Flight Centre Travel Group Limited (FLT) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us today for our half year results presentation. You're joining us at a fairly exciting time given that we are now finally, starting to see some fairly positive signs. COVID cases are starting to level off or decrease in our key markets. Restrictions are easing. That's starting to happen at pace, which is pretty promising. And demand is rebounding in what is probably a fairly early stage of our recovery. It's so exciting. That Skroo can hardly contain himself, and you'll hear from him first off. Adam, our CFO, will then run you through the first half results. He will hand over to Chris in the U.K. for a strategic update on corporate, and Mel will finish things off with leisure update. Thank you, Skroo.

Thank you, Haydn. You will start basically on Slide 4. Yes, Slide 4, Haydn, that's the way it works. Look, this is pretty obvious, our growth since 1982. We're now 40 years. We're just celebrating 40 years now. And one of the things on that slide, if you look at the last box there, it basically shows that during COVID, only about 30% of our TTV is coming from Australia, but we expect that to settle down at around 50%. On the next slide, a couple of things, I think some of the things that the Flight Centre Travel Group can say is we do have this global business model. That's given us 20, 40 years of growth, since 26 years, since we listed in 1995. We also have a very good relationship with most of our suppliers, and that's something we put a lot of work into. And obviously, we all know we're now in 26 countries with our own equity business as well as about 100 countries with equity and licensees in the FCM brand. One last thing, we do have an experience and I think capable team -- in my team, the 7 of us on in what we call task force, got quite an experienced Board as well. I think our average person in task force of 7 had been with Flight Centre for about 25 years. On the next slide, which is 6. Obviously, this is a bit of a trading update and outlook, as well as our strong global presence, I think the COVID has helped us get obviously, a lot leaner. We've had to during hibernation, and we do want to maintain a more, a leaner and more efficient organization. And obviously, trading conditions are improving, particularly over February, and it was heading that way in November. But obviously, the Omicron did have an impact on that. If you look at Slide 7, we -- I think we know that the Omicron is decreasing, but we're seeing -- we're saying it's a very mild disease, very contagious. I think the latest figures show it's 1/14 a severe a disease as the Delta and by the 6x as contagious. Travel restrictions in most areas and we can exclude New Zealand and China, in particular, which is important to Australia. And also, we've been now, I think, for 13 years, and most of our business there is domestic travel, which has gone quite well. And the demand just in the last few weeks from most of our countries are opening up by the U.K., U.S., Australia is rebounding quite quickly. And you'll see that on Slide 8, some of the patients in hospital, which halos manage to find out. In Slide 9, obviously, Australia is opening up now, and Australia is still a very important part of our organization both in corporate and in leisure. And most of you will know what's happening even WA is coming back to Australia opening up on March 3 with fairly similar conditions to the rest of Australia. On to Slide 10, if you see the updates coming in the climate of change as halos put it 43 updates in early February in terms of the changes in conditions with COVID-19. There's obviously still some restrictions in various places. But generally, a lot of European countries now have reduced all restrictions, and we feel that will come in nearly every other country -- of our major countries anyway. Going to Slide 11, a little bit about our, further of our trading update. And you can see that we've had significant growth in February, about 50% in leisure and corporate on December and January. And as I think we said, we're coming back to, we've said quite often, we'll come back to our pre-COVID TTV, in somewhere around 18 months to 2 years, depending a bit on the market, depending a bit on the COVID. If you look at Slide 12, most of that is fairly obvious, but Asia is still a bit of an issue. As I said before, China is still trying to eliminate this virus, and good luck to them on that. But we expect slowly but surely Asia to come back. And all the other countries where we operate in generally are easing restrictions quite quickly, and that will come back. So probably China and the rest of Asia, we think, will be pretty much open in 2 to 3 months, which is a pity, but yes, I suppose we can say we're not really heavily dependent on Asia, but we'd like to see it come back quickly. The last slide for me is another on our outlook. Obviously, our momentum is picking up. We've seen that particularly in February. We think we continued strongly in March and April. And I think most countries where we trade, the confidence is returning after COVID. And we're pretty comfortable that over the next 12 to 18 months to 24 months, we will return to profitability, pre-COVID profitability over the next couple of years. Now guidance, we're obviously not providing guidance. There's too much up in the air at the moment, but 2 years of COVID, we're reasonably confident we've got most of our major assets intact. We expect to return to profitability over the next few months, over the next 6 months at the latest. And then assuming that government restrictions aren't reimposed back to a normal level of product to over the next, as I said, 18 months to 2 years. So thank you, and I will now hand over to Adam, who is our CFO. Thank you, Adam.

Thank you, Skroo. Look, as Skroo mentioned, there is a lot of momentum picking up over the last 3 to 4 weeks that we do feel change in the outlook for the next 6 months versus the prior 6 months. But I'll just take a few minutes to reflect on some of the key financial metrics for the half that we've just finished before handing back to Chris and Mel to again expand on our key strategies to capture more than our historic share of the market rebound. So starting with sales, we have seen strong growth delivered during the first half despite the impact of Delta in the first quarter and Omicron late in the half and the associated ongoing travel restrictions in some of our key markets. Our total sales were almost 120% above the prior period and also comfortably above the FY '21 second half, which is typically a seasonally stronger trading period. And we saw sales jump immediately after the August to September Delta waves to a COVID period of record in November. Through the first half, as expected, our corporate businesses represented nearly 60% of total sales and reached 57% of pre-COVID trading levels in both November and December. Adjusting for the Australian hotel quarantine work, corporate sales in November were just under 50% of pre-COVID levels, and the corporate business globally was just under breakeven for the month in November, which is the first time since the pandemic began. Whilst the subdued for most of the half, our leisure sales also picked up in November, to be more than double TTV for September or 30% of pre-COVID levels. As you see on Slide 17, for the market data we're seeing early in the recovery indicates we've increased market share in all geographies across both corporate and leisure. Sales for the half have resulted in $316 million in revenue at a revenue margin of 9.7%. That margin remains below pre-COVID levels due to the disproportionate domestic weight in sales, the low-margin hotel quarantine work undertaken in Australia, and the higher corporate sales weighting compared to pre-COVID. In leisure, our revenue margin of 11.8% continues to improve over the prior comparative period and will increase further on the expectation that international sales, particularly in Australia, increased significantly following the removal of border restrictions and the passing of the Omicron wave. The corporate revenue margin when adjusted to remove the hotel quarantine work was actually 10.6%, which is reasonably consistent with pre-COVID levels. In all, even in difficult trading periods brought about by the Delta and Omicron variants, our underlying performance improved during the half but was masked by a reduction of $65 million in net government subsidies, mainly in the Australian leisure business. Regionally, whilst the important Americas and EMEA regions saw a significant reduction in losses on the back of very strong TTV, ANZ was impacted by the removal of the JobKeeper subsidy as well as domestic and international restrictions through most of the half. Asia was also heavily restricted during the half. If you look at Page 21, you'll see that we've also continued to maintain our structurally low cost base during the half, whilst also investing in our people, systems, technology and products to drive future growth. And you see this, as I say, on Page 21, where we show an analysis of costs against the prior corresponding period and against pre-COVID. Looking forward, we do expect that our cost base will be materially lower than the comparative pre-COVID basis due to the structural changes we've made to increase productivity, increase scalability and rapidly grow more cost-effective leisure models. The improved operating performance during the half has also been seen in increasing numbers of our businesses either profitable or approaching for monthly breakeven, including South Africa, France, the UAE, the EMEA region overall, corporate traveler in the U.S., Liberty and Ignite. We've also seen record profits from the Pedal Group and admin with Pedal achieving sales in excess of $200 million and a first half PBT of $32 million. Earlier, our corporate businesses globally were just under breakeven in November, and we expect to be back in profit sometime in the next couple of months at around 55% of pre-COVID TTV. As Chris will talk to, we are already seeing increased activity and are benefiting from our diverse global customer base. As an example, we have greater exposure to government accounts after major wins in France, Singapore and the United Kingdom. And importantly to note, the U.K. Government is now one of FCM's largest U.K. clients. In our leisure businesses, we expect to be in profitability late this financial year at around 45% of pre-COVID TTV. And this exact timing will obviously be heavily dependent on the Australian market. Our monthly operating cash flow, outflows have dropped down to $21 million in November, by far the lowest level since the pandemic began and remained under $40 million in December despite the Omicron impact and seasonality. That rapid reduction in cash outflows from being in excess of $41 million in September to $21 million in November highlights the opportunity for further rapid recovery over the coming months. Finally, our liquidity position remains over $1 billion, with $1.5 billion in cash and investments. We are ready and well placed to capitalize on what now shapes as a strong post-Omicron rebound. And just before handing over to Chris, I wanted to briefly highlight the continued focus that we have on corporate social responsibility. In December, we appointed our first Chief Sustainability Officer. And in January, we made a public commitment to set targets aligned with the science-based target initiative for a net zero planet by 2050. These actions, along with the reconciliation action plan adopted in Australia just this month, being a signatory to the United Nations Global Compact and the relaunch of the Flight Centre Foundation highlight our commitment to the broader role that we are able to and must play within the community. I'll now hand over to Chris for further insights on our corporate businesses.

