The Flight Centre Travel Group Ltd (ASX: FLT) share price has dived 15% at lunchtime after announcing it has suspended its FY 2020 earning guidance and has updated its strategy to deal with the global coronavirus crisis.
This is a similar move to Corporate Travel Management Ltd (ASX: CTD) which announced the suspension of its FY20 guidance this morning in the wake of growing uncertainty in regards to the duration and severity of the coronavirus.
Suspension of FY 2020 earnings guidance
Flight Centre’s announced this morning that its FY20 full year earnings guidance has now been suspended.
The company noted that booking trends in the early part of the current financial year had generally been in line with expectations. However, due to the increasing seriousness of the coronavirus outbreak and the resulting travel restrictions imposed globally by some governments, it’s now more difficult to predict the full year impact on the business.
Flight Centre had previously lowered its FY20 guidance to an underlying profit before tax (PBT) to between $240 million and $300 million.
Reduction in leisure store footprint
Flight Centre will reduce its traditional leisure footprint in Australia over the next few months, which is an acceleration of a previous strategy the company had in place.
This strategy will now see up to 100 under-performing leisure shops in Australia likely to be closed before June 30. The company added that sales staff in these closed stored will be redeployed to fill existing vacancies in other shops nearby.
Flight Centre noted that it will also reduce trading hours in some leisure shops and leave balances of staff, with staff being encouraged to take time off. There will also be a freeze on all recruitment and deferral of some non-essential projects and capital expenditure.
Flexible staffing strategy
With regards to store and staffing, the travel company will implement increased flexible work arrangements in the short-term to allow sales staff to switch from full-time to part-time arrangements.
It was further pointed out that executives will not earn any short-term incentives, which is 10% of their targeted remuneration packages for the full year. In addition, Flight Centre noted that executives will get much lower returns on other programs that are tied to profit, including the company’s Business Ownership Scheme (BOS).
Market strategy to deal with the coronavirus
Flight Centre outlined that its strategy for the leisure market during the short term will be to invest in sales and marketing, at a time when some of its competitors may be forced to decline spending in this area. It will highlight lower risk destinations including Australian domestic and South Pacific holidays.
Managing director Graham Turner said,
“While people are still booking travel – in February, our TTV actually increased slightly globally compared to the same month last year – we are now seeing significant softening and expect this to continue into April at least.
Within this uncertain environment, our priorities are to reduce costs, while also ensuring that we and our people are ready to capitalise when the steep discounting that is underway across most travel categories starts to gain traction and as the trading cycle rebounds.”
The Flight Centre share price has now fallen 58% since last Friday.
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Motley Fool contributor Phil Harpur owns shares of Corporate Travel Management Limited. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Flight Centre Travel Group Limited. 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 Scott Phillips.
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