Flight Centre Discount Shares And More Cost-Cutting Plans Announced

In what are increasingly challenging times for the entire travel industry, Flight Centre Travel Group (FCTG) has this morning announced the next phase of its contingency plan in response to the impact of COVID-19.

In what are increasingly challenging times for the entire travel industry, Flight Centre Travel Group (FCTG) has this morning announced the next phase of its contingency plan in response to the impact of COVID-19.

In several announcements to the ASX this morning, FCTG shared details of a comprehensive package of initiatives that have been designed to “strengthen the company’s balance sheet and liquidity and help them navigate these uncertain times globally.”

The package includes an AU$700 million equity raising plan, an AU$200 million increase in borrowing from existing lenders and confirmation that previously announced cost reductions will ensure savings of AU$1.9 billion annually.

With Flight Centre’s shares in a trading halt since March 19, the substantial new capital raising plan will see investors given a chance to directly purchase 97.2 million FLT (Flight Centre Limited) fully-paid ordinary new shares at a 27.3% discounted rate of $7.20 per share versus the last traded price of $9.91 on March 19 2020.

The placement is being conducted via Flight Centre, today only, Monday 6 April.

There will also be a further opportunity for existing FLT shareholders to take up AU$419 million of ‘entitlement’ offers. Investors will be able to buy an extra 1 FLT share for every 1.74 shares owned, also at the 27.3% discounted rate. The offer will open on 15 April 2020 and close on 1 May 2020.

“The combination of these initiatives is expected to ensure we can trade through an extended period of uncertainty and disruption, continue to deliver high-quality travel services to customers and capitalise on opportunities as market conditions improve.”

Flight Centre Travel Group

The updated contingency plan revealed today follows FCTG’s recent ‘three-pronged strategy’ announcement, which outlined defending ‘costs, cash and liquidity’ without jeopardising future growth prospects and maintaining company culture.”

FlightCentre

Some of the updated contingency plans include:

  • Immediate and rolling closure of more than 800 or 50% of global leisure stores, including more than 40% in Australia with ongoing lease reductions negotiated for remaining stores.
  • Ceasing youth brand Universal Traveller and its retail outlets.
  • Temporarily standing down around 6,000 global support and sales roles or in some instances making them redundant.
  • Temporarily standing down 3800 people in sales and support roles in Australia with further reductions forecasted.
  • Flexible working arrangements and transition from full-time to part-time.
  • A Recruitment freeze
  • Pausing all new projects and expenditure
  • Pausing Sales and marketing campaigns – saving $18m per month
  • Short term opportunities available for impacted employees – With the ability to access up to 10,000 roles in Australia. The company has already deployed FCTG staff to assist Centrelink in a pop-up call centre at Flight Centre’s head office in Brisbane.

Right now, FCTG says they are continuing to generate revenue from intra-state and intra-region travel (e.g. mine sites), longer-term leisure bookings, government clients and essential services and charters.

They’ve also been helping the NSW Government to administer their hotel self-isolation program and continuing to repatriate stranded travellers.

Notably, there have already been some green shoots in China, where the virus first broke. Weekly ticket sales are slowly recovering although still remain at 15 per cent the average of the start of 2020.

Regardless, the group says they saw total transaction value (TTV) still only tracking at 20-30% of the usual rate in March, with further declines expected in the coming weeks as the travel bans continue locally and globally.

However, the group say they remain optimistic that they are well-positioned to benefit from a recovery in travel and tourism, citing strong brands, a 30-year legacy and customer loyalty high across their corporate, leisure and online platforms as crucial factors.

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Graham ‘Skroo’ Turner, CEO FCTG

Speaking about the current conditions, Flight Centre Travel Group CEO Graham Skroo Turner said:

“These restrictions are widespread globally and now typically include full bans on international travel, domestic border closures and the force closures of shops that are not deemed to be providing essential services.

“Together, they mean that our people are currently processing a fraction of the normal volumes at this time of year and the vast proportion of work previously carried out by people has stopped.

“It is – without question – the most challenging period we have encountered in over 30 years in business and it is inevitable that some businesses across our industry will fail, given the significant loss of revenue that they will be experiencing now and for at least the next few months.

“With this funding in place and additional equity, we are in a much stronger position and are well-placed to weather a prolonged downturn, which currently seems the likely scenario and to then take advantage of the significant opportunities that will arise once conditions normalise.”

Flight Centre Travel Group CEO Skroo Turner

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