Thanks, Adam. So I'm going to give an update on our corporate strategy, which we called grow to win at the beginning of the COVID crisis. And the reason we called it that was we decided we have no idea how long COVID would go on for, and we didn't know what size the market would come back to. So we decided the team that our plan is to grow by winning market share, by retaining our customers and winning new customers and delivering 2 brands that will fit to win in a post-COVID world and we're very pleased to give you an update on that progress. But before I do, we'll just have a quick look at the corporate travel outlook over the next 18 months. We expect the return to business to be around 60% to 75% of pre-COVID levels in financial year '23. And this is work that's been carried out by the PBT by various other projects extensive research that we've done with our own customers. Obviously, it depends on different sectors and different regions of the world, but we believe this will be approximately the average return. Customer needs have changed. There's a lot less tolerance of leakage refining, which means that a lot more discipline of mandating that travelers use, their TMC rather than go and book independently on live, which is obviously good for our volumes and also a really strong focus on sustainability. So we've invested probably over the last 2 years to make sure that we have great sustainability solutions in both corporate travel and as FCM to help our customers deliver their sustainability goals. From a competitive landscape perspective, we're seeing that there's much less choice at the top end of the market. So we're very much positioned FCM as the alternative for the traditional 3 TMCs and the acquisition of Egencia, that's meant that we really are getting more invitations to RFPs. And as you'll see later on, we're winning a lot more new business. And on the smaller end of the scale, pre-COVID we saw a lot of digital business only disruptors in the SME space. And what we're finding is that customers are very much certain really good quality people back up as well as great technology, and that's what you're benefiting us too. And we see these trends carrying on over the next 18 months. So just recapping on our strategy where we play. Well, we play a 2-sided model with our travel customers and our supply customers. And we address the market with 2 brands, FCM in the large market space, which really offers customers global consistency across the 100 markets and its core flexibility. So we give customers choice. And that flexibility combined with global capabilities being one of the real reasons that FCM has been winning so much business. And in the SME space, we operate corporate traveler in 6 of our core markets. And again, the reason we have 2 brands is we believe that large market customers and SME customers have fundamentally different needs. And we bring to market dedicated brands with different CVPs, different products, different management, different focus and that really enables us to deliver for both sets of customers. We also really work very closely with our supply customers, the airlines, the hotel chains, et cetera, who we deliver volumes for, and there's going to be even more work that we work with this guy to deliver premium customers as COVID recovers. I'm really pleased that we've worked so closely with them over the last 2 years, and that's embedded in that new products. So our strategy on a page starts with the top at winning brand, corporate traveler in the SME space and FCM in the large market space; 2 differentiated brands with dedicated CVPs aimed at their market segments. Each of them have their own product. Melon in the corporate travel space, which is our new digital platform dedicated to SME, and that enables SME customers to book, to manage their travel program, get all the data they need to expense management and have access to all the latest content. We're really excited about Melon's being launched in U.S.A. and Canada, and it will be launched in the U.K. and the rest of EMEA in the coming months before moving on to Australia, New Zealand later this year. And on the FCM side, you have the FCM platform which really gives customers a differentiated offering. It gives the choice of proprietary booking in all of our core markets and also choice of working with chosen vendors, strategic partners, such as compare Concur, Citrix or Serko and really offers customers a choice they can have proprietary booking in some markets whilst choosing to have best-in-market solutions in others. We're winning lots of customers off the back of the platform. It went live in China earlier this year. It's now live in many markets with pilot customers and will be launched to all customers later this year. Below that, we have our sales and marketing machine. In both brands, we have dedicated sales and marketing, and that's because the 2 different customer types have a very different sales cycle. And by having dedicated sales in the SME space and dedicated sales in a large market space, it really means that we can target those customers simultaneously and win at both ends of the market. I'm really pleased to say that throughout COVID, we're heavily invested in our sales and marketing machine. And that's one of the reasons that the numbers are you talking about later. So impressive. We didn't have what we call our hybrid service model, and that's really bringing the automation, the robotics, the data science to our operations. That means we achieved 2 things. One, a really consistent global customer experience, which are customer value, but two, much greater levels of productivity. And we've been committed that we will not bring back our 2019 business in post-COVID world will bring back a much more efficient productive business, and that's why they stop significant investments in this area. Below that, then, we have our content and supply and our corporate business works very closely with our leisure business to make sure that we can get the best access, the content, the right most appropriate content into our customers' hands, either by mobile, via our booking tools or via our consultants. And Mel will touch on this a bit later, but we're really delighted that we are seeing as a global leader in NDC, for example, in the airspace, and that's, again, a major reason why customers are choosing to do business with both corporate traveler and FCM. And then the base of everything, the foundation is our culture, our people, and the customers tell me the ties you have great technology. You have great data science capability, great content, but really, it is your picture that made the difference, and we spent a lot of time and effort to make sure that it remains motivated and remains focused on delivering for our customers throughout COVID. So looking at now the outcomes of the strategy. This slide shows the time line, and we've broken this down from the beginning of COVID, Q3 financial year 2020. So January 2025 up to the present date. And at the top, you can see a lot of the initiatives that we launched in corporate, or our new global structure, the launch for our grow to win strategy that we're signing our business, the dramatic cost that we had to do whilst maintaining a great customer experience. The brand consolidation into 2 global brands, the rebrands of both our brands and then some of the launch of the platform with Duty of care, Approval and the other features right up until the investment in Japan recently. We also made investments in technology, TP Connects, which again Mel will talk to later, the WhereTo booking capability, which powers proprietary booking in both Mel and the FCM platform, hotel aggregation, sustainability and also the acquisition of consultant business Nina & Pinta and Shep, the bright extension technology, which is a core part of the FCM platform. And what you can see is the outcome of that. So since the beginning of COVID, we've signed annualized that's AUD 4.5 billion overdue business. And these are typically in the FCM space, 3-year contracts where we expect at least to double extension. So therefore, this is 1 year spent that you can extrapolate it over several years. And you can see here, we've broken the wins into halves, into half years, and you can see the wins going over time. I mean you're really, some of our customers that we can talk to you about today, very well-known brands such as Spotify, AXA, JTI, KPMG, Procter & Gamble, Electronic Arts, Sony, Verizon, BASF in the commercial space. And for the first time, we pivoted to government business outside of Australia. And we've done pretty well in winning the French government business with new gov, but also the U.K. government business, several departments leading the Commonwealth and Development office and a British Council. And if you look at the next slide, what we're showing here is the future projections of these wins. So that $4.5 billion, what is it like in the future? Well, the first bar chart shows 100% of our business in calendar year '19, shrinking write-down in calendar year '20 as the world closed down. And you can see the red part of that bar in the pre-COVID customers and the black part of customers that we signed and started trading during the COVID period. A bit more of a recovery of calendar year up to December 2021. And as we project 12 months into the future, what we're showing here is if the market recovers to 70%. When you're adding the black amount, which is the customers that we've signed or trading plus the gray bar here, which is customers that we have signed with a current distribution design and implementation, so I haven't actually started trading yet. If the market recovers to 70%, we'll be about 115% of pre-COVID levels this year. And that's important because this does not include the customers who are in our future pipeline. These are businesses, customers who have signed. So this really is the validation of our grow to win strategy focusing on too many brands with great products and being very aggressive and out there in the sales and marketing function. So just very quickly over the next 18 months, what we see is to accelerate our customer growth. As I said, our pipeline, our future pipeline is looking the strongest it's been even stronger than what we've seen over the last couple of years. We carry on with our technology ride out of both Melon and the FCM platform, and we keep investing in innovation and meeting customer needs, which is a really important part of what customers value what we do. Keep accelerating our investment in productivity and automation and really leveraging the new market dynamics, particularly on the content side around futures such as NDC. So look, it's been a really challenging couple of years in many ways, but also it's been a pretty positive one, and we're really pleased on where our corporate business sits today, and where it's heading in the future. So on that note, I'll hand over to Mel to talk about our leisure business.

