Financial Analysis of Flight Centre Travel Group: Report

This report presents a comprehensive business valuation and financial analysis of Flight Centre Travel Group. It begins with an introduction and table of contents, followed by a macroeconomic analysis, examining the economic environment, global influences, and future predictions. The industry analysis utilizes Porter's five forces model to evaluate competition within the Australian travel industry. The report assesses rivalry, new entrants, substitute threats, and the bargaining power of customers and suppliers. It includes a business strategy analysis and an accounting analysis of Flight Centre. The macroeconomic section delves into factors such as GDP, interest rates, inflation, oil prices, and currency fluctuations and their impact on the company's performance. The industry analysis evaluates competition. The report concludes with a summary of findings and a reference list.

Running head: BUSINESS VALUATION AND FINANCIAL ANALYSIS
Business Valuation and Financial Analysis
Name of the Student:
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Author Note:

1BUSINESS VALUATION AND FINANCIAL ANALYSIS
Table of Contents
Introduction....................................................................................................................................................2
MACROECONOMIC ANALYSIS...............................................................................................................3
Industry Analysis...........................................................................................................................................6
Evaluating the level of competition in the industry where Flight Centre Travel Group operates in and uses
Porter’s five forces model..............................................................................................................................6
Rivalry from existing competitors.............................................................................................................7
Threats of new entrants...........................................................................................................................10
Threats of substitute products..................................................................................................................11
Bargaining power of customers...............................................................................................................11
Bargaining power of suppliers.................................................................................................................12
Business strategy Analysis:.........................................................................................................................14
Accounting analysis:....................................................................................................................................18
Conclusion...................................................................................................................................................21
Reference List..............................................................................................................................................23

2BUSINESS VALUATION AND FINANCIAL ANALYSIS
Introduction
In the modern world, with the advent of science and technology each and every organization
functioning in the economy evaluates their performance with respect to the industrial benchmark of the
economy where the company operates (Bernini and Cagnone 2014). This paper specifically deals with the
assessment of the financial statement for Flight Centre Travel Group by taking assistance of variable
reliable sources like the annual report of the firm in order to gather information. The financial report of
the organization aids in providing information with respect to the operations of the business. Flight Centre
Travel Limited has been found to be one of the biggest retail outlets with the geographical region of
Australia. Flight Centre Travel Limited is an Australian Stock Exchange listed organization and operates
in the travel industry.
The company has been reaping profits for the last few years and with the rise in the level of
competition there has been a requirement for undertaking an analysis of the financial statements of the
firm. The annual report of the organization aids in providing information with respect to the operations of
the business. Furthermore, the use of various analytical techniques that includes macroeconomic analysis,
business strategy analysis, industry analysis and the accounting evaluation for Flight Centre Travel Group
would be helpful in constructing the paper in an effective manner. The paper even analyses the degree of
competition that is present in the travelling industry of the region where Flight Centre Travel Group
functions (Morrison 2013). Porter’s five forces model has even been utilised in this paper as it aids in
evaluating the external environment of Australia and their travelling industry.

3BUSINESS VALUATION AND FINANCIAL ANALYSIS
MACROECONOMIC ANALYSIS
Economic environment of the Flight Center travel group
Economic environment refers to the external variables in the business marketplace and wider
economy that impact on the business (Srisaeng 2015). The economic goal of flight centre travel group
(FCTG) is to positively contribute to the destination economies they work, stay and travel. Economic
environment is broadly classified into two parts that includes- macro environment and microenvironment.
Both these type of economic environment plays a crucial role in assessing this company’s success. They
also ensure that the advantage and burden of tourism are equally shared in the business. The economic
performance of the society to which this organization is connected through their business is vital for this
travel company. As worldwide travel business, FCTG is one of the stakeholders in overall communities
where they mainly operate and the communities where their customers travel. The company focuses on
the key priorities that the helps them in providing data on economic liability for consultants and
generating resources for assisting the education of their customers. They also conduct reviewing of
products that aims in identifying commodities that are potentially detrimental and beneficial on the
economic level.
Global and individual economy influencing this company over the 5 years
Uncertainty in the global economy leads to delay in the growth of FCTG Company over the last
five years. Global recession occurred during the period of 2008-2009 affected the financial performance
of every organization in the world (Vasigh and Fleming 2016). However, FCTG also faces huge losses
during this economic depression period due to reduction in arrivals of foreign tourist. Moreover, this led
to increase in unemployment rate of the Australian economy. As the FCTG Company faces huge loss
during this financial crisis, they strategize to fire their employees in order to maintain their profitability
level. Therefore, this economic slowdown adversely affected their organizational performance over the
years. In addition, economic changes in emerging and less developed economies influence the travel
sector in Australia. Adoption of new economic policies highly influences the FCTG business as number
of foreign visitors reduces. Moreover, implementation new visa policies of the individual economies also
affect the business growth of FCTG.
Future prediction
As the GDP of the Australian economy has been continuously growing over the years, it is
predicted that this FCTG enterprise will expand their business as the credit demand increases. In addition

