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Where to now for the Flight Centre (ASX:FLT) share price?

poor flight centre share price represented by plane flying away from lightening storm
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It has been a whirlwind for Flight Centre Travel Group Ltd (ASX: FLT) and its shareholders during 2020. The travel agency has effectively come to a standstill with the Flight Centre share price heavily affected due to COVID-19 restrictions. 

Flight Centre shares closed Thursday’s session 2.91% higher at $14.16. This is a far cry from its highs of around $40 reached at the start of the year.

Let’s take a closer look at the business and try to gauge whether the Flight Centre share price can make a recovery any time in the not too distant future.

Financial impact

Flight Centre is facing the most challenging year in its history. Revenue has plummeted from widespread travel restrictions that were applied in March. The company reported a 99.4% decrease in Australian outbound travel during Q4 FY20.

In addition, Flight Centre recorded a high cost base of $230 million per month in its FY20 result. The travel agency raised $900 million in April via a $700 million capital raise and $200 million increase in debt facilities. Despite having more than $1.1 billion in liquidity, plans have been implemented to reduce costs by 70% and preserve cash.

On a positive note, the company’s corporate segment is recovering at a more rapid pace than the leisure sector. This is due to customers meeting the ‘essential services’ criteria, which are related to mining/resources, health/pharma and government industries.

The business sector recorded a profit of $74 million over the last 12 months, highlighting resilience in corporate travel.

Store closures

With continuing uncertainty around when and how the government’s travel restrictions will be lifted, Flight Centre has been closing down its stores. Just yesterday, the company announced it will shut down another 91 stores across Australia. This brings a total of 408 stores closed since the pandemic began, leaving 332 stores to face an uncertain future.

Flight Centre said it simply cannot afford to operate at the scale it has been in the past. The company’s Australian managing director, James Kavanagh, commented, “We are taking steps to preserve as many roles as possible for the future, while building a smaller but stronger overall network.”

Furthermore, CEO Graham Turner said, “The company has used the latest cost-cutting measures to argue that Australia’s economic health demands that borders are opened.”

Mr Turner also said, “We need the Australian borders open, we need the New Zealand trans-Tasman bubble up and running as soon as possible.”

Can the Flight Centre share price recover?

Flight Centre looks set to continue hibernating much of its business for the foreseeable future as global travel activity has been significantly reduced. While I think the company will again become profitable as a whole, I can’t see this happening in the near term.

In my opinion, the Flight Centre share price is accurately reflective of where the business currently stands. The travel agency is cashed up but still faces a high cash-burn rate in a zero-revenue environment.

For now, I will be staying away from investing in Flight Centre until I can see a meaningful road to recovery.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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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