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

Thank you for standing by, and welcome to the Flight Centre Travel Group Full Year Results Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mr. Graham Turner, Managing Director. Please go ahead.

Good morning, everyone. Thanks for joining us today for our FY '22 full year results presentation. To keep you on your toes a little bit, we've changed our order. First up, you'll hear from Adam Campbell, our CFO; Adam will run you through the numbers and the highlights before handing over to Skroo. Skroo is going to focus on outlook, which is starting to look a little bit more promising this year than it has for the last couple before handing over to our 3 divisional CEOs. Firstly, Chris Galanty from Corporate, then James Kavanagh from Leisure and Melanie Waters from Supply. Skroo will then come back at the end to close things off and to take some questions. Thanks. I'll hand over to Adam.

Thanks, Haydn. As we mentioned in our market release last month, we finished the 2022 financial year with solid momentum at final underlying EBITDA loss of $183 million better than initially expected. Results in January and into February were heavily impacted by Omicron. But our trading from March, and particularly the final quarter of the year allowed us to break even for the second half with both corporate and leisure returning to profitability within the anticipated timeframes of March and June, respectively. And you can see on the graph on Page 4 of our deck, our fourth quarter TTV alone exceeded the full year FY '21 TTV levels. And this was driven by both higher airfares, particularly international and significant demand uplift in both corporate and leisure as government restrictions continue to ease. For the fourth quarter, both global corporate and global leisure as well as all geographical regions other than Asia were in positive EBITDA, and we've been generating positive operating cash flows since March. Just a couple of other key financial highlights on Page 5. Firstly, with our corporate business. As we've spoken outright throughout COVID period, our corporate brands continue to have exceptionally high customer retention rates. And we've won more than our fair share of new customer accounts, almost -- or around $2.5 billion in annual spends secured in FY '22 alone. This has resulted in the corporate brand growing at a faster pace than the industry recovery and our primary peers. In the month of June, TTV was at pre-COVID levels and transaction volumes at around 89%. Our leisure brands also made public market share gains in our core markets of Australia and New Zealand, with many new customers using us or for that matter any travel advisor for the first time. And TTV growing across both our traditional and new business models. Our consultant productivity is at a record level, thanks to the customer demand we're seeing as well as our investments in new consultant technologies with our reduced physical shop network continuing to contribute the majority of our leisure volumes. One area that I think we have balanced very well over the last 2 years has been a need to initially reduce and then maintain our cost base with the equally important need to continue to invest in our people, products and technology. We'll talk to both our cost base and investments further this morning as well as the strength of our balance sheet as we progress through this recovery phase. I've included the P&L on the -- in the slide deck, but the following couple of slides after that, we've actually addressed the key takeaways from it, so I'll just talk to those. So firstly, on Slide 7, it shows TTV of just over $10 billion for the year, which was a significant improvement from 2021. And as mentioned earlier, it was very heavily weighted to the final quarters, thereby giving us a good momentum as we head into the new financial year. This momentum can be seen across both our corporate and our leisure businesses, with corporate being at pre-COVID TTV level in the month of June, and leisure at around 60%. The increased yields we're seeing with international and to a lesser extent, domestic airfares mean the transaction volume and the revenue are lower than the TTV recovery, but still increasing month-on-month. And as mentioned earlier, we're certainly seeing good market share gains across our 4 geographic markets for both our leisure and our corporate brands, which can be seen in the graph at the bottom of the page. As I mentioned earlier, our success is structurally changing our cost base as we progressed over the last few years. And this is evident on Slide 8, where we highlight our current cost base versus pre-COVID. While not providing guidance on our future cost base target, I can absolutely say that we expect to be able to serve at pre-COVID TTV levels with a significantly smaller cost base. In the short term, all companies will be facing the impact of a high inflationary environment, but we should be somewhat shielded, I think, for the full impact of wage inflation given the natural flex within our remuneration system with the current high-productivity, high-demand environment, benefiting our incentivized sales staff. And the extension of the Global Recovery Rights share plan for the second year also [ continued ]. Our further [indiscernible] already, and there's a bit more detail on Pages 9 and 10 of the slide deck. And so I'll simply highlight once again, the diversity that we have across both our geographies and our brands and that we're seeing a return to EBITDA profitability across all of those segments. The only exception, of course, is Asia, which is heavily impacted by the continued restrictions in China. I'll finish the results section before handing over to Skroo by just commenting on our cash and liquidity position. And note that we have $1.3 billion in total cash and the liquidity position of $700 million, even after a full working capital wind-down and the exclusion of client cash. And now generating operating cash flow inflows on a monthly basis. We remain in the solid financial position. Our bank covenant relief has been extended until 30 June 2023. We fully repaid GBP 115 million COVID funding facility in the U.K., and we have accumulated tax losses of around $1.3 billion to offset against future profits. All of these positive factors give us a great benchmark to consider our optimal medium-term capital strategy, taking into account funding requirements for future growth, optimal debt structures and shareholder returns. I'll now hand over to Skroo to talk about our current trading opportunities and outlook.

