Flight Centre shares are tanking after a profit warning

Photo: Scott Barbour/ Getty Images.

Flight Centre says its full year profits are likely to miss guidance and be weaker than last year partly because the July 2 federal election is affecting confidence.

A short time ago, its shares were down 7.7% to $33.98.

But the travel agency says its sales record of $1.4 billion set last year is still expected to be beaten this financial year.

However, underlying profit before tax is likely to finish below target as profits following increasing uncertainty in key markets.

Results for the 10 months to April indicate that full year underlying profit before tax may finish 2% to 5% down on the $366.3 million of 2014-15.

The likely result will be the company’s third best, but will be outside guidance of a 4% to 8% increase.

“We are experiencing some uncertainty heading into the final six weeks of the year and during what is traditionally our busiest sales period, which makes it difficult to forecast final results,” says co-founder and managing director Graham Turner.

“While we will be disappointed to miss the short term profit target we set in August last year, we are investing significantly in our future and in the strategies that will underpin our longer term growth.”

The election and confidence

He says Australia’s Federal election in July and next month’s Brexit referendum in the UK are both affecting consumer and business confidence leading into the important May-June trading period.

The Zika virus is also affecting travel to some of the most popular destinations for American holidaymakers.

Last month Qantas also sounded a warning about subdued demand due to the federal election. The airline cut its capacity growth forecasts after seat demand began to ease.

Flight Centre says overall profit in Australia is now likely to be in line with last year after being up during the first half.

As recently as February, Flight Centre reaffirmed its previous full year guidance of between $380 million to $395 million, a result which would beat the record $376.5 million underlying profit of two years ago.

Airfare price war

The company says airfare price wars are positive despite the short-term adverse impact on earnings.

“This discounting by airlines reinforces our belief that this is a golden era of travel and is delivering incredible value to travellers, including some of the cheapest international fares we have ever advertised,” says Turner.

In recent weeks Flight Centre has advertised return economy fares Sydney to New York for less than $1000, Los Angeles for less than $800 and London from $1079.

“It’s impossible to predict how long these eye-catching fares will last or if we will ever see them at these levels again,” says Turner.

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