Flight Centre shares punished on cheap airfares

Photo: Chesnot/Getty Images.

Shares in Flight Centre fell hard today.

They began the week down 7.5% to $30.50.

There was no immediate news from the company to explain the slide.

However, analysis from Morgan Stanley says Flight Centre’s guidance for the second half of 2017 looks too bullish.

The key reason, the broker argues, is falling prices for international air tickets.

“We lower our earnings forecasts to reflect ongoing pressure on airline flight prices,” Morgan Stanley says in a note to clients.

“Our proprietary data generated from prices advertised on Qantas and Jetstar websites show the significant price deflation in international fares over the past six months.”

Morgan Stanley is now forecasting second half EBIT (earnings before interest and taxes) of $122.8 million, down from $142.4 million.

“We think that as the market begins to focus on 2H earnings over the coming months, FLT shares will weaken,” the analysts write.

“Further, we expect weak monthly departures data, which show the lower flight prices, are not stimulating enough demand.”

Flight Centre in August partly blamed cheap airfares for a 4.7% drop in full year profit to $244.6 million.

However, the result was still the company’s third best profit in a challenging trading climate. Revenue was up 11.2% to $2.7 billion on Total Transaction Values (TTV) of $19.3 billion.

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