Yes. Thank you. That was very exciting what you just said and [indiscernible]. We just look a bit at the outlook, some of the opportunities we see over the next 12 months and 2 or 3 years. I think as we all know, the global travel market is a very resilient one. And this slide will show you on the right-hand side of the graph with the GFC, 9/11 and the first Gulf War. And you'll see that hiccups that don't last too long. Travel obviously will be worsened by the limp because of government restrictions. So this is a positive thing. And obviously, because of a lot of the cancellations, the lower capacity, there will be a greater need for expert assistance. And also, we believe there is going to be a lot of upside potential in travel generally as you'll see as normal travel patterns return. We don't expect the full travel market recovery in the countries we work in, in this financial year 2023. But certainly, somewhere in the second half, we will probably be tracking at pre-COVID levels in our TTV. As we said, strong amount from quarter 4 in 2022. In the corporate, TTV recovery was achieved to 100% on a monthly basis in June and about -- leisure was about 70%. So -- and if you look at the figures on the right, we probably expect out somewhere between $19 million and $20 million TTV in this in this financial year 2023. Most of you will know about the supply constraints. It is particularly evident in Australia, obviously, because we obviously locked down a lot worse than most other countries, except China and perhaps Japan. So it's going to take us longer to recover than the rest of the world. I think the rest of the world airline capacity is about 87%, Australia and New Zealand is around the 50% outbound. That was the end of July. And obviously, this lack of capacity because of the extended shutdown has led to higher-than-normal airfares, particularly in premium. But even so, we've had a good look at the 10-year bird's view of fares and cost of living increases and wage growth. And still even in an economy that generally just as affordable as it were 10 years ago. So it's not all bad news. On the next slide, monitoring macroeconomic challenges. Obviously, we know cost of living increases. Inflation has started to rise after some years of low inflation, but one of the upsides at the same time is very low unemployment. And obviously, very low unemployment is good for outbound travel as we all know. One of the things that's been quite well highlighted and the next slide shows is our lack of staff. We went from 21,000 people globally to about 7,500. And as Adam said, we had to keep this low cost base for more than 2 years. And so getting back the numbers of travel experts that we need means we have to attract a lot of talent. In Australia, we are getting about 3,000 to 4,000 inquiries each month, and employing about 200 or 300 people. And globally, it's more like 500 people a month, and we still have a number of months to go before we'll have enough people. And obviously, in most areas, we're winning market share. So we will probably come back considerably more in the next 12 months. If you look at the macroeconomical tailwinds, we talk about interest rates and unemployment rates. And you can see by traditional history that even now the current -- the current longer-term average is still a lot lower than the longer-term average one. The orange graph is much bigger than the blue one and the same with unemployment rate. So we do have -- we do think that the economic outlook looks pretty good for travel because the interest rate is still relatively low and the unemployment rates are also lower. So our outlook for '23 is obviously too early to provide guidance because we're still in the recovery stage. And we think, particularly over the next 6 months, it's going to be a little bit lumpy, or as Adam said, volatile. But as the year progresses, we think it will become more and more normal with financial year '24 getting back to a reasonably high level of normality, subject obviously to global events. So -- and in financial year '23 profit and TTV are probably weighted to the second half more than the first half. But we'll be disappointed if on EBITDA basis, we went in positive territory each month and this first half. There's been a solid start to the year, both in leisure and corporate, and we're hoping to maintain that about half our revenue will -- growth of revenue will be converted to EBITDA profit. And conversely, that our costs won't be significantly or more than half the growth in profits and half the growth in EBITDA. So in the next slide, we believe that Flight Centre Travel Group is well placed to benefit from the conditions now in the medium-to-longer term. And we aspire, and this is probably fairly obvious, to be one of the largest diversified travel companies globally. We have a large and growing corporate business with a global footprint in 26 countries, I think and a high-profile leisure business in half a dozen countries, but particularly in the Southern Hemisphere, in the mass market of leisure, but also in the Northern Hemisphere with a more specialized business in the U.S., Canada and the U.K. We believe that particularly with both the opportunity to have online and offline travel both in corporate and leisure as well as developing