Travel is resuming but the Flight Centre (ASX: FLT) share price still lost 7% in October

International travel is again on the menu, so what’s going on with the travel agency’s shares?

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The Flight Centre Travel Group Ltd (ASX: FLT) share price struggled in October, closing the month down 6.9%.

October wasn’t the best of months for many S&P/ASX 200 Index (ASX: XJO) shares, with the benchmark index also losing 0.2% for the month.

But still, with Australia’s COVID-19 vaccine rollout hitting top gear and domestic and international air travel reopening, some investors are scratching their heads at the ASX travel agency’s October slide.

What put the Flight Centre share price under pressure?

As mentioned, Flight Centre shares weren’t the only ones to slide in October.

Fellow ASX 200 travel share Qantas Airways Limited (ASX: QAN), for example, dropped 5.6% over that same time.

But wider selling pressure aside, the Flight Centre share price could have fallen victim to a bout of profit-taking. That’s because shares gained a whopping 30.8% in September. This came as Australia’s vaccine rollout began to take hold and the government announced international air travel would recommence before Christmas.

Combining the performance of September and October may offer a fairer picture. Over the 2 months, Flight Centre shares finished up 21.8%.

The quarterly report and more debt

Profit-taking aside, the company’s quarterly report likely didn’t stoke a lot of ASX investor enthusiasm. While management pointed to the looming reopening indicating a strong 2022, September sales were still only 27% of what they were pre-pandemic. And the company reported a net operating cash outflow of $41 million for the quarter ending 30 September.

Later in October, Flight Centre came under some renewed pressure when the company announced its successful issue of a $400 million offering in senior unsecured convertible debt with a 2028 maturity.

What is convertible debt?

As my Foolish colleague Zach Bristow explained, “It allows investors the option to convert their debt asset into equity if Flight Centre’s share price hits a certain level… With this particular note issue, the conversion price is $27.30 per share. At that point, bondholders will have the opportunity – but not the obligation – to obtain Flight Centre shares at that price.”

While not always the case, convertible debt has the potential to pull down the share price if the company ends up issuing a significant amount of new shares to its convertible debt holders.

How has the Flight Centre share price performed longer-term?

The Flight Centre share price is up 79% over the past 12 months. That is well ahead of the 24% gains posted by the ASX 200 over that same time.

Year-to-date Flight Centre shares are up 28%.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. 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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