Flight Centre says it expects the recent price discounting on airfares to ease in the period ahead after cheaper tickets led to a drop in full year net profit in 2016/17.
The travel agency group said “significant airfare deflation” in key markets such as Australia led to a 5.6 per cent decline in net profit to $230.8 million for the 12 months to June 30 2017, compared with $244.6 million in the prior corresponding period.
However, Flight Centre said the low-fare environment in Australia “started to normalise” during the second half of the previous financial year.
“In terms of airfare pricing during FY18, FLT currently expects a more normal environment, with modest fare decreases or increases, rather than steep discounting across the board,” Flight Centre said in a statement accompanying its full year results released on Thursday.
Revenue was up 1.3 per cent to $2.7 billion, Flight Centre said in a regulatory filing to the Australian Securities Exchange (ASX).
Meanwhile, total transaction value (TTV) – an industry term measuring the dollar amount of all travel products sold – rose 4.2 per cent to $20.1 billion.
“In a challenging trading cycle, characterised by record low airfares, we achieved our major sales targets of topping $20 billion in TTV for the first time and growing online leisure TTV beyond $1 billion,” Flight Centre managing director Graham Turner said in a statement.
While its corporate businesses in Australia were buoyed in 2016/17 from winning new accounts and retaining existing customers, Flight Centre said profits from the leisure sector decreased slightly in response to “international airfare deflation impacting results and preventing FLT from fully benefiting from the strong volume growth it recorded”.
In terms of current market conditions, Turner said he believed yields in the Australian domestic market had risen a little, while it was not a uniform picture for international flights.
“Internationally, they have generally stabilised although they are all over the place a bit,” Turner said during a conference call with analysts on the full year results.
“There is still some ridiculously cheap fares like to the States every now and again that come out with I think fairly small numbers of seats allocated to them. But overall, we see generally there is stabilisation.”
While Flight Centre said it was too early to provide specific earnings guidance for current year, the company said it had started 2017/18 with “solid momentum, which should lead to reasonable first quarter growth”.
Turner said the company was expecting 2017/18 to be an improvement from the prior year thanks to its business transformation program launched in March and a focus on ensuring cost increases were kept to a minimum.
“We believe we are well placed to improve, given the investments we have made, the strategies that have been implemented and the benefits that we have started to see from the transformation program,” Turner said.
“Accordingly, we will be disappointed if we don’t grow sales and profits globally during FY18 as we work towards achieving the high level, medium-term goals that we are targeting.”
The market welcomed the result and outlook, with Flight Centre shares up 10 per cent at $48.98 to sit at mulit-year highs during morning trade on the ASX.
Figures from the International Air Transport Association (IATA) published in June indicated the average return airfare before surcharges and taxes was forecast to be US$353 in 2017, down five per cent from US$371 in the prior year.
“Consumers will see a substantial increase in the value they derive from air transport in 2017, including a further reduction in what they pay, after allowing for inflation,” IATA said at the time.