Travel agency Flight Centre has warned that its full-year net profit will slump to between $36 million to $44 million after the company revealed $60 million in losses from its US business Liberty Travel.
Flight Centre posted a net profit of $143 million in 2007-08, but the company has been forced to release three profit warnings in the last six months as the performance of Liberty has continued to deteriorate.
Flight Centre acquired Liberty Travel for $154 million in November 2007, but the purchase as been nothing but misery for the company’s shareholders.
Chief executive Graham Turner says the $60 million in losses from the United States operations includes $24 million in losses on equity investments, $25 million in trading losses from Liberty’s leisure travel division, and $11 million in restructuring expenses.
Turner has moved to reassure investors that Flight Centre’s established Australian business continues to perform reasonably well in the struggling tourism sector, and is on track to post pre-tax profit of $125 million in the 2008-09 year.
“The company’s fundamentals are sound and we are well placed to benefit from the future upswing in the travel cycle, which we believe will start early next financial year and gain momentum during the first half of the 2010 calendar year.
“While overall sales are down, most of our businesses in Australia and overseas are as busy in handling inquiry as they normally would be. Converting to finalised sales, however, has been more challenging in most sectors.”
Turner admits Flight Centre’s cause has been helped by some bargain deals from airlines, which are slashing prices in a desperate bid to increase passenger numbers.
But he does warn this will not last forever.
“While hugely positive for our customers in the short-term, these eye-catching fares will not be sustainable for airlines in the medium-term.”
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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