Flight Centre Travel Group Ltd (ASX: FLT) is a household name when it comes to travel agencies, providing its customers with holiday and travel reservations. Its shares would have made you a fortune in the past five years since the global financial crisis, climbing up from lows of $3.70 in 2008 to a current price of $47.15.
In the past three months however, Flight Centre has lost some altitude, with its share price retreating almost 27%. This loss can be attributed to weaker consumer confidence levels, causing a loss of sales and a resulting profit downgrade.
But it's at these vulnerable times when investors have the greatest opportunity to profit from. Flight Centre is a quality business with much to look forward to and here are three reasons why I think Flight Centre will outperform the market and reach new highs in the future.
- Profit downgrade in 2014 is actually not that bad
The profit downgraded issued by Flight Centre is nothing compared to downgrades from retailers such as The Reject Shop Ltd (ASX: TRS). In fact, Flight Centre will still expect to modestly grow profits by about 7%. This is still a good outcome and shows how resilient a quality company like Flight Centre is to unfavourable economic conditions.
- Solid domestic market share and power
Flight Centre holds a staggering 41% share in the domestic travel agency and tour services industry, making it the leading Australian provider of airfare and accommodation services. Its wide market share means that international airline companies depend on Flight Centre for sales and marketing programs, acting as a persistent source of revenue. Its sustained dominance is a result of its quality management,who have ticked all the right boxes to maintain Flight Centre's strong market position.
- Holds a key competitive advantage to drive growth
Flight Centre's careful mix of online and physical presence in the travel agency market also creates a competitive advantage, making it hard for competitors to steal its dominance. Flight Centre's ability to overlay its personal services, from its brick-and-mortar stores, with its online services creates some impressive long-term tailwinds, given online trade has become increasingly popular. No Australian travel agency comes close to Flight Centre's capability in this regard.
Trading at a price-to-earnings ratio of 17 and offering a 3.1% fully franked dividend yield, Flight Centre looks attractive. When weighing up its growth prospects with its short-term setbacks like weaker consumer confidence, it is easy to see why Flight Centre is my preferred company when it comes to retail exposure. I think the recent share price slump offers investors a great entry point into a thriving company that should generate some strong returns in the decades to come.
