Flight Centre in turbulent skies

The Flight Centre's "captain" signs off each television commercial as a catchy jingle extols us to take advantage of its discount airfares.

But while the captain exudes the kind of professional competence that reassures a nervous flyer, the company he fronts is going through turbulent times.

Specialising in the cheapest, most heavily discounted tickets, Flight Centre is facing a challenge from online sales - with customers now aware that the cheapest flights are available from airline websites.

Its rivals - which locally include the House of Travel and the Gullivers Group (which has the Holiday Shoppe and United Travel brands) - are shifting focus from issuing low-margin air tickets towards more profitable holiday packages.

A restructuring of its New Zealand operations last month came on the heels of a profit drop for the parent company and a 16 per cent fall in earnings from its local operations. This at a time of a booming enthusiasm by New Zealanders for overseas travel.

Flight Centre's New Zealand managing director, Graeme Moore, lost his job in the restructuring.

Speaking from the company's head office in Brisbane, company chief executive Shane Flynn told the Business Herald that the restructuring was a normal part of re-organising a growing business - a business that had acquired unnecessary levels of management.

The network of shops would remain, but it would not be the only source of sales. A Flight Centre website allowing full bookings on domestic and transtasman flights would be coming "in the next quarter".

"The 'bricks and mortar' business that we've got there will continue to grow as it has. There'll be no change in that," said Flynn, but added: "It'll be accompanied by an increasing presence on the web so that we can develop a multi-channel distribution strategy."

He rejects any suggestion that Flight Centre has been slow to cope with the threat and potential of new online rivals.

"This is pretty common all around the world. We've got over 200 businesses in North America and the UK that are operating in far more aggressive markets than Australia and New Zealand with online business, and the margins over there are some of the most healthy margins we have anywhere in the world."

Online travel business was good for many things, but it did not do everything, Flynn said. The "land" part of the business (accommodation, transfers, rental cars) had stayed with the agent.

The Flight Centre website will be competing with two new additions to the online travel scene, both launched last year by Flight Centre rivals.

First cab off the rank was House of Travel, whose site allows booking of domestic, Tasman and Pacific Island fares, backed by its chain of stores.

Gullivers runs the local version of Zuji - part of the Travelcity family of travel booking engines. Zuji offers longhaul travel bookings (Asia, Europe, the US) but is not supported by the Gullivers chain of stores.

House of Travel's commercial director, Tony Moffatt, said last year's move online had thrown up some interesting challenges, and customer reactions were not always what were expected.

For instance, the company originally thought that sending out its email newsletters (highlighting specials and holiday deals) would trigger a surge of business to its website. But no, every time a newsletter went out customers would head into its stores to book the travel.

Others arrive in the shops armed with information gleaned from the website, despite them being able to book the whole thing online without the help of an agent.

Moffatt said market research had shown that people who did not even want to book online thought it was important their travel agent had a credible online presence. And with a buoyant economy, sales are well up on the year before.

Flynn said Flight Centre was also prospering despite the plummeting value of the tickets it issues, partly because of the increase in "non-air" sales.

"In Australia, 35 per cent of our turnover is non-air. In times gone by, people would have thought 90 per cent of our turnover was on non-air. We're moving in the next three to five years to get 50 per cent of our turnover on non-air products."

So despite some recent problems, Flynn is upbeat about Flight Centre's future.

"Every business in every industry goes through its tough times, but that's when you prove your mettle. If you can only survive when times are good, well, you've got the clock against you. We've been around 20 years, we've been through Gulf Wars, Sars, terrorism, the lot and we've made it through."

Travel Goliath

* Flight Centre is Australasia's largest travel retailer.

* It operates 1200 stores across Australia, New Zealand, Hong Kong, Canada, South Africa and Britain.

* It is listed on the Australian stock exchange with market capitalisation of nearly $1.6 billion.