Flight Centre Travel Group Ltd (ASX: FLT) shares closed on Tuesday trading for $13.11 apiece.
That sees shares in the S&P/ASX 200 Index (ASX: XJO) travel stock down a sharp 35% over the past 12 months.
Though those losses will have been modestly eased by the 42 cents per share in fully franked dividends Flight Centre paid out over the full year. At yesterday's closing price, the ASX 200 stock trades on a 3.13% trailing dividend yield.
Taking a step back, Flight Centre shares have clawed back some of the outsized losses suffered in the immediate aftermath of the global pandemic border closures in early 2020. Yet the stock is only up around 4.2% since 21 August 2020.
For some context, the Qantas Airways Ltd (ASX: QAN) share price is up around 192.4% over this same period.
And investors who bought Flight Centre stock in mid-January 2020 will still be nursing losses of around 67%.
What's been happening with Flight Centre shares?
Flight Centre shares closed down 7.3% on 31 July when the company reported that it would not meet its FY 2025 guidance for underlying profit before tax (UPBT).
Management revealed they now expect full-year UPBT in the range of $285 million to $295 million in FY 2025, compared to the guidance range of $300 million to $335 million.
In response to difficult market conditions, the company unveiled significant customer loyalty and artificial intelligence (AI) initiatives on the day.
On the AI front, Flight Centre said it is investing in AI innovation "to enhance customer experience, boost productivity and disrupt traditional offerings".
According to the company:
FLT is developing new products through its AI Center of Excellence, including the recently relaunched Sam intelligent virtual assistant for FCM customers, and working with high profile external partners, including Quantium in the leisure sector.
While, in my opinion, the company has little choice but to invest in artificial intelligence, the rapid evolution of generative AI could throw up some stiff headwinds for Flight Centre shares over the next few years.
How AI could work against Flight Centre shares
If I'm booking a simple business or vacation trip with single destinations in mind, I tend to book directly via the airlines and hotels.
But when it comes to more complex trips, with overnight stopovers at multiple locations, that's a lot harder to handle. So I've often found myself turning to Flight Centre for help with organising those bookings. And I've had no complaints.
But here's the potential looming issue with AI and Flight Centre shares.
If the likes of ChatGPT keep charging ahead at breakneck pace, as widely expected, customers may no longer need Flight Centre's help, AI-enabled or not, to book their own trips. Even international trips with multiple connecting flights and special requests.
I believe it's entirely possible that a readily assessable AI program could handle all of that in minutes.
What the experts are saying about AI disruption
Commenting on the broader expected disruptions to traditional service-based businesses from the rapid rise of AI, Daniel Newman, chief executive officer of the Futurum Group, said (quoted by Bloomberg):
The disruption is real. We thought it would happen over five years. It seems like it is going to happen over two. Service-based businesses with a high headcount, those are going to be really vulnerable, even if they have robust businesses from the last era of tech.
While not addressing Flight Centre shares directly, 50 Park Investments CEO Adam Sarhan added:
There are a lot of pockets of the market that could be basically annihilated by AI, or at least the industry will see extreme disruption, and companies will be rendered irrelevant. Any company where you're paying someone to do something that AI can do faster and cheaper will be wiped out. Think graphic design, administrative work, data-analysis.
Stay tuned!