4BUSINESS VALUATION AND FINANCIAL ANALYSIS
expansionary policy adopted by the Reserve Bank of Australia (RBA) will also help this nation to lower
their inflation rate below the target level (2%). This will reduce the purchasing power of the visitors and
hence this will increase their travel demand ( Woodford 2013). Owing to this, the financial performance
of FCTG will improve and hence this would expand their business in the globe.
Macroeconomic factors influencing company’s performance
The macroeconomic factors are broad economic variables that affect the financial performance
and growth of the business (Mankiw 2014). These factors include- interest rate, GDP, Inflation, oil prices
and population growth. GDP refers to final goods and services that is produced in Australia within the
geographical border of the nation. This macroeconomic indicator is used to measure the economic activity
within Australia. GDP growth rate of the nation is directly related with the financial performance of the
organization. As the Australian GDP has expanded to 0.3% in the current period, it improves the
financial performance of the FCTG Company. Moreover, cyclical fluctuations that are typified by boom
and recession period affects the credit demand of this company. As the GDP of Australia declined during
the recession period (2008-2009), the credit demand decreased and this adversely affected the company’s
profitability. However, during expansion period (2010-2017) the Australia’s GDP again increased and
this raised the credit demand leading to higher profitability growth in FCTG Company.
The rate of interest helps in measuring the return rate that the lenders expect for using their
money. Higher rate of interest curbs the investment in the business and this lowers the profitability level
of the organizations (Goodwin et al. 2013). This is because increase in interest rate shrinks positive NPV
investments in the business. On the contrary, lower rates of interest provide the entities with huge
opportunities of borrowing money at low rate and thus leading to higher profitability. As the Reserve
bank of Australia (RBA) sets lowers the interest rate to 1.5% for the current year, this raises FCTG’s
business spending leading to increase in profitability. Hence, this reduces the financial risk and enhances
the business growth.
Rate of inflation relates to change in goods price level within the economy over a certain period.
Change in rate of inflation influences the consumer’s purchasing power and business cost. However, high
inflation rate reduces the purchasing power owing to low money value and hence decreases goods and
services demand (Frechtling 2013). In addition, it also increases the production cost leading to reduction
in company’s profitability. As the inflation rate rose to 4.4% during the recession period, this increased
the airfare and hence reducing the number of tourist. As a result, the revenue and profitability level of
FCTG Company decreased. After this period, the inflation rate of the Australian economy lowered and

5BUSINESS VALUATION AND FINANCIAL ANALYSIS
this increases the consumer’s purchasing power. Thus, the company’s financial performance improved in
the current period.
Volatility in the oil industry poses risk to this travel agency company. An increase in prices of crude oil
lifts the input cost of the FCTG (Borio 2014). On the other hand, reduction in prices of oil lowers the
airfares and hence spurs travel demand. This however pushes the travel company to expand their business
and attain higher profitability.
Fluctuations in foreign currency rate influences expenditure in destination. Appreciation in
foreign exchange rate adversely affects the financial performance of FCTG owing to lower number of
tourist (Ashimov et al. 2012). Moreover, currency fluctuations expose FCTG to economic uncertainties
and risk in foreign exchange. At present situation, depreciation in foreign exchange rate increased the
number of visitors leading to increase in profitability. However, FCTG fianciak performance improved
from the previous years.
Industry Analysis
Evaluating the level of competition in the industry where Flight Centre Travel Group operates in
and uses Porter’s five forces model
This section mainly deals with external environmental analysis for Flight Centre Travel Group
where the company operates in travel industry in Australia (Flight Centre Travel Group Limited. 2017).
Here, Porter’s five forces model had been used in the study to find out the underlying forces that governs
external environment of the travel industry in Australia. Below is the diagram of Porter Five Forces
Model that had been segregated into five broad forces such as bargaining power of suppliers, bargaining
power of customers, threat from suppliers, threat from customers and competitive rivalry (Flight Centre
Travel Group Limited. 2017).

