The Aussie company soaring high in the U.S.A.

Flight Centre is a global travel management company with businesses in Australia, New Zealand, North America, UK, Europe and South Africa. It also has smaller businesses in Latin America, UAE, Greater China, SE Asia and India.

The business has three main pillars:

  • Leisure division
  • Corporate Travel business
  • An emerging Travel Experience Network (TEN)

Leisure (62% of TTV)

Flight Centre is the market leader in Australia, New Zealand and South Africa. In addition, it is starting to make inroads in North America, with both the US and Canadian businesses turning profitable for the first time since 2012. The leisure business has been re-focused with rationalizing 6 brands into 3 main brands, namely:

  • Flight Centre – targeting the mass market with a focus on flights, holidays, cruises and small business travel markets (including online Flight Centre, BYOjet and Aunt Betty businesses).
  • Travel Associates – a network of premium agents (including franchises) targeting the more affluent and sophisticated travel market.
  • Youth – online-led youth travel brands targeting students and gap-year travellers (Student Flights and Student Universe).

Corporate (38% of TTV)

Flight Centre is one of the world’s largest corporate travel managers, with corporate generating $7.7bn of TTV. Corporate generates approximately 38% of group TTV, compared to 30% five years ago.

Flight Centre has offices in more than 20 countries and leading technology platform labs in Boston, Barcelona, Bangkok, Brisbane and Washington DC, which develop new tools and products. The corporate business is a highly scalable business once the network and technology platforms are in place. The business targets the global and small to medium enterprises (SME) markets mainly through FCM Travel Solutions and Corporate Traveller brands. Flight Centre has been very successful in the SME market, particularly in the U.S.A. with its relationship-based business model. It is worth noting however, that despite very strong growth in this market, the market is highly fragmented with substantial growth opportunities.

Travel Experience Network (TTV included in Leisure)

TEN is an emerging business that includes the following divisions:  Touring (Topdeck/Back-Roads), destination management (Buffalo Tours) and over 20 hotels and resorts.

Whilst the leisure business has been in a transition phase for the past 18 months, which has been compounded by slower consumer domestic demand, we consider these disruptions to be timing issues rather than a structural fundamental problem.

We have chosen to invest in Flight Centre for the following main reasons:

  1. Flight Centre is a market leader in its home market and has a fast growing, highly scalable corporate business with numerous growth avenues. The growth in the US business is a testament of this.
  2. More than 50% of its TTV is generated outside Australia giving investors offshore exposure.
  3. We view the issues in the local leisure business as timing issues and not as fundamental issues with the business model.
  4. Pro-active management that is investing in leading edge technology platforms and rightsizing the leisure business for future growth.
  5. A founder that is still actively involved and is the largest shareholder in the company.
  6. A highly cash generative business with excellent ROE’s over a long period of time.
  7. Compelling value. On a sum-of-the-parts methodology the Australian business is valued on a 10 times multiple which in our view substantially undervalues the business. In addition the dividend yield is in excess of 5% for FY2020


This report has been prepared by Pengana Capital Ltd (ABN 30 103 800 568, Australian financial services license number 226566) (“Pengana”).  This report does not contain any investment recommendation or investment advice and has been prepared without taking account of any person’s objectives, financial situation or needs.  Therefore, before acting on the information in this report a person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs.
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