Thank you, Chris, and hello, to everyone. It's great to talk to you after 2 years of essentially 0 international travel and limited domestic travel, which is now changing and changing fast. So firstly, let me give you a quick snapshot of the leisure travel market compared to, say, the corporate one. Firstly, there is no doubt there is huge pent-up demand. All, and that's all our leisure brands, models and markets are experiencing a surge of inquiry and bookings right now including New Zealand, even though it's still fairly restricted. South Africa, which was first in the Omicron wave is already showing a rapid V shape to that recovery. And unlike the business travel segment that Chris talked about, the leisure segment is expected to fully recover, and we are already now thinking beyond recovery. Secondly, customers' needs have also shifted in leisure just as in corporate. And whilst they do want DIY, they also want advice and expertise, especially when it comes to very complex international travel at the moment. And thirdly, regarding the competitive landscape. While there hasn't been much of consolidation as there has been in the corporate space, there have certainly been exits and our supply partners confirm that we are the most active in the market. Thus, we believe we're very well placed to capitalize on this market recovery because of the following things that we've managed to achieve. Firstly, we have a structurally lower cost base, which is permanent. We have also retained a strong and highly accessible shop network. I keep reminding everyone, I think in Australia, 90% of customers are still within a 10-kilometer physical access of a shop. We are operating with a stronger stable of omnichannel offerings and complementary businesses and have very much enhanced our online capabilities where we are also gaining share in the intermediary online market. We are delivering new products and productivity tools and also driving productivity improvements through a much more experienced consultant cohort and optimizing our shop network and staffing levels. We are also already experiencing market share growth even in this very early stage of recovery in Australia, RSA and even New Zealand, as I mentioned. And of course, we have invigorated the famous flight and -- sorry, the famous Flight Centre brand, which has grew rightly, now it's turning 40 this year. So I'll just recap briefly on our overarching leisure strategy, which we're now referring to as our horizons of growth in leisure as we, again, as I said, turn to not just recovery, but beyond that. This strategy remains unchanged from previous updates, and I think continuing momentum provides evidence we actually, we do have the right plans. First, of course, is the iconic Flight Centre brand, which we intend to not just retain our market's leading position but improve upon our blend with irresistible deal, savvy people and technology wrapped in one of the most famous and loved travel brands will ensure that it remains the #1 choice. Next, we have our premium play with travel associates, which has been a winning business for over 20 years, delivering exceptional service and advice to frequent and discerning travelers. And we have our emerging and rapidly building B2B or independent division. These core 3 approaches to winning in the leisure segment are then expanded upon by our complementary yet independent businesses. These new kids on the block, a bit on the side, I sometimes call them, are accelerating rapidly to be the #1 in that segment. Underpinning this portfolio of brands, albeit smaller than recover is a globalized set of services, content and technology, very similar to, as you can see, Chris described in corporate. This leisure, let's call it, a GDS is where we have spent much energy over the last 2 years, maintaining in key tech platforms, pursuing access to content like NDC and building a world-class product merchandising capability. With new core land and air platforms that have also been implemented in this time and standardizing globally, we're now maturing off our intelligence layer to drive better customer experiences and business outcomes, including productivity exactly as per our corporate side of the house. The next slide, I think, just reminds everyone at this point that even prior to COVID, we had transformational plans for our leisure business, and that is indeed what we're seeing now. This period has allowed us to fast track the rebalancing of our portfolio and create a more balanced split of sales across channels and models. These graphs hopefully help to answer that question I get asked all the time of how we'll recover our full TTV and leisure with a smaller shop network. We, in fact, expect to go beyond our pre-COVID TTV, and as you can see, with a much more even weighting. If we turn our attention to Flight Centre, it is the transformation that I'm the most excited about. 2022 represents Flight Centre brand's 40th birthday year and Flight Centre is now positioned to be a major leisure player for decades more. I'd like to think another 40 years. Flight Centre represents a better choice for mass market holiday makers at the best choice. Why is that? It's the unique blend of a famous and trusted brand, which has now been modernized and is driving higher consideration, and we are seeing already new customer growth and industrialized merchandising capability, ensuring Flight Centre's value-based routes in discount is now delivering irresistible holiday deals. Our savvy experts who have tirelessly and heroically in some of the industry's worth time looked after our customers and others, and technology across multichannel, which this year will become truly blended when we roll out our OmniCard capability where customers and experts and indeed social circles we'll be able to build and work on the same holiday plans on or offline. Flight Centre will be uniquely -- will uniquely combine this great brand irresistible deals, savvy experts and technology to remain market-leading. Recently, we've appointed Andrew Stark as the Global MC to drive this slide in that 4.0 global strategy, and I know he and his team are already talking beyond that recovery. Our next horizon of both is our B2B or independent strategy, where we are rapidly gaining momentum, and as we emerge from COVID, well placed to become the home of the travel entrepreneur. The content and technology capabilities that we actually build and continuously work on for our own brands, both in leisure and corporate, can easily be extended to independent, affiliate members and small groups. Additionally, a great capability that we've brought into the B2B leisure segment is the directly implemented from the corporate side of the house is our world-class BDM sales approach. The content take and sales model are then wrapped around our culture where ownership and entrepreneurialism are at the core of our success. Again, over this period of low sales, we have been investing in building this leisure market-leading model in the independent state. At corporate, our BDMs have signed a lot of business. We have a strong pipeline and projections are very solid. We're already seeing some of our B2B businesses in profit as well. Our third core leisure arm is our premium division. Travel associates, as I mentioned previously, pre-pandemic was a great brand and business model. And during this time, we have lifted it to a more luxury position by working with partners like Virtuoso and expanding our model to include, at home with TA and a soon-to-be announced new affiliate program, which actually links to our B2B strategy. Premium and luxury travel will grow rapidly. There's no doubt that rich are getting richer as a result of this pandemic, and we are now turning our attention to our plant in the Northern Hemisphere and our growth opportunities there, which may include acquisition at a point in the future. And finally, our complementary independent brands, our third horizon, if you like, which given the strength of their models and a changing competitive landscape provides further horizons of strong growth for Flight Centre Travel Group. Student Universe, our online student and news business with its unique validation technology can offer this younger market great deals and our supply partners closed distribution. Ignite, our flash sale business incorporating the, My Holidays and My Cruise brand was able to shift to a domestic and increase focus and is already profitable year-to-date, and we believe that to take over luxury space as a category leader. So in summary, our portfolio on leisure, albeit smaller than pre-pandemic of category-leading brands and models balanced across channels, and we have retained our growth momentum, and we're winning pre-COVID and led now by the iconic and modernized and reengineered Flight Centre business will allow us not just to recover but go beyond recovery in this burgeoning leisure segment. Whilst I have the microphone is probably prudent to also update on the supply side of our business, and I know many of you will want to understand the impact of recent point-of-sale commission cuts, particularly in the Australian and New Zealand market, which I might add is one of the last markets in the world to do this. Essentially, we're working to offset the impact of proposed commission changes in Australia as we have always done and do not see them having a major impact over the longer term. Flight Centre continues to maintain strong relationships with a diverse group of suppliers, and we have many long-term deals in place with airlines, hotel chains, cruise and tour companies. And as over my entire 35 years that this has been going on, some are more friendly than others, and we will continue to work with either. In Australia and New Zealand, there is no doubt that some airlines and you've heard about them recently have flagged changes to agency commission structures, which I'd like to add is just one source to Flight Centre's revenue and overall margin. And as always, we have ongoing discussions on the way to offset the impact of any commission loss. So as I mentioned, this is not new. Average international air point-of-sale commission has gradually decreased over the period from financial year '20 by 3%. During the same period, as you can see in the top right-hand graph, leisure Australian margins, in fact, increased. We do this by various margin maintenance strategies. Our mix shift increasing our attachment, our ancillary products, vertical and other aggregation revenue has also been available to us and looking for alternative air margin structures and new initiatives such as the Captain's Package. So whilst we do not support airline moves to reduce point-of-sale commission and the timing to essentially kick a decimated industry, I'll just throw in, we do not see it will have a long-term material impact. And Chris did mention, I think it's good at this point to remind ourselves of our ongoing investment in TP Connect, which was actually arrived at -- because of that situation. This is one of our strategies to secure content and margins. The traditional air distribution models are being disrupted in growth with direct buy seller connections, proliferation of new commercial models, et cetera, et cetera. Thus, Flight Centre has continued to invest in TPC to complement its GDS relationships. TPC just so you know, have a 2-sided business model, and we look forward to working with this company to augment and expand our own air capability and drive its business outcomes in the future. And just finally, a brief mention of our destination businesses. Our destination management company, including our regional cross hotels business and hotels business, and our touring brands of Top Deck and Back-Roads have also actively worked during the pandemic to structurally reduce their cost base, honing their product and maintained their sales progress, again, ensuring as we exit the COVID for future success. And just a nice point to finish on, our Discover DMC has life corporate won a huge amount of business during this period but is waiting for that actual travel to start. So again, I think we're optimistic in the leisure space and comfortable in the supplier space that we're positioned to win in the future. So Haydn, back to you.

