Australian travel agent Flight Centre Travel Group Ltd (ASX: FLT) has welcomed AirAsia to its preferred supplier network. This agreement is the airline's first in Australia and will see Flight Centre and AirAsia work together to promote the airline's fares and create new and unique offerings for customers.
"AirAsia has a strong network and its key destinations – including Bali, Phuket, Kuala Lumpur and Krabi – are among the most popular holiday destinations for our customers and Australian travellers in general," Flight Centre executive general manager Melanie Waters-Ryan said.
In addition to gaining full access to AirAsia's offers, including special sales fares that are being released as part of the agreement, Flight Centre will also look to create new and unique products and packages as part of the new agreement.
AirAsia has a strong network across Asia with over 100 destinations including Malaysia, Indonesia, Thailand, China and India.
New agreements like this one, as well as recent acquisitions, provide five reasons to buy Flight Centre today.
1. Strong sales and profit growth
Flight Centre's sales have grown around 15.5% per year over the past 10 years, from $870 million in 2006 to $2.2 billion in 2014. In the same time, its profits have increased by 13% per year from $81 million to $246 million.
2. Strong competitive advantage
Flight Centre is one of the world's largest travel agency groups, with company-owned operations in 11 countries and a corporate travel management network that spans more than 75 countries. It employs more than 15,000 people globally and has a total of 2,500 stores. This provides the company with significant geographical advantage over its competitors.
In addition to its geographical advantage, Flight Centre is also one of Australia's most recognised brands. This brand awareness provides the company with considerable opportunity to continue to grow organically.
3. High return on equity and low debt
Flight Centre's return on equity (ROE) has consistently averaged around 22% since 2005. In 2014, the company generated an ROE of around 23%, while having very low debt ($274 million) compared to its cash and short-term investments.
4. Loads of cash
In addition to Flight Centre's high ROE and low debt, the company had $1.3 billion in cash and cash equivalents at the end of 2014. This puts it in a very strong position to make acquisitions, as long as it doesn't pay too much for overseas acquisitions. It also easily able to pay dividends.
Flight Centre has also enjoyed strong cash flows after investing since 2009. Its cash flow ratio, the quality of its earnings compared to its cash flow, has averaged 1.58 for the past 10 years, and based on this recent announcement and its recent acquisitions, there is no reason why this is likely to change.
5. Value vs. price
I bought shares of Flight Centre at around $39 when it was at a significant discount to its intrinsic value, but at its current price of around $44 and with a price-to-earnings ratio of less than 20, I believe the shares still offer a solid return for investment today.
