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Flight Centre: Profits fly higher

Global travel agency Flight Centre (ASX: FLT) has produced record earnings per share (EPS) up 12.4% to 91.7 cents for the half year to December 2012. Founder and CEO Graham “Skroo” Turner sets himself a high hurdle, as even a record result had him sounding disappointed and expecting more on the earnings conference call. Flight Centre continues to expand its global footprint with sales in China growing 31% to $73 million, while on the domestic front Australian sales grew at 9% to $4 billion.

Customers have been taking advantage of the strong Australian dollar and low prices to travel more, which have helped Flight Centre produce its record earnings. Noticeably however, results have been mixed for the airline industry with Qantas Airways (ASX: QAN) increasing profits but Virgin Australia (ASX: VAH) reporting declining profits.

Meanwhile, the online booking space is heating up. Internet powerhouse Google (NASDAQ: GOOG) undertook a “soft” launch in September 2011 of its Google Flight Search after purchasing travel software provider ITA. It appears that Google has quietly been modifying and testing this product, with news in December 2012 that the product had recently been upgraded. Google Flight Search now offers international routes, whereas at first it was purely USA domestic.

This could be bad news for other online providers including Webjet (ASX: WEB) and Wotif (ASX: WTF). For now, it doesn’t seem to be concerning investors though, with the Australian Financial Review reporting that the 12-month total shareholder return (TSR) for Flight centre is 56.6%, with Webjet just topping that at 61.4% and Wotif returning a 36.7% TSR.

Foolish takeaway

Competition is a concern for all businesses and likewise investors have to pay attention to competitive threats. It can be hard sometimes to not overly emphasis a threat, even when there is an opportunity. So far, Flight Centre has continued to find opportunities to grow profits even in the face of the online threat.

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