Thanks. I think we have time for some questions.

[Operator Instructions] Your first question comes from Michael Simotas from Jefferies.

I don't want to jinx anything, but it looks like there's a light at the end of the tunnel. So that's really good to see. And I think that means the market is going to need to try to focus on where profitability for your business ends up. So I was just hoping you could give us some help on that. And I guess there are 3 drivers, TTV costs and revenue margin I think you've said that you expect TTV at the group level to sort of broadly return to pre-COVID levels by 2024. And Skroo, I think there was a comment from you that you expect pre-COVID profit to return within 18 to 24 months. So I was just hoping you could sort of talk through those drivers. Where do you think costs will land relative to pre-COVID in particular? And then I'd like to talk about your revenue margins as well.

Yes, thanks for that question. It was, look, obviously, we don't know what the ups and downs are going to be, but just from January to February, we're looking, this year, we're looking at about somewhere around that 50% growth, and I think we've said probably previous TTV around that 18 months mark, maybe up to 24 or might even be a bit earlier. Corporate is very bullish. As you heard Chris before because we've had a lot of wins, particularly in the North. So I'm of the view that TTV at the moment, is the most important number for us. I think margin will take care of itself. You heard what Mel said. And I think Chris is of the same view with corporate, but the margins will come back mainly on the mix of business because obviously, there's a fair bit so far of domestic both in America and Canada. Even China, we're doing a lot of domestic in China and Australia, and these are all relatively lower margins. So as the international comes back, and as we get more hotels, cruise, land bookings, the margin will probably take care of itself, we believe, and come back to something like pre-COVID levels might even come back a little bit stronger. Obviously, costs, and you identified that it's really important the costs don't come back to pre-COVID levels when TTV comes back to there. And we're very focused on this. So I think both Mel and Chris talked about the platforms are developed, we spent a lot of money on over the last couple of years, getting -- which will lead to better productivity, and obviously, we have a lot less real estate to pay the high levels of rent on. So generally, we -- and I can't give you exact numbers of how much our costs will be below the 100% pre-COVID mainly because Adam won't let me. But suffice to say, we're pretty weak, we are very determined to keep a very close eye on that and make sure that when we get back to pre-COVID TTV in the next period of time 18 to 20 months or so that our costs don't come back to the same level.

Okay. And then on the revenue margin. We've spoken a bit about airline commissions, and it sort of sounds like you're confident you can offset that by mix and other things. And then I guess the other piece is you're expecting to have a much larger proportion of your leisure mix coming from online that traditionally has been well below bricks-and-mortar revenue margins, but it looks to me like you've got to do a lot of work to shift your mix to maintain your revenue margins where they were before COVID? And am I missing something there?

Yes. I think I'll let Mel have a word on this too. You are right. The more online will be a lower gross margin. But obviously, there's a lower cost as well. The -- what was the other part of that question?

I don't know. But just to add to that, Michael.

Airfare commissions. Yes.

Yes, I think we have had a close analysis of this on our major carriers globally. And we expect at the most, on average, we might be down 1% or a little less than that. But yes, that's the implication to make, we have -- there are many ways to make there. There are a number of ways we make margin on air, and the front end commission is only one, of course. And then...

Yes. So to add to that, Michael, to be very clear, there's current point of sale and its point-of-sale margin is only in the Australia and New Zealand market. It actually happened yonks ago, in the European and Northern Hemisphere markets. So we've seen the impact when it, as I keep saying, it's just 1 sort of revenue because it's point-of-sale revenue at the front end. So as you know, we have ongoing discussions with airlines to give us back-end deals. We look at our special private fares, channels, et cetera, ancillary sales are presenting a huge opportunity for us with our partners so on. So -- but just to -- so we do actually expect our gross revenue in margin in leisure to decrease slightly over the next couple of years. But that's because, to your point, we want to shift the low-margin product on to online, which is what we're seeing already. So we, as you know, being very much expanding upon that capability. So I'm pretty comfortable with the trends. What we're seeing is our shop margin is holding up very nicely. And remember that's still with low international travel availability. So again, at a macro level in leisure, like we have seen in corporate over the years, we actually will experience some decline in gross revenue. However, it's going to a lower cost channel, which is exactly what we wanted it to be able to happen.

Chris, you were talking about the corporate or Northern Hemisphere.

Sure. Yes. I mean corporate, we don't expect any erosion of margins. So there will be ups and downs. Obviously, there always is. But the commission culture, we're talking about largely isolate the Australia, New Zealand market at the moment. I think in the north, look, leisure and corporate in north from my experience we've been in a lower commission or is it even 0 commission in many cases, environment for 10, 20 years. And actually, over that time, our margin has actually gone up. So really, look, it's all about providing value as long as we provide value to our travel customers and our supply customers, then we generate margins it's as simple as that. I'm very confident we do provide value. And in fact, certainly in the corporate space, as travel has become more complex. I'm sure this extrapolates the leisure as well. The value we provide becomes even greater. So margin is one of the things I'm really not that concerned about.

