It's not hard to make the bull case for Flight Centre Travel Group Ltd (ASX: FLT) as an investment, and while I don't want to make you hungry, it looks to me like it has parallels with the legendary McDonald's Corporation (NYSE: MCD). The chicken nuggets, fries, Big Mac and bbq sauce maker has a market value over US$100 billion and Flight Centre may be on the same growth menu. Here's why.
Brand power – The bright red brand and Ronald McDonald like grinning pilot are recognised and trusted worldwide. The bricks-and-mortar shop front brand appears to work as customers enjoy the human interaction of booking travel and accommodation at its more than 2,500 stores worldwide.
Secret sauce – Human capital is critical to businesses where such a high proportion of staff are client facing. Uniformed Flight Centre staff are well presented and on remuneration packages that align their interests with those of the company. Many are incentivised to earn commissions and high achievers can rapidly rise.
Super-size that? – Flight Centre and its staff are able to up and cross-sell products with ease on a constant basis. Customers using its services are offered huge amounts of extras like insurance and accommodation by a well-trained sales and marketing machine.
Drive thru – It's a digital business too! As such it's able to leverage all the benefits of the digital future as well, if not better, than any of its rivals.
Widening moat – The scale of the business gives it cost benefits and stops competitors gaining market share with lower prices. The network effect is a powerful one as clients and travellers appreciate the giant scale means it's the place to do business. Flight Centre now has such reach that the airlines and other travel operators are dependent on it for business.
Global phenomenon – It's rapidly expanding in 11 major countries around the world under 30 different brands. The United Kingdom and United States two countries with potential to drive profit growth at rates enjoyed in the past.
Cheap as cheeseburgers – Best of all the market is still offering this growth business with quality management at a reasonable valuation. Flight Centre has delivered shareholder returns more than 50% a year for the past five years, yet selling for $50.33 trades on around 18 times forecast 2015 earnings. That looks cheap if Flight Centre sticks to its own growth menu.
