Flight Centre On Cruise Control Re-Rating

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This story features FLIGHT CENTRE TRAVEL GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: FLT
The company is included in ASX200, ASX300 and ALL-ORDS

Flight Centre has re-rated on competitor woes but following a new acquisition and an improving backdrop analysts see further re-rating potential.

• ?Flight Centre benefitting from competitor disruptions
• Iglu acquisition increases exposure to cruises 
• FY26 should improve significantly after a weak FY25
• Analysts see potentially material upside ahead

By Greg Peel

Sector analysts agree travel agent Flight Centre Travel ((FLT)) has been the beneficiary of the turmoil besetting competitor Corporate Travel Management ((CTD)), leading to a recent share price re-rating of around 19% from late November to early December.

The stock has rallied further following an acquisition announcement.

Flight Centre is to acquire Iglu, the UK’s leading online cruise agency, which captures circa 15% of UK cruise bookings and more than 75% of online bookings.

This will be the company’s second cruise acquisition in two years, having acquired Cruise Club in FY25, and comes soon after Flight Centre relaunched its Cruiseabout brand, creating a wholesale cruise division in 2023.

The UK is the world’s third largest cruise market.

The purchase price equates to 7.25x FY26 forecast earnings (including synergies). After acquiring Iglu, Flight Centre’s cruise-related total transaction value (TTV) will almost double to surpass $2bn during FY26, with a “stretch target” of $3bn TTV in FY28.

Iglu adds an online cruise platform to the company’s Leisure portfolio that includes Flight Centre, Scott Dunn (global travel agent) and Cruise Club UK, which should generate in excess of $1.5bn TTV during FY26, Macquarie notes, reducing Leisure’s strong weighting to the Southern Hemisphere.

Cruise is an attractive market, analysts agree, offering strong growth and higher margins. Both Flight Centre’s and Iglu’s cruise businesses are seeing sales grow at 15-20% year on year, Macquarie notes, underpinned by a resilient customer base and supply chain that is investing heavily in new ships and partnerships.

The margin profile of cruise is also attractive, with Iglu’s 3.1% FY25 earnings margin significantly higher than the 2.2% margin in Flight Centre’s Leisure division.

Cycling Tough Times

Flight Centre has lifted FY26 underlying profit guidance to $315-350m from a prior $305-340m to account for the Iglu acquisition, which is expected to be earnings accretive from FY26.

Notably, achieving guidance will require 36/64% first half/second half skew.

While this seems ambitious, analysts generally believe it is quite achievable given Flight Centre struggled in FY25 with Asian-related losses, and the fourth quarter was unusually weak following Trump’s Liberation Day tariff announcements in April, hitting US travel, and conflict in the Middle East (including the Red Sea).

The impact bled into the first quarter FY26, but Morgans notes the second quarter has seen a return to solid growth.

Accelerated profit growth is further expected in the second half FY26 as key projects –-Productive Operations and Global Business Services-– gain momentum and the trading cycle gradually improves, notwithstanding the contribution from Iglu.

After FY26, Canaccord Genuity believes FY27 will improve further, both with improved operational efficiency and general activity, but also provided by cruises for which Flight Centre has markedly increased its exposure and marketing and sales efforts.

The long lead times for those products mean the company has good line of sight on outcomes in FY27. Canaccord believes it provides a secure pathway for growth into FY27.

Morgans points out Iglu brings a proprietary, scalable digital platform that will be rolled out across Flight Centre’s leisure brands, improving omni-channel capability and positioning the company to enter the US and other high growth cruise markets over time.

Management believes there is an opportunity to grow into a world-leading online cruise business.

In addition, Corporate Travel Management’s recent challenges create a meaningful risk of client retention, with Flight Centre well-positioned to capture any client turnover.

Ord Minnett also notes industry feedback suggests Flight Centre could benefit from potential client turnover during the integration process of the merged American Express Global Business Travel and CWT business in the US which was finalised in September after 18 months of regulatory reviews.

One slight concern for Citi is while the Iglu deal metrics appear positive, this broker does worry earnings could be inflated given the strength in cruise demand post-covid.

No Looking Back

One may have expected Flight Centre’s significant re-rating leading into and as a result of the Iglu acquisition would have brokers reconsidering their existing Buy ratings, with some pullback to Hold or similar following. But this is not the case.

The six brokers monitored daily by FNArena covering Flight Centre have all maintained their Buy or equivalent ratings post the Iglu announcement. We do note Morgan Stanley (Overweight) and UBS (Buy) are yet to update.

Despite Citi’s concern, given Flight Centre’s staffing/costs are relatively fixed in the short term, Citi estimates the operating deleverage suffered in FY25 was material and should provide an easy comparable. As a result, Citi continues to be positive and expects an uninterrupted year will result in a material ‘beat’.

Macquarie believes Flight Centre is well on track to deliver FY26 guidance, given solid TTV growth across both segments. Leisure aside, Corporate is seeing the early benefits from Productive Operations initiatives with strong TTV growth on fewer full-time employees. Valuation is attractive, and Macquarie sees material upside to the current share price over a 12-month view.

Morgans acknowledges Flight Centre’s share price has risen strongly over the last month given it is viewed as a beneficiary of Corporate Travel Management’s issues.

Additionally, the Leisure business can now benefit from an accretive acquisition in a growth and higher margin category. Yet, Morgans believes Flight Centre’s trading multiples remain undemanding, and also notes the company’s (up to) $200m share buyback can now resume.

Ord Minnett’s Buy rating also reflects upside risk to earnings in outer years should Flight Centre successfully convert corporate accounts wins.

Following the Iglu announcement and earnings revisions, the consensus target among the six has risen to $16.61 from $15.17. That average includes targets from Morgan Stanley ($15.40) and UBS ($14.40) which will likely be subject to upgrades.

The backdrop for travel is improving and, outside exogenous events, Jarden believes green shoots are here. This broker sees a case for optimism in FY26, with October data showing consistent growth and market expectations low. Jarden believes Flight Centre is well positioned to capitalise on this and re-rate.

Jarden sees Fight Centre as an increasingly capital-light business with material margin upside that should trade above its current 12x one-year forward PE. The broker’s target rises to $18.50 from $18.00.

As a combination of continued progress to meet FY26 consensus outcomes and the benefit of improved sentiment with competitor difficulties, Canaccord believes Fight Centre will continue to re-rate through its release of first half FY26 outcomes.

From that point, Canaccord believes the re-rating will be a greater function of likelihood of meeting second half outcomes and any movement on client activity won from competitors.

Canaccord has upgraded to Buy from Hold, raising its target to $15.20 from $12.95.

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