Sold your Flight Centre Travel Group Ltd shares today? You might regret it

Panic seemed to have set in with investors today, with Flight Centre Travel Group Ltd’s (ASX: FLT) shares heavily sold off.

At the close, Flight Centre shares were down 9% at $31.87.

Today the company downgraded its underlying profit before tax (PBT) forecast from between $395 million and $405 million to between $360 million and $390 million. Flight Centre says trading conditions in Australia remain challenging, leading to lower than normal leisure sales growth in Australia, and slightly lower margins.

The company has also increased expenses relating to wages, occupancy, sales and marketing costs, which will now impact on the full year result. First half PBT is expected to be between $136 million and $142 million, compared to $146.3 million last year.

Managing director Graham Turner says while overseas businesses have consistently grown profits at 20-30% per annum in recent years, the factors affecting the much larger Australian business will weigh on results.

Mr Turner says he expects stronger demand as the financial year progresses, particularly given the news that global airfare prices were expected to fall by 5%. Again the company reiterated that the falling Australian dollar has not impacted on Australians heading overseas, but rather due to the decline in consumer confidence late in 2013/14.

As you can see from the chart below, more Australians continue to head overseas, regardless of where the Australian dollar is trading against the US dollar – as they have done for more than 20 years.

AUD USD versus overseas departures

Source: RBA, ABS

Flight Centre also says it has not seen significant shifts in travel patterns as a result of the Australian dollar’s fluctuations. (As an aside, we should’ve seen a massive spike in people heading overseas when the Aussie dollar was trading at close to US$1.10 in mid-2011 – it didn’t happen. I’ll also add that the dip in 2001 to 2003 was due to the 9/11 attack in September 2001 and SARS fears)

The current fall in PBT is likely to be a temporary one, if the main factor is consumer confidence as the company suggests. Give that, now might be a wonderful time to pick up a quality company on the cheap. If you sold out today, you might be kicking yourself in the years ahead.

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Motley Fool writer/analyst Mike King owns shares in Flight Centre. You can follow Mike on Twitter @TMFKinga

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