV and operating profit by just 4% and 2% respectively. The growth in International Airfare Packages – an ‘optional' service package sold to customers that looks a lot like a booking fee – contributed to margins recovering in the leisure business.

By contrast, the international business recorded TTV of $9.3bn, up 16% on a year earlier. But total operating profit was $99.2m, down 4% as the US and Europe businesses fell back from record results in 2015. Despite the short-term slowing in profit, the reality is that the international division is Flight Centre's future (as discussed in Flight Centre's ongoing evolution).

Altogether, TTV rose 10% for the year to $19.3bn, with revenues rising about the same (See Table 1). But the conditions that caused Flight Centre to warn on profits in May were responsible for underlying net profit being below the guidance management provided last year. While dividends were flat for the year at 152 cents, the second-half dividend of 92 cents was lower than last year, reflecting weakening conditions.

The difficult conditions – including plummeting airfares, Brexit and concerns about the Zika virus – have continued into the 2017 financial year. While management said ‘we will be disappointed if we don't improve on our FY16 performance', it understandably refused to provide guidance for the year.

We think that's sensible. While the share price has bounced up 17% since Flight Centre warns on profits, taking it further away from our upgrade price (yet again), we're content to be patient. Every few years the chance to buy the stock presents itself, but for now it's a HOLD.