some of the well-known in-destination brands that we're well placed in the next 3 or 4 years to come back very profitably and with significant TTV growth. During the last 2.5 years, we've enhanced our tech platforms, both in corporate with our Melon program and Helio in our leisure and also TPConnects which you may know we purchased the remaining -- significant part of the remaining shares there in some short timing. We also believe -- we know we've got an experienced taskforce team in place with an average tenure in Flight Centre of 25 years. Next slide, I will take you through report of the 7 people in my taskforce team or 6 people besides me, having a tenure of 20 years. So there's enormous amount of experience and capability and ability in our senior leadership tenures. As we've said before, the resilience of travel, which is -- we believe, is a discretionary product that people do reinvest in every year, whether it's domestic or international. But particularly, in places like Australia, New Zealand, Canada, South Africa, in the U.K., there's no doubt in the U.S. for that matter, no doubt that it is discretionary, not something the people do every year. So we'll have an ongoing strategic focus on growing our TTV, market share growth at the same time, making sure that we can grow our overall margin and revenue. And obviously, keeping our costs under control from a low cost base. This happened during the last 2.5 years of COVID. The one bit of really good news is Kirsty Rankin is a new Board member. She's going to join Gary Smith, Colette Garnsey, Rob Baker, John Eales and myself on Flight Centre's Board. We've tried to scare her off by letting her come to few board meetings, but she insists she still wants to stay, so welcome to Kirsty. Thank you. Now I'd like to hand over to Chris Galanty, who's just getting there in the U.K. at the moment. Thank you, Chris.

Thanks, Skroo. It's my pleasure to give an update on our corporate travel performance today. There remains a simple message behind our strategy. We've been focused on driving growth. In fact, we called our strategy Grow to Win. Our growth is a result of driving a high-quality customer experience that enables us to retain and win customers and therefore take market share. In addition to the numbers that Adam provided earlier, I highlight some performance trends. I'll give a quick recap on our Grow to Win strategy and our focus in the next 18 months. But I'll start with some reflections on 2022. So firstly, the return to travel. We've been really pleased with the rapid return to travel as business world opened up. In fact, it exceeded what we thought at the half year. There has been lots of friction in the industry, and I think it's really -- the return of travel really shows the resilience of the corporate sector. So you've heard all about the shortage of staff at airlines, airports, difficult in getting passports in some markets, delays, cancellations, lost baggage, et cetera, despite all of this short-term friction, there's been a really active return to travel. Customer needs have changed. We've seen the volatility, the friction of the industry really highlight importance of the high-quality travel management companies such as ourselves. We've seen customers really desire a need for great customer-friendly technology to help them navigate the new world of business travel. But combined with that, we've seen a real reliance on high-quality people, which is something we've tried ourselves on for many, many years. There's also been for many customers a strong focus on sustainability, making sure as their travel program restarts, we are able to help them achieve their sustainability goals. Just a quick view of the competitive landscape. Well, there's certainly after the consolidation at the top end of the industry, there's fewer choices for large enterprise customers, which has really helped FCM, in fact, we'll be invited to more RFP than we ever have been in our history. Some of the legacy TMCs have struggled to adapt to the new needs of the customers, struggled to invest for a post-COVID world. And again, that's really helped us. And some of the tech-only startups, we saw emerging in some parts of the world prior to COVID, have really struggled to deliver what customers need when technology and people are both required. So you look at some of the trends, you can see on this slide, our corporate recovery at the 30th of June. We got to -- exceeded our pre-COVID level of TTV, actually 6 months earlier than I predicted at the half year, I thought we'd get this level. In December '22, we in fact reached it by June, partly delivered by a fast return to travel and partly delivered by an increase in average transaction value or the average cost of an airline ticket. Transaction volumes though were close to 90%, and they've increased since then, and revenue has got to 80%, which we really all 3 of those KPIs are way ahead of what competitors set in the market and is a testament to Grow to Win. The next slide really shows Grow to Win in actions. This is a slide that we showed at the half year, and we've updated it since then. So what it's trying to show is that we are not and have never been in our Grow to Win strategy reliance on the market recovering to 100% of pre-COVID. We thought