Post pandemic, Australians’ eagerness to travel has driven strong demand rebound for both domestic and international travel, including enhanced business travel. Australia is also witnessing a strong recovery in inbound arrivals into the country, mainly for leisure. This has led to the continued growth in the number of passengers traveling on airlines in 2024 bringing the entire sector in focus of investors. Two stocks high on their lists are
Flight Centre Travel Group Limited (ASX: FLT)
Flight Centre Travel Group Limited has demonstrated impressive revenue growth, rising from $1.9 billion in FY20 to $2.71 billion in FY24. The company transformed from an EBITDA loss of $419.9 million in FY20 to a positive EBITDA of $423.2 million in FY24. Additionally, it shifted from a net loss to profitability, reporting a net profit of $139.2 million. Cash flow from operations surged to $421.5 million, and the company achieved net margins of 5.1%, significantly exceeding its target of a 2% margin. With free cash flow of $325.9 million and a return on equity (ROE) of 12%, FLT's operational efficiency is evident. The year-over-year reduction in the debt-to-equity ratio, alongside sales growth, indicates a decreased reliance on debt for expansion.
For the year ended on 30 June 2024, FLT reported exceptional performance, achieving a record total transaction value (TTV) of $23.74 billion, representing a year-over-year increase of approximately $1.8 billion. Revenue rose from $2.28 billion in FY23 to $2.71 billion, while profit before tax (PBT) soared by 131% to $320 million. Statutory PBT increased by 212% to $219.7 million, and underlying net profit after tax (NPAT) more than doubled to $229.6 million. Notably, the underlying profit margin improved by 72 basis points to 1.35%, driven by revenue margin uplift and stable costs. Additionally, the company reduced its borrowings from $57 million to $11 million and generated robust cash flow from operating activities of $421 million, reinforcing its financial stability and growth trajectory.
FLT’s future growth story is centered on strategic initiatives aimed at expanding into new regions, increasing capital expenditures, and maintaining staff productivity. A promising sign for growth is the acceleration of Corporate Traveller’s wins in the U.S. since the implementation of a new regional structure focused on key centers in New York, Los Angeles, and Chicago. Notably, wins in the U.S. SME sector nearly doubled in the second half of FY24 compared to the first half.
FLT has a proven ability to grow, demonstrated by 37 years of record total transaction value (TTV) in its 42-year history. The company boasts a diversified portfolio of brands that offer strong customer value propositions, reflected in an impressive 98% customer retention rate. Additionally, FLT has a secure pipeline of new TTV from recent account wins, alongside robust financial metrics that will underpin its future growth story. This combination of historical success, customer loyalty, and strategic expansion positions FLT for continued growth in the evolving travel market.
Qantas Airways Limited (ASX: QAN)
In FY24, the Qantas group reported revenue of $21,939 million, marking an increase from $19,815 million in FY23. However, underlying profit before tax declined to $2,078 million from $2,465 million in the previous year, reflecting operational challenges.
From June 30, 2020, to June 30, 2024, the company's revenue fluctuated but overall increased. After falling from AUD 14,045 in FY 2020 to AUD 5,934 in FY 2021, it rose to AUD 9,108 in FY 2022, and surged to AUD 21,939 by June 30, 2024.
Qantas expects stable travel demand with positive revenue momentum for 1H25. Group Domestic unit revenue is projected to increase by 2-4%, while Group International unit revenue may decline by 7-10% due to restored market capacity. International capacity to Australia is set to return to pre-COVID levels, with net freight revenue expected to rise by $20-40 million. Qantas Loyalty’s EBIT is anticipated to grow by at least 10% in FY25. The Group aims for $400 million in transformation savings, with net debt maintained within the target range.
Qantas Airways offers an appealing investment opportunity, trading at a notably lower valuation compared to its industry peers. With an EV/EBITDA ratio of 3.63 versus the industry median of 4.15 and a P/E ratio of 7.21 compared to 10.22, Qantas is positioned attractively on both metrics. Despite recent profit declines, the company’s proactive buy-back strategy and cost management reflect a strong commitment to shareholder value. As travel demand stabilizes and capacity recovers to pre-COVID levels, Qantas is well-placed for potential growth.
Source: Company’s Report
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