6BUSINESS VALUATION AND FINANCIAL ANALYSIS
Figure: Porter’s Five Forces Model of Flight Centre Travel Group
(Source: Flight Centre Travel Group Limited. 2017)
Rivalry from existing competitors
Threat of competition from existing firm is lower for Flight Centre Travel Group.
Low risk from rivalry firm- In the travel industry of Australia, there is low risk from the
competitors because the cost incurred is low. The competitors can easily unload the inventory at
any point of time. The reason behind the situation is that low storage costs act as a positive
impact for the travel based company in and across Australia (Flight Centre Travel Group in this
case) (Flight Centre Travel Group Limited. 2017). The rivalry firm of Flight Centre Travel
Group is few in number and still need brand recognition to compete with the case company.
Large Industry size- The travel industry in Australia enjoys large industry size as it allows
multiple firms for prospering without making an effort to steal the market share of other firms.
Therefore, large market size can be termed as positive impact that it had on Flight Centre Travel
Group (Rothaermel 2015). Due to large industry size, there is huge opportunity present to the
companies who belong to this industry in the present and near future as well.
Cmpetitive
Rivalry
Bargainin
g power
of
customers
Bargainin
g power
of
suppliers
Threat of
new
entrants
Threat of
substitute
products

7BUSINESS VALUATION AND FINANCIAL ANALYSIS
Figure: Industry Segment performance
(Source: ibisworld.com.au. 2017)
The above diagram shows the industry segment performance for Flight Centre Travel Group from
the year 2012 to 2017. With each year, there is percentage change in revenue. The negative percentage in
the year 2017 reveals the fact that Flight Centre Travel Group has low revenue that is not preferable and
poor financial position that need improvement in the near future (Flight Centre Travel Group Limited.
2017).
Figure: Industry Revenue (Travel industry in Australia)
(Source: ibisworld.com.au. 2017)

8BUSINESS VALUATION AND FINANCIAL ANALYSIS
Figure: Market Share of Flight Centre Travel Group Limited
(Source: ibisworld.com.au. 2017)
From the above figure, it is noted that major players in travel industry that has market share in the
Australian market are Flight Centre Travel Group (20%), Helloworld Limited (13.2%) and others
(66.8%).
Differentiation- It is important to consider the fact that travel industry in Australia in actual
differentiate themselves by diverse range of product lines that are evaluated by them. The
segments that are differentiated based on travel industry are International visitor arrivals,
international visitor snapshot and International visitor spend (Flight Centre Travel Group
Limited. 2017). To explain in detail, main market segmentation of travel industry comprises of
30.5% of Australians who are travelling internationally, 29.5^ of Australians who are domestic
business travelers, 19.7% of International visitors and 20.3% of Australian who are domestic
leisure travelers (Eden and Ackermann 2013).
Threats of new entrants
Threat of new entrants is lower for travel industry companies in Australia.
Implementing advanced technologies- In order to prevent new entrants at Flight Centre Travel
Group, the company should implement advanced technologies in the operations so that the new
competitors face it difficult to enter the travel industry (Flight Centre Travel Group Limited.
2017). The existing travel companies in Australia need to first implement those advanced
technologies and then start with the competition and attain the level of success as soon as
possible.
Economies of scale- It is necessary for the travel industry in Australia to have economies of
scale as it positively help the producers for lowering the cost at faster pace. For this, it is required
to produce next unit of output at lower costs in the near future (Hill and Jones 2013).
Higher cost of production- It is important to note the underlying fact that any new competitors
who show willingness in entering the travel industry in Australia, they will definitely have access