Michael, I'll just to move more color to that. We've actually had maintenance, if not growth in some of our margins of a lot of other products, which we're growing exponentially, particularly our hotel space. And remember, we also, I don't -- you won't remember we took out a whole wholesale layer. So we've kind of compressed our layers as well. So all of those things help to hold up our revenues.

Your next question comes from Ben Gilbert from Jarden.

Just a first one for me, maybe Adam -- I don't know how is going to answer, but I'll ask anyway. Just in terms of the return on capital profile and how to think about that, and maybe you could give us some color on how corporate versus leisure look pre-COVID? And then looking forward, obviously, with the store base now, we should be seeing some pretty material improvements in your incremental returns? I know we have our CapEx in the next little while. Is there any sort of color you could give us around that in terms of how to think about it? Because it just feels like the mix of the business, you could see 300, 400, 500 plus less in your returns. Corporate mix probably drive that higher, it feels like corporate obviously will be off a lot of base -- sorry, a low score base is going to be a much more material portion of growth earnings as we look out 3 to 5 years?

Yes, Ben, I didn't want to answer here. But what I would say is the capital base of the corporate business, as you know, has traditionally been a lot larger than in leisure. And we see that continuing. I mean that won't change dramatically as we look forward. We will continue to be having certain elements of capital deployed on particularly CapEx around things like development of new technologies, et cetera. But that won't shift dramatically. If you do look at the leisure business, I just say we typically, if you go back 5 years, we were probably spending somewhere in the order of $50 million to $60 million a year on CapEx for our shop networks, and that started to shift over the last few years to be more technology-driven rather than shop driven. But again, with the level of shops that we've guided at around 40%, 45% of where we were pre-COVID, we're not looking to dramatically increase that. And so the capital that we have deployed in that space previously won't be deployed here. What we will continue to see though in leisure as well as corporate is that focus on technology to drive productivity and customer-facing ability. So I think we'll certainly be lighter as we go forward. Our CapEx spend previously was somewhere in the order of $100 million a year. Typically, I wouldn't see us going back to that sort of level. This year, we expect somewhere in the vicinity of probably $35 million to $45 million in CapEx as an example, just to give some color to it. That might increase a little bit over the next couple of years, that wouldn't be increasing to the similar levels as we had pre-COVID.

And just on that in terms of the tech spend. So you're doing obviously final job winning these contracts in the corporate and big ones. Is the spend around tech? Is that sort of you've got the base and a lot of money but a lot of businesses pre-COVID, you can't fill that basis there? Is there a step change? And will there be any shift in terms of more meat around things like SaaS in terms of through the P&L? Or is it clean in terms of that cost base that Michael was talking about and then also no incremental step-up in terms of CapEx.

Yes. I'll let Chris, do you want to talk about that in terms of the tech base for the corporate.

Yes, I think I didn't quite hear that very clear, Ben. Were you saying -- could you just repeat the essence of that question? So it broke up a bit.

Apologies. And in terms of the corporate business seems like it's in a really good position to scale. What I'm trying to understand is do you need to put a whole much more CapEx on the tech side in? Or do you feel that you're where you need to be? And should we expect to see any pickup in SaaS payments that will run through the P&L?

Right. Okay. We are in a very good position from a tech situation. However, we do intend to continue investing in both products in both the corporate, traveler Melon and the FCM platform, we want to keep investing to make sure that they remain at the forefront of their respective segments. So we keep, we will keep spending, but the actual core investments have been made. In terms of SaaS payments, we won't see those increase as we scale because a lot of the technology costs are now proprietary. So there should be good unit economics as we scale through those platforms. That's certainly the aim. And obviously, the main part of the productivity strategy is not to replace the same number of people, so the volume of transactions we can do and more of our technology enables full servicing of the transactions as well. It's not just the booking, but the ongoing maintenance of them, the data and analytics will be done by customers themselves. So really both from -- largely from a people saving, we expect pretty good unit economics to improve this roll-up.

And Ben, I can add a little bit for leisure, if you will, like because, sorry, Skroo, just coughed that allowed me. But what was I going to say? So we've used this period to actually bring that scale capability. So I mentioned that we've introduced a whole new land platform, we're still betting it down, but it will give us the ability to scale. And your point about any step-ups. We're actually doing 1 as we speak on our new cap capability. But when I say a step-up, it's a whole package that's sort of no more than $20 million over a period. So you may see us in leisure doing small bundles, but essentially, we've got those core platforms in now. So again, I don't see us have, and we've made those investments already. So I wouldn't see us having to have major massive increases from that. So again, I think we've got the scalability. We're still betting down a few things, but the OmniCard will give us the scale on the online on a blended variety, which will actually allow us to sell a much more a fuller range of content online as well.

That's very helpful. And then just final one for me to Skroo or Adam, just around pre-COVID you talked to PBT margins of 2% plus in terms of what you're targeting? Obviously, the time line is not relevant now. But when you look out over the next few years or so, as the business outlooks in terms of shape of where it's going and changes in commission, et cetera, is that still something you aspire to do a 2%-plus PBT margin?

Yes, Ben, this is Adam. Yes, most definitely. I mean, I think there's a moving part there, as you highlighted. But look, we certainly feel that if we don't come out with a 2%-plus PBT margin, then we've wasted what was an opportunity we never want to receive that we were given. So I would be expecting that the cost base, in particular, will drive an increment in that target. And as we progress over the next 6 to 12 months and get a bit more feel for progressing into the business coming back, we'll start to revisit what that might look like in a little bit more detail with the sales and the market.

Your next question comes from Darshana Nair from Goldman Sachs.

I think I'll firstly start on the cash burn. November was a record month in terms of activity, but actually high both on leisure and corporate, but you still have a cash burn of $20 million. Can you just talk through like the mechanics of how the cost increases have been going through? And is this more of a like a timing factor in terms of increasing cost ahead of expected activity?

Yes. Darshana, it's Adam. Look, okay, we see that $20 million outflow is a really positive outcome actually. If you look at over the last 6 months, we've -- I think we spoke at the AGM. And at that point in time, September was a $41 million outflow. So to quickly bring that down to serve $20 million off the back of increased TTV flowing through was really positive for us and probably indicates where we could see things going over the next month or 2 as well as we see similar, if not stronger trends emerging, post-Omicron. So in terms of cost, I think what you see there is the cost increase was fairly limited during the month. Our variable costs are what we show in there is our variable costs. We're still around that sort of 15% to 20% level, which is where they've been tracking over the full 6-month period. We have had a slight increase in the underlying cost base, but nothing significant in the month going into it. So while we have seen though, as I step back from November and more broadly look at the half, we have seen an increase in our cost base, particularly in relation to personnel costs. And I think that if you look at that compared to the prior comparative period, that's really due to a couple of things. First of all, we did restate a lot of stood-down employees earlier in the calendar year. So we had the full wage impact of those employees back with us particularly here in Australia when JobKeeper finished. We brought those individuals back. And given the Delta impact, in particular, through August and into September, we weren't operating at full productivity for that cohort, but it was important that we brought them back and then we're getting ready for what we know is now coming in terms of that tremendous buildup of demand. So there's certainly an increase there. In the prior comparative, we also had a lot of wide-ranging pay cuts across the business that whilst people are earning over default package now and there are still some pay reductions in inflow, they're not the same extent as they were early in pandemic. And also, as volume comes back and this speed into the variable cost base to show is, we do pay our people in the front end based on commissions, so sales. So payments to our frontline employees have increased as revenue has started to rebound.

