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Flight Centre Travel Group Limited – COVID-19 Response

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Flight Centre Travel Group (ASX: FLT) is the largest retail travel agency in Australia with approximately 2,800 stores and offices. Flight Centre has a market capitalisation of A$1.5 billion.



Updates on Corona Virus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The Department of Health announced a total of 174,000 confirmed cases and 6,800 deaths globally. As of Wednesday (18 March 2020), the Federal Government has upgraded its travel advice ban to a ‘Level 4’ for the entire globe due to the outbreak of COVID-19, for the first time in Australia history. The World Health Organisation (WHO) declared Europe the epicentre of the pandemic with Europe reporting more cases and deaths than the rest of the world combined, apart from China.


Update on share price

In the last month, FLT share price has fallen by 59.62%. Flight Centre is currently trading at A$14.81. The downward trend is due to the COVID-19 outbreak and increased travel restrictions mean demand is softening significantly.


How COVID-19 effects Flight Centre

FLT advised shareholders that COVID-19 would have a significant impact on FY20 second half earnings and lowered its full-year guidance to an underlying profit before tax between A$240 million and A$300 million (resealed February 27 2020). On Thursday (March 13, 2020), FLT announced FY20 2H total transaction value trends are generally in line with expectations consequently due to COVID-19 spread and travel restations had made it difficult to predict the virus’s full-year impact. Given the uncertainty of the situation, FLT has elected to suspend its revised FY20 guidance.

FLT has implemented a strategic response plan aimed to protect and grow market-share ahead of a future rebound while reducing costs and maintaining a solid balance sheet in a challenging trading cycle. This includes the closure of up to 100 under-performing leisure shops to close in Australia as a method to transfer TTV and sales staff to other shops, while also continuing to invest in new and emerging business models.


What is the outlook for FLT

Given the uncertainty of the situation, the outlook and the timeframe for recovery remain unclear. However, FLT is well placed to overcome challenges during this difficult trading period. The company will be able to draw on its experiences with SARS in 2003 and during the Global Financial Crisis in 2008-09 by seeking to stimulate demand, while also implementing cost reduction strategies to maintain balance sheet strength.

Despite FLT share price down by 59.62% over the past month, Flight Centre’s priority is to maintain its balance sheet strength during this challenging trading period. The company recorded A$189 million positive net debt position on February 29 2020, which embodied A$403.2 million in general cash and investments and A$213.9 million in debt. Additionally, FLT currently has access to additional liquidity, alongside undrawn debt facilities in the order of A$80 million.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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