The Flight Centre Travel Group Ltd (ASX: FLT) share price has gone through turbulence after its recent downgrade. Plus, as the chart below shows, it's down more than 20% since the start of 2025.
The company issued a significant reduction to its underlying profit before tax (UPBT) guidance for the 2025 financial year because of headwinds the company is experiencing.
Broker Macquarie noted that Flight Centre reduced its UPBT guidance by approximately 17.5% to a range of $300 million to $335 million, down from $365 million to $405 million. The decline of the Flight Centre share price in the last few months may suggest the market was anticipating difficulties for the ASX travel share.
Macquarie suggested in a note that operational deleverage is the "primary driver" of the profit downgrade amid lower-than-expected total transaction value (TTV) growth. When TTV rises, profit can rise even faster because expenses aren't growing as fast – that effect works negatively in the reverse when TTV doesn't grow as much as expected (or falls).
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What's going wrong for the ASX travel share?
The broker noted that the ASX travel share's product mix is the problem in the leisure segment, where TTV growth is being driven by brands like Independent and Ignite, while other larger brands are "broadly flat". Although they are achieving profitable growth, those brands are lower-margin.
The corporate TTV growth remains "below expectations", with down-trading being a headwind. US policy changes were a large headwind in April.
Macquarie noted that Flight Centre is still targeting TTV growth in the high-single-digits for corporate and mid-single digits for leisure, though "it does not expect to immediately return to these rates."
The broker pointed out that the ASX travel share is investing significantly in cost efficiencies – these benefits will "most significantly materialise when top-line growth (via TTV) does not need to be matched with cost growth".
Are Flight Centre shares a buy?
Macquarie has an outperform rating on the business, which essentially means a buy.
While the update was "disappointing", with "headwinds starting to materialise from declining business and consumer confidence", Macquarie believes longer-term growth should return if TTV growth tracks "to target" and cost efficiency programs "gain traction".
As a result of the update, Macquarie reduced its earnings per share (EPS) projections for Flight Centre by 15%, 15%, and 10% for FY25, FY26, and FY27, respectively.
The broker has a Flight Centre share price target of $16.20, which implies the broker thinks the ASX travel share could rise 27% over the next 12 months. Time will tell whether Macquarie is right to be optimistic.