Yes. Okay. Secondly, in terms of leisure, looking at the profile of full recovery, you've called out B2B and call centers, roughly 20% of the business. Can you also give us a sense of how the revenue margins are expected for this versus, let's say, physical retailing versus online?

Darshana, it's Mel. I wouldn't see in the call center, but we've got a couple of different call centers based on what they're servicing. So the call center, and we're sort of going through a bit of a process at the moment of looking at how we might structure those moving forward. But if they're handling the same type of product, our international package, we wouldn't see the margin being any different. So it just depends on what actual content. So a lot of our irresistible deals were pumping out at the moment, we're actually showing about a 4x conversion factor. So again we're putting a lot of those into the stores but the contact center will allow us to flex during peak periods. So again, there's no reason why the revenue margin should be any different in the call center if it's selling the same type of product. If it's servicing a point-to-point domestic, no, of course, not. And there, we work on how many touches, et cetera, you generally need to service the booking, which, obviously, in the last period has been completely out of control. So it's really about the like-for-like product and where it's put.

Got it. And how about the B2B business?

The B2B business is a different model because, obviously, in that instance, the external agent is our customer, and they dictate the margin. We have nothing to do with them in terms of what they product at, but we've got some pretty intensive volume. It's a low-cost business and the margin, again, we can supply them with growth. We can supply them with net. So it is a bit difficult to give you a specific on that one. We wouldn't expect it to achieve as much as a higher PBT margin as something like our premium business, but it should be able to still deliver. And I think Ben just mentioned that 2% on before we know we'll still achieve that. But it's not a business B2B that operates necessarily with the gross revenue margin because they decide the pricing.

Your next question comes from Sam Seow from Citi.

This question, thanks to Mel here, picking up on some comments you made about the ancillary opportunities. Perhaps could you give us an update on, I guess, the NDC and the kind of commission structures, airlines are talking about, I guess, to sell the richer content?

So getting access to ancillaries is not necessarily related to NDC access. And we certainly already had some ancillary capability. I mean this is a bit similar to NDC though that airlines have completely different gamers to how you access ancillary, a bit of a technical jigsaw puzzle is going to say nightmare. But anyway, we're quite able to get very high margins on ancillaries and some ancillaries and when I say high margins, you're 40% or 50% on seats, bags, et cetera, because to them, it's just cream. Now obviously, it's a very small in terms gross ticket value. So what we've been doing is rapidly expanding our ancillary capability in online, I think we now do seats, bags, et cetera, and we'll try and make sure we're accessing, if you like, all those opportunities. The airlines like it because it's one of those things if they can get the ancillary sales upfront, it actually helps them manage supply of those ancillaries on the flight. So they're generally quite open to working with us on that base. So that's sort of on the ancillary side. By the way, we also, as the leisure business, might have our own ancillaries and the Captain's Package is a classic example of that, where we wrap up price cut protection, insurance, et cetera, into a bundle for our customers. So not only do we want to get margin from selling the airline's ancillaries, we're now putting into the marketplace, our own ancillaries and getting very good take-up of those because these are good quality products. So that was on that side. On the NDC side, again, that was a lot of our, I said, our rationale and to the investment in TP Connect. Is a lot of the NDC is not necessarily about the airlines will pay more margin on that base it's getting access to the best fares in the first place for our customers. Some of those may or may not be supplied at gross or net. And again, then we can work out what pricing we want to put them out at. Generally, we match airlines when we go out on a point-to-point basis on air. But obviously, when we create bundles, air and land bundles, we can do all sorts of things to make sure our customers get great pricing.

Okay. Great. And I guess when you look at the bulk of when the international outbound flights look to be coming back in the mid of year, the Northern Hemisphere summer, et cetera. Just wondering how we should think about how you're investing in capacity ahead of demand. I mean is there a scenario where you see cash burn getting bigger before it gets better as you invest in marketing and staff ahead of demand? Or how should we think about over the next couple of months before the planes start flying?

Sam, that's probably a daily consideration. We know that capacity internationally out of Australia, I think at 60% by about April. So we monitor very closely with the supply chain, what the capacity is like. And by the way, it's the same on the hotel side. You've got a lot of hotels that are operating still at 50% capacity because they all can find staff and they're having to meet COVID protocols, et cetera. So again, to your point, and we've seen in the last few actions look back to November and demand increased exponentially, we start trying to market more and put more people into our business. And then, of course, Omicron hit, and then February, it's rebounding so quickly. So I won't -- we certainly are looking for more people quickly. The marketing, we almost turn off in those instances because we've become over inquired, that's the strength particularly of a brand like Flight Centre. Quite often, you don't need to go out screaming. If the market opens up, they come to us and drive. So look, it's going to be a juggling act, you're right. We have some quite good modeling on forward projections of booking profiles. So to your point, we don't overspend unnecessarily. So again, we're just managing that. But yes, certainly, marketing, we can pull levers very quickly, particularly as we rely a lot on digital marketing. But with staffing, we -- it's a little bit harder. We can just sort of try and start to the capacity, we think we'll need.

Okay. That's great. And just one more, if I can, you guys, I guess, really benefited from a low point of view, when people get confidence and book further out in advance, I guess, can you help us understand, I mean, choosing that choice of what that used to be and I guess what that is now?

You're talking about forward booking profile?

Yes, yes, yes. And the duration, I guess, between what it used to be and what it is currently now?

Look, to be honest, actually just trying to establish what that pattern looks like. I mean we're just literally in the last few days, seeing new bookings to overtake rebookings, which is a nice thing. I'll give you one example, cruise, we're making bookings into 2023 and beyond, well beyond at the moment. I'd argue the cruise profile probably extended in terms of forward booking. It's hard to say. I think you'll see in the next few weeks the international long haul and which is what we're noticing, and I think I just saw an inquiry that U.K. has now moved up or U.K., Europe has now moved up in the inquiry that of short haul. So you'll start seeing the forward booking profile of some of that as well. But it's a moving target at the moment, to be honest.

Sam, we noticed when some of these border announcements come, you get a real rush from the -- our customers who are looking to travel fairly quickly to get on and see family and friends, et cetera. You also had with November, a lot of announcements about borders reopening. So there was quite a lot of bookings for December for people going away over Christmas, obviously. So there has been a bit of a mix. It's probably not the normal booking window. Yes, historically, it was probably has contracted a bit to about 3 months for international on average, historically, was much higher than that. At the moment, there's some that a couple of weeks in this summer.

Months and months.

Yes. 18 months in advance for cruise. So it is a bit of a moving feast at the moment.

Your next question comes from Mark Wade from CLSA.

Just to start with, just curious to try and understand perhaps on Chris. Just what's been the secret sauce that's may been able to get so much of these new business wins and also even in your side a bit now on gaining market share leisure what's been behind those outstanding gains?

Well, look, both FCM and CT are winning. And I think it's just a very simple strategy we start with over the last couple of years, which is have brands very much focused on customer needs, really making sure the products we're bringing to market, and we're talking to customers about exactly what they're looking for. I think in FCM, there's no doubt that the focus on having a new product out there that gives great proprietary experience, but also has flexibility built in is a differentiator. There's nobody else doing it. So the way we offer a consistent experience and choice is unique, and customers seem to be really loving that. I think also, look, we made the decision right at the beginning of COVID, not to cut back on solution design and implementation, not to cut back on sales, and that has meant we've been very, very active in the marketplace. So rather than growth through acquisition, we grew -- we decided to grow through customer acquisitions. So it's really just sticking with the strategy. And I think having 2 brands, 1 focus on SME, 1 focused on large market means we can simultaneously win at both ends of the market place, which again is very different from most of our competitors. So look, I think it's just having a very clear plan, having management and our people focused on it, not getting distracted and having differentiated brands and solutions. It really is that simple.

