👉 Background: Flight Centre is one of Australia’s biggest travel agencies founded back in 1982, and was known for its “lowest airfares guaranteed” slogan. They later shifted their slogan to “Your centre for travel” after the ACCC were unsure about it. In November last year, Flight Centre predicted an underlying profit before tax between $365 million - $405 million for FY25. Then in late April, it cut that forecast to a range between $300 million - $335 million in profit before tax.  

👉 What happened: Now, Flight Centre has warned that its net profit for FY25 will be somewhere between $285 million - $295 million, which is more than 27% less than their original profit forecast. The issue? Aussies are sticking closer to home, travelling to places like Fiji, Japan and NZ instead of Europe. Or even worse, they're holding off on travel plans altogether.

👉 What else: Next minute: Flight Centre’s shares dropped over 8% after this shift in guidance. The good news for the Flight Centre crew is that leisure bookings have actually increased over the year. But the bad news is that this increase was driven mainly by lower margin brands.

What's the key learning?

💡Margin refers to how much profit you make from each dollar of sales. A high-margin brand (like luxury bags or business class travel) makes more profit per sale. While a low-margin one (like budget travel) brings in less.  

💡Even if total revenue go up, profits can fall if the mix of revenue shifts towards lower-margin products. And that’s exactly what has happened with Flight Centre. While leisure bookings were up overall, the increase came from cheaper travel packages with thinner margins.

💡If that wasn’t bad enough, trips to overseas locations like the US, which often have juicier margins, were cut by Aussie travellers. In fact, the US was the only travel market that saw international visitor spending decline... out of 184 markets! So Flight Centre needs to find a way to bring back its high margin travel customers...or risk continually downgrading its profit guidance.