How is Omicron affecting the Flight Centre (ASX:FLT) share price and outlook?

Flight Centre shares are suffering. What could happen next?

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The Flight Centre Travel Group Ltd (ASX: FLT) share price has dropped 16% in a month.

How much of that decline is down to the new variant of Omicron is for each investor to guess. But, it adds a bit more uncertainty ahead for the ASX travel share sector which was talking about being in the middle of a demand and profitability recovery.

What has Flight Centre said about Omicron?

There have not been any official ASX announcements from Flight Centre over the last couple of months since the annual general meeting (AGM).

However, a few weeks ago the Australian Federation of Travel Agents chief executive Dean Long was quoted in the Australian Financial Review, who said a couple of weeks ago:

This is the worst-case scenario that we’re experiencing since they’ve reopened the border. The number one barrier to people booking travel was the fear of not returning home. Then on Saturday, our clients’ worst fear came to fruition.

Mr Long also said, at the time, that inquiries for overseas trips had fallen off a cliff.

The AFR had a small quote from Flight Centre CEO Graham Turner who said:

Countries can’t keep locking down, shutting borders every time there’s a new variant. This does look like an overreaction, but it’s very early days yet.

What are other investor thoughts on ASX travel shares and the Omicron variant?

Drummond Capital Partners chief investment officer Nick Reddaway suggested that the new variant isn’t the vaccine-breaking problem that the market had feared.

Though, there are other things to consider such as renewed COVID-19 restrictions in Europe, an increasingly aggressive Fed and ongoing Chinese property market doldrums.

Indeed, Mr Reddaway was quoted by the AFR as saying that Omicron may actually be a positive:

There is also an upside scenario where omicron becomes the globally dominant variant, doesn’t evade immune response and is less severe than delta, which would be a boon for global equity markets.

Is the Flight Centre share price an opportunity?

Credit Suisse seems to think so, rating the business as a buy with a price target of $23.30. The broker is still expecting a difficult year for the company in FY23, but is expecting profitability to return strongly in FY23. On Credit Suisse’s numbers, the Flight Centre share price is valued at 13x FY23’s estimated earnings.

However, other brokers are much less optimistic on the business. Ord Minnett rates the business as a sell, with a price target of just $13.72. This broker thinks that the longer-term isn’t as good for Flight Centre’s operating model, which could come with lower commissions and so on, which could harm profit margins.

On Ord Minnett’s estimates, the Flight Centre share price is valued at 35x FY23’s estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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