The Flight Centre Travel Group Ltd (ASX: FLT) share price fell 1% to $43.14 this morning as the company announced further acquisitions in the destination management space. The acquisitions come soon after the company's recent profit upgrade, which ignited some excitement in investors.
For an unspecified, but immaterial (given the size of the company) price, Flight Centre has acquired Olympus Tours, a destination management company (DMC; think 'tour guide') in Mexico, and Bespoke Hospitality Management Asia, a boutique hotel operator in Thailand.
The benefits of the acquisitions (and other similar purchases recently) can best be summed up in management's own words:
- Greater control over customer offerings
- The opportunity to capture additional (profit) margin through vertical integration
- The ability to create new and unique products that can be sold through Flight Centre's global channels
- The opportunity to capture a larger share of customer wallets, as Flight Centre has not typically captured a lot of customer in-destination spending
- New revenue streams
Although the recent acquisitions aren't expected to have a meaningful impact on Flight Centre's earnings, previous small acquisitions have been growing at a rapid rate and could become increasingly important over time.
I'm of the view that the company may be able to increasingly strengthen either its competitive position and/or its profitability via these in-destination acquisitions, if it continues to make prudent purchases (a key risk). Adding unique tours and experiences where a Flight-Centre owned company is the sole or major operator could see the company build unique drawcards that some of its competitors lack.
I also reckon that the current string of acquisitions could lead to some pleasant surprises for Flight Centre earnings in the next 5 years or so. This may prove an unusually rewarding opportunity the next time the company is being beaten up over competitive fears.
For those who are more negative on the company, consider this: Is the company's recent diversification a choice to move into attractive areas, or is it being forced to move by the gradual erosion of its core business by global giants like Expedia? Time will tell.
I'm not a buyer of Flight Centre today because I think it is looking a bit pricey, but I'm optimistic about its prospects over the next 5 years or so, and continue to hold my shares.