And Mark, from a leisure perspective, to answer the question, why do I think we're gaining market share, a couple of things. Well, firstly, Flight Centre is a very famous brand. I don't think sometimes we realize the asset of getting a brand that's well known in the marketplace. And we've been active in the marketplace, even though we haven't been doing a lot of above-the-line marketing. We've become very good at digital, social, et cetera, and even on a PR perspective, and I'll give you, again, quite, I'll use South Africa as an example, right throughout the pandemic out there and marketing telling customers what's going on, trying to be the face of the industry and Skroo's done a lot of that here. I will say our leadership has done a great job on them and our supply chain tell us that we have been the most active. So I think that we've also got this real machine of irresistible deals that's been going out. So I think we're much more agile now. And to be honest, having less places you can go to, it's easy to channel WhereTo market. So we've got a really good much more industrialized merchandising capability where we share content globally and could get it out very quickly. I can tell you now we've had deals and products in the wings waiting for markets to open. And as soon as they do, we get them out in minutes to our database and in those social channels. The other thing I think we're gaining market share is the channel choice now because we've got online in all markets, et cetera, et cetera. So I think particularly Flight Centre and I'll use that one is why it's better than the alternative. If you go direct to supply, you don't get a choice of product, you come to Flight Centre, you can buy any airline, any definition, any hotel, and you can also choose your channel. If you want to talk to someone you can and if you want to do it yourself, you can. And it's been interesting. There have been customers in our stores over the last couple of weeks, particularly who have basically said, "I've never gone into a store until now. I need some help." So that's why I think we're gaining market share because the series of assets that we have around our ability to shop how you want the great deals match to where you can actually go and having expert support when you need it. I just think it's is never before -- or not never before. It's never been front end center. And I think we've got a much better offering as well a consistent customer experience. So I can't see any reason why we wouldn't continue to gain market share.

Yes. And I think you're in a good position, and I appreciate you highlighting that again. And just turning on to the financial requirements of the business, what would be the trigger, if any, to require any additional capital?

Adam here. Mark, look, we're not -- we're certainly not looking at any sort of requirement around that. If you look at the liquidity position that we're in, I think we've worked pretty hard over the last 2 years to stack that up and shore it up, and we're pretty comfortable with where we're up to right now and say we've got a bit there in the chest now that we can draw on as particularly as things start coming back to help drive that growth forward. So there's no expectation of any requirements for further capital at all.

Your next question comes from Tim Plumbe from UBS.

Most of my questions have been asked, but I've just got 2, if that's all right. Mel, can you maybe give us a bit of a sense, I mean, lots of technology and productivity improvements that have been going on within the business? If we think about the bricks-and-mortar business once demand comes back, and we're in a business as usual environment. How much more TTV could each staff member generate given the productivity improvements and technology developments that we've seen?

Tim, that is kind of the -- what's been a luck. That's our question. We've got a lot of, #1 of that we've got a more experienced cohort. So the delivery of those guys was higher anyway, so we take that as the baseline. I mean the less locations, and these are our more productive locations were retained anyway because we were generally getting more turnover for personal per square foot, per square meter of real estate, et cetera. So we've taken all that into effect or into account. And then the system, the technology is really just building. The problem, by the way, this technology is because we've been doing so many changes versus new bookings and even in corporate your levels of automation and are affected when you're in a change, heavy change state versus the new booking state. So I think we saw with New South Wales certainly back in November, and I'll be interested in February when we finished. We've had the highest productivities in our stores at an average level in New South Wales in November. So that fills me with confidence. I think Liberty in America is already achieving higher than pre-COVID productivity levels. So yes, we have our goals of how much we think it can get to based on a series of lots of things. But what's that number? I mean, again, could it double, potentially. There's still how much capacity can an agent actually have the moment remember it's complex. And I'll give you another example. Normally, in an online space, you'd have a ratio of how many touches to a booking. And sometimes over the last few months, it's been 1:1, which is unheard of because you're having to change so much stuff. So again, look, hard to give you a number, but just to say we're already seeing product capability uplift and the technology is still betting down, and that's in a high state of change environment. So I'm quite comfortable we can get to the productivity that we need to achieve the particularly, the PBT margin, which let's face it leisure with the issue and PBT margin pre-COVID, that will allow us to get back to that magical 2%.

Got it. And just one question for Chris. You mentioned no margin degradation within the corporate business. When I look at the pipeline of wins that you've had over the last 18 months, which has been really impressive, is it fair to say that is more heavily skewed towards larger or FCM clients that might have a lower TTV margin attached to them? So whilst on a per customer basis, it might be the same once you change customer mix, you might see a slight dilution?

Yes. I mean that is potentially true. The look, the volume of win is skewed towards FCM. But what we talk, we talk, the thing to remember as we talk about the big customers, the brands that we referred to in the slide deck but there's also a lot of SME business in there as well. We just don't mention the names because you won't have heard of them. So there's also a lot of small and medium customers that make up that $4.5 billion, and they typically do trade at a higher margin. The other thing to remember is most of our growth is coming in the Northern Hemisphere. And Northern Hemisphere typically trades at a higher margin than Australia and New Zealand. So what you're saying is correct. But broadly, we think there are other things that will mitigate it.

Your next question comes from Wei-Weng Chen from RBC.

A couple of questions from me. Just on the 60% to 75% corporate recovery in the next 18 months, that's not a structural expectation of the drop, right? Just more of a point in time, yes? And then just a follow-up is do you have any thought on what that longer-term number might be?

I've had lots of thoughts on it. Yes. Look, I think that the 60%, 75% is general industry consensus. It's what airlines are talking to. It's what the TMCs, it's what GBTA and it's roughly what our customers are telling us. I think that -- I'm -- and I know there is this agreement here. I don't think corporate travel will ever come back, certainly not in the short- to medium-term future to 100%. I think it will be lower. What that number is? I really don't know. And I don't think anybody really knows. People are putting very accurate estimates out there, but I don't think anyone knows. But I suspect it's going to be somewhere around between 70% and 80%. And look, it's our job to remove erroneous travel. That's what our customers pay us to do. We don't want customers traveling both from a sustainability perspective. And from a cost perspective, we don't want customers traveling when they don't need to. But again, just to reiterate, the whole message behind our strategy from the beginning of COVID, we don't need it to come back to 100% our strategy is about growing by winning new customers, not by the market recovering to 100%. So we're actively trying to save customer's money and ensuring they don't travel and if they need to, and we're very relaxed about that.

Yes. Great. And then I guess my next question is a follow-up to that. So Slide 33, at 70% recovery, your pre-COVID customers grow at 61%. So if I do the math on that, that's about $1 billion of lot TTV and then add the $4.5 billion that you've won. Does that mean we should think about a more $3.4 billion net wins?

You can look at it that way. Yes. I mean, you're right. Our existing customers are not going to trade at the same level. And so yes, you can net that off if you look at it that way, yes. You asked that question, correctly.

Sorry, Chris, just with that note, Wei-Weng, that's not $1 billion of losses going through that market reduction impact.

Okay. It's just I thought at 70%, your 100% would go to 70%, but it's gone to 61% is that how it is going.

That 61% of 100%. So if you add up 61%, 23% and 16%, that's 100%.

Yes. That is a proportion. The proportion is where the total comes from, Wei-Weng.

Yes. That's not 61% of the 100%, that's 61% of the new total.

Okay. And then...

Our retention rate -- sorry, just our retention rates have actually been excellent. So it's one of the things we're very proud of as well. We've lost very, very few customers over the last years. So it's not just about winning. We don't talk about retention, but it has been really excellent.