9BUSINESS VALUATION AND FINANCIAL ANALYSIS
to higher cost of production that links to smaller economies of scale (Flight Centre Travel Group
Limited. 2017).
Skilled employees as well as human resources- On analysis, it is noted that travel industry
mostly search employees who are low-skilled so that they do not have to pay much for their
work. In that way, profit margin is kept lower as compared to other brand companies (Flight
Centre Travel Group Limited. 2017). Therefore, changes are needed in the macro economy as it
largely influences new entrants and act major challenges in the same industry.
Threats of substitute products
The travel industry in Australia faces low threat from substitute products or services. The reason
to that is as follows with proper justification:
Switching cost- When customers find that quality of service is lower, they have a tendency to
switch to other brands. In that way, Flight Centre Travel Group need to maintain its quality of
service so that their customers are loyal to the company and that makes it barrier to new entrants
and substitute products (Barney 2014).
Lower quality of services- Flight Centre Travel Group is a company who has many substitutes
who are making strategies to lower the quality of services. But, this strategy does not actually
work as customers are more concerned about quality of services rather than any other factor
(Flight Centre Travel Group Limited. 2017).
Bargaining power of customers
The travel industry in Australia faces medium bargaining power from customers. The reason to
that is as follows with proper justification:
Large number of customer base- The travel companies in Australia has large customer base
where the customer in real have medium bargaining power (Flight Centre Travel Group Limited.
2017).
Price sensitive- In this case, the customers who uses services of Flight Centre Travel Group are
mostly less sensitive to prices as they believes in getting best quality at affordable rates (Flight
Centre Travel Group Limited. 2017). The customers mostly look at the services that align or
match with their social status. If the company comes to understand that the customers are only
looking for quality and not price, then the price automatically increases that need to be taken into
account.

10BUSINESS VALUATION AND FINANCIAL ANALYSIS
Bargaining power of suppliers
The travel industry in Australia faces high bargaining power from the suppliers. The reason to
that is as follows with proper justification:
Intense competition- The travel companies in Australia faces huge competition from the
suppliers where they make strategies to reduce the prices if they avail the services of the company
(Peppard and Ward 2016).
Diverse distribution channel- On analysis, it is noted that there are diverse distribution channel
that give rise to high bargaining power from the single distributor that prevails in the travel
industry in Australia. It is where the volume becomes critical to the suppliers who supply for
Flight Center Travel Group (Flight Centre Travel Group Limited. 2017).
Reliant on high volumes- On analysis, it is noted that the suppliers becomes highly reliant upon
high volumes and that lead to high bargaining power of supplier. Here, the producers have no
scope to cut down the volumes that negatively reduces profits of the suppliers (Hill, Jones and
Schilling 2014).

11BUSINESS VALUATION AND FINANCIAL ANALYSIS
Business strategy Analysis:
Against the background of significantly low airlines fares and low customer confidence in some
of the countries during the financial year 2016 that have comfortably gone past the TTV records. In
addition to this, the company business strategy was successful in achieving revenue in by topping
approximately $350 million in the underlying profit for the third time in the history of the company. In
addition to this, the company business strategy have been successful in generating GBP $1 billion sales
(Kubasek, Brennan and Browne 2016). The business strategy of the company has been designed to in
such a manner that it lays down the foundations for future growth by investing and introducing the new
system of benefit with lower costs and improved productivity.
The business strategy of the company is designed in enhancing the new revenue streams
including the new and unique kind of goods and services. The business strategy of Flight Centre Travel
Group has been able to enhance the international store network with the help of rolling out the next
generation shop and designs. The company develops the new innovative people consumer centric
initiatives that comprises of the flexible workplace arrangement and programs, which will increase the
degree of ownership with its business (Kew & Stredwick 2017). The company significantly grows the
culture of its online presence with the help of digital capabilities.
The business strategy of Flight Centre Travel Group aims at expanding the corporate travel
footprint mainly with the help of organic growth but also through the strategic acquisition in the key
markets of Asia, Europe and America. The acquisition of Netherlands is regarded as the first mark of
business expansion in the continental Europe, which houses some of the largest corporate travel markets
while the acquisition in the Malaysia stated the first expansion in terms of the geographical territories for
numerous years (Dumitru and Jinga 2015). The business has been performing successfully ever since the
acquisition of the providing FLT with the platform for speedy future growth in the important student and
youth demographic both domestically and internationally.
People Centric Business approach:
People forms the most vital part of the business as the company considers its workforce to be
valuable in discharge of its business functions (Wetherly and Otter 2014). Accordingly the business
strategy of Flight Centre Travel Group represents that the company invest constantly in the professional
learning and development initiatives and personally with help of business like amenities.
Network growth: