Why I think Flight Centre Travel Group Ltd shares are ready for take-off

The argument goes that traditional bricks-and-mortar travel agents, such as Flight Centre Travel Group Ltd (ASX: FLT), should have been eaten alive by their online competitors by now.

After all, there’s a lot of competition out there:

  • airlines are selling their fares directly to the public,
  • the US online travel giant Priceline Group Inc‘s is ramping up its advertising with the aim of increasing mindshare amongst Australian consumers
  • there’s Expedia Inc also making its presence felt as well as expanding its Australian business via the purchase recently of the previously-listed
  • Webjet Limited (ASX: WEB) is also expanding its retail offerings and it reported some very good numbers in its most-recent full-year profit announcement, as discussed here by Tom Richardson
  • And then there’s Airbnb, Inc. an online marketplace that enables people the world over to list, find and rent their homes (in return for a fee)

All of the above compete either directly or indirectly in some way or another against Flight Centre, and so you would assume that Flight Centre’s popularity amongst consumers would be certainly on the wane by now.

However, Roy Morgan Research last week published some interesting findings describing Australia’s most popular travel agents (including online travel businesses such as Webjet and

What Roy Morgan Research measured was the number of Australians aged 14 and over who took at least one holiday between July 2015 and June 2016 (all 13.7 million of them), and whether or not they reported using a travel agent or tour operator for at least one of their trips (7.3 million).

The top-10 travel agents/tour operators most used by Australian holiday-goers, as reported by Roy Morgan Research, are listed here:

  1. Flight Centre (12.6%)
  2. (11.4%)
  3. (6.8%)
  4. (6.1%)
  5. Airbnb (5.5%)
  6. (5.0%)
  7. Stayz (3.2%)
  8. (3.1%)
  9. Helloworld (2.8%)
  10. (2.2%)

Taking a closer look at this list, you can see that there are eight online businesses which made the top-10. This isn’t surprising really given the ubiquity of technology these days.

However, what was really interesting in the report was how Roy Morgan identified various groups of traveller by their demographic characteristics and their propensity to use one travel agent/tour operator over another (or not at all).

Who would have thought? The Social Flyers group (educated, urban young singles/de factos, with important jobs across the government and private sectors) were the group most likely to have taken advantage of Flight Centre’s offerings in the last financial year.

And the group I thought would have been most likely to have visited a Flight Centre business, the Rural Traditionalists (rustic farmers, empty-nester married-couples with a lifetime behind them in anything from manual labour agricultural positions to managerial/proprietor roles) was actually the group least likely to have used a travel agent such as Flight Centre.

Foolish takeaway

Flight Centre last week reported its annual results for the 2015-16 financial year, and for a recap, you can check out Sean O’Neill’s article here.

As you can see, its net profit fell 4.7% for the year with the immediate outlook for the company being uncertain.

However, the Roy Morgan research discussed here shows that Flight Centre’s attraction to certain demographic groups continues and its demise has certainly been postponed, for now at least.

The findings from this report are of course only from one financial year and there’s no doubt competitive dynamics mean that the top-10 travel agents/tour operators list will change over time.

Flight Centre though has demonstrated its ability to quite smartly blend online and offline transactions giving its customers a lot of choice in terms of how they wish to interact with any of the company’s various businesses, and perhaps this is the company’s biggest competitive advantage.

But it’s a given they’ve had to do something and adapt in some way to avoid being crushed by what appears to be some seriously well-funded overseas competitors aiming to steal market-share. The competitive and technological headwinds are real, and this is a space well-worth watching to see how things evolve over the next decade or so.

Given Flight Centre’s diversity of operations, clean balance sheet, capable management, and continued investments in technology, I’m actually of the view that the overall business will continue to grow profitability despite the challenges it’s facing.

In the current state of the travel markets in Australia and overseas, and given the financial health of the company today I agree with Sean that Flight Centre shares are attractive, especially below $35.

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Motley Fool contributor Edward Vesely owns shares of Flight Centre Travel Group Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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