Yes. No, that's good to hear. And then just the last question just on the leisure business. So I appreciate there's a plan A in place to kind of offset the reduced store count. But I guess, given that there is an expectation that customers will want, I guess, more handholding in post-pandemic travel. Just wondering, is there a plan B in place if you start to realize that the store counts are starting to impact on our sales? And would you roll out more stores again? Or what would you do increase staffing?

Well, yes, there is a plan A and B and probably it's more about, I remember a lot of our stores probably operate at a disbursed call center because we still get a lot of our volume of business on the phone as opposed to that 100-year-old piece of technology, not the Internet. That's probably more our plan B. If we want more stores. And by the way, we did just open the first New York store in South Africa, good story. It was actually a massive mall that we couldn't get the right deal we exit. We've come back in at a better location, cheaper rent and killing it. So if we wanted to, yes, we would open, but it would be selective. We would more use the call center because we can channel the phone calls into that kind of environment for people sourcing, yes.

Your next question comes from Michael Simotas from Jefferies.

A quick follow-up. The chart you've got on Slide 47 is very intuitive. I was just hoping you could give us a little bit more color just so we can understand the dynamic on what you're all in if a gross margin has done for that period? So it looks to me like you've made up a lot of the ground with mix. So what's the airfare mix to sales done? And how much of that offset has been through mix versus other things that are in your airfare commissions?

Might be hard to be very specific on some of that because just a good reminder. I don't know if I remember that it was just post the GFC, we had the first decline in front end, and this is what this graph reflects. You used to get 9%, what they call BSP at source commission. That dropped to 5% back just around the GFC time here in the Australian market. As I mentioned, it already happened in Europe and North America decades before that. So that was the first decline. So we're showing that, that was a step-change, and we've managed to offset it at a revenue level in leisure. That would be mixed. Yes, definitely selling more of land content. Things like our Captain's Package was introduced not long after that, our own series of ancillaries. Sorry? And the other one that I don't think we went vertical on our land space at that time, too, quite heavily. So our plan we'd kicked off in about 2000 intact at the same time about 2008 or '09. So we actually got closer to the source in terms of our hotels, car hire, et cetera, et cetera. So it's a mixture of all those things, not necessarily a quantum shift in actual mix of what we sold, just certainly the way we got. And I don't know if you remember also telling it around with the GFC, when we were doing a lot of the roadshow at the time, we also went for a lot of guarantees versus a very cyclical sort of profile with our partner. We tried to secure a much more surety of margin, et cetera. So again, I think a lot of those strategies. So it wasn't necessarily a fundamental shift in mix. Yes, we've certainly been selling more and more land, but a combination of all those things. It would be hard to pin down one specifically as the key driver.

Michael, to answer it slightly differently, if you look at probably what the average airline paid us as a margin for International out of Australia was probably somewhere between 8 and 12 typically for an airline, some more, some less. And what you can see in those red lines and obviously, we do a mistake in the initial table. So if you're looking at the initial one that was large, maybe have a look at the second one. The words are correct, but the commission percentage has been mixed around in the graph. If you look at the commission, it's gone from 6.7% as Mel was saying, post-GFC when commissions went from 9% to 5% basically. And it's now down to around 3.7% ahead of these changes, but the overall margins gone up, partly because of what Mel was saying there with the new products, but also a shift from running to back-end margin, which is all the travel agents are talking about this at the moment. However, we mentioned at TTV mentioned that no we did, will also mention it. It's taken away from the France not necessarily a bad thing. It just depends how much you make up in the back end or to other end.

Haydn, over that period, did your all-in gross margin, if you like, or commission, whatever you want to call it, from airfares as a percentage decline a little bit?

Yes.

Yes.

Yes. Okay. And I think there was a data point I kind of remember it was that airfares were about 50% of Australian-led TTV. Is it less than that now? I mean, obviously, not right now, given COVID but just before COVID?

It's -- and that's why I'm saying that hasn't changed radically. I think it is still around. It's a bit a more -- at the moment, it's interest because it's domestic and remember the domestic airfare, the proportion versus an international is so much less. So I think it will be interesting to see that pattern as we come out with international. But again, going back to this, we've really industrialized our merchandising capability during this period. So we're putting a lot more packages and bundles now. And it's, again, as I said, it's really resonating well with customers. They love it because we're experts. We're putting out there what you should be doing in these destinations, not having as much bespoke consultant quoting per se. That's helping out. That will help with the margin as well.

Your next question comes from Peter Drew from Carter Bar Securities.

Just a couple of quick questions. Just with respect to the leisure TTV channel mix, I just want to know sort of how weighted are you to that FY '24 mix? And I mean when I look at, I guess, FY '19 versus FY '24, obviously, the core channel has been stores. I don't doubt your ability to run them. But obviously, online needs to triple. So I'm just wondering how accountable are you going to hold yourself to that mix. So if stores are making good sales, productivity is good, how hard are you really going to drive that online? And what are you going to do to achieve that?

Peter, it's a great question. And are we weighted to it? No. We've done modeling based on what we're thinking now. And remember, this is the scenarios around it. So if customers were flocking into stores, the margin was holding and our new store network or reduced store network was delivering great returns now, we would go with the flow. It's one of the things I think we've created in leisure over this period is optionality that we go with the market. So that if, as I said, stores continue to be something at people, and let's be frank, it to the people, not necessarily the store they want to have access to and then we'll ramp up more in our sales centers. Your other part of your question is how accountable. We have been rapidly industrializing and upgrading our online capability. We've had various people in our business over the years, and I'm really comfortable we've got people with expertise, know what they're doing. You heard that, that's the step-up investment we're doing at the moment with leisure is in our OmniCard. And that's going to be great because OmniCard unlike just online, we won't have multichannel. You'll actually be able to start booking a customer can hold some things in their car, they go into a store in vice versa. So it's actually very different to an online offering. It's not just supporting an online transaction, which any OTA can do. It's actually the ability for customers to almost start one, go I want to help and go and speak to someone or vice versa a consultant to start the discussion, the customer gone to think about it, might complete it online. It will be unique and quite different. So back to the accountability is certainly in play at the moment to make sure those things are delivered that we're getting the performance out of them, and that further investment requires actually seeing returns on that capital. So I'm pretty comfortable we've expanded on our skill set and our talent pool. We've invested in the right products. And I think -- and that's why the graph is here, the trends there. To your point, if we were completely changing from the '19 to the '24, but we can already see the momentum and the flow is there. So I'm comfortable, as I said, and confident that we can deliver on. But are we weighted to it, not necessarily we'll go with the flow.

So Pete, just to put it slightly differently, we will hold ourselves accountable to make sure that each of those offerings -- the offering that our customers need and that they're available by the percentage will be dictated to by our customers.

Exactly.

That would want actual it will be by choice.

Yes, that's a good explanation. And then just the last one, maybe for Chris. I just want to clarify how you actually arrive at the value of those new customers one. Do you get an FY '19 spend and then apply a discount to us based on not returning to 100%. I'm just curious how you quantify that the value of those costs you want.

In essence, yes. So that spend is not based on what we think will trade this year because obviously, no company is traveling at normal capacity. So it's really, the data we get from customers, which is typically FY '19, and we applied discounts based on what we think it will return to. And we do that with the customer. So it's not just us plucking a number out of the air. And remember, when we signed these accounts, they're typically 3 years, if they're FCM. They're sometimes 5 years, and we do expect at least 2 turns of the contract. It's normally more, but at least 2, so when we say that number, you can extrapolate over that number of years. It's not just a 1 year thing.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Long for closing remarks.

Well, thank you very much, everyone. Anything else required this call around during the day. We're actually in Sydney seeing some people and doing a few virtual calls as well. So travel back safely. Thank you.

Thank you.

Thank you.

Thank you.