it would get to around 70%, and that's what we based our Grow to Win strategy on. You can see the red -- the big red chart at December '19 with that pre-COVID TTV levels. At the half year, we got to 33% of our existing pre-COVID customers are traveling 1/3 from what they did pre-COVID. And then the dark gray, the 8% is customers we signed -- new customers we've signed since the beginning of COVID. Fast track to June '22. And you can see that our customers, our pre-COVID customers have recovered 78%. And our new customers traveled 22% of pre-COVID volumes, has got us to 100% of where we were ahead of what we thought. Taking that forward to December '22. So looking into the future now, and we can do this in corporate because we can actually see our active pipeline and customers that we've already won. We think that our pre-COVID customers will go down to about 73%, and that's largely because of a fall in average transaction value as we predict the supply and demand in balance to get slightly better. We think that the customers who already signed will reach 25% and then new customers, the customers we've already signed, but are currently in implementation solution design will reach 9%. But the end of the calendar year, we'll be about -- just under 110% of pre-COVID levels and then fast forward again to June 23, and we introduced a new category, which is customers who we haven't yet won, but we're in the final stages of RFP. We can comfortably predict that we'll get to 120% of the size we were pre-COVID and this is all through winning and retaining customers. This isn't required for China to open up or Japan. We can't predict any of that stuff. We don't know when that will happen. It is just accepting the world that it is today. So really strong growth. And the next slide shows us at a transaction level, the same sort of trend. You can see the black line from December '21 to the half year to the full year of June '22. The black line is a rapid recovery in transaction numbers as the world opened up. You'll see that trend continue as we implement new customers. So a linear growth of transaction numbers, more volume coming to our business. Again, not requiring China to open or anything like that, which is simply us implementing new customers. Similarly, you see a rapid increase in income per transaction from the half year to the full year. You will see that trend continue as well. As there is some increase in income per transaction for the money we make per transaction. And then you see a rapid drop in cost per transaction as economies of scale kick in, and you'll see that trend continue downwards as well. So this is Grow to Win in action. This is how it impacts our bottom line, vastly more volume, better income per transaction at the time, lower cost per transaction, therefore, better profitability. Another performance side is the Grow to Win timeline. This really shows some of the innovation in corporate, some of the investments we've made, largely technology and consultancy investments to improve the capability in both of our brands and some of the productivity growth initiatives. And really what this results in is a record $5.8 billion of new annualized new wins during the COVID period and a record -- this just financial year just concluded of AUD 2.5 billion. And you can see some of the fantastic customers that were privileged to have brought on board in the last couple of years. Now these are the customers, the enterprise customers, the governments that you've all heard of, but actually, it's important to remember that the majority of our new customers are SMEs, average spend is USD 200,000 a year on travel. Now these aren't household names, but they're very important at the foundation of our business. So a quick recap on the strategy. Why are we winning all of this business? Well, to start, we have -- we play a 2-sided model, really, which is, on the one hand, travel customers, so the corporations or businesses and on the other hand, a supply customers, the airlines, the hotel chains. And it's really when we deliver value to both of these customers so their performance really shines. And on -- we address the market with 2 brands, FCM in the large market space, which is really the only global alternative to legacy TMCs and really offers a different approach to travel management, a lot more flexibility, great customer-friendly technology. And I think really, it's fair to say FCM shaping up the large -- the top end of the market in the last couple of years. And in Corporate Traveler, our brand specializes in the SME space, operates in 6 of our core markets and has a completely different customer value proposition designed around those smaller customers who need their expertise. And having these 2 brands enables us to win both at the top of the market, the large high profile, enterprise customers throughout that whole market and then right down to the local SMEs as well. So our unique value proposition, our strategy on a page, it really starts at the top with our 2 differentiated wining brands, Corporate Traveler in the SME space and FCM in the large market and enterprise space, both of which have their own proprietary customer technology, Melon in the digital platform in Corporate Traveler and the FCM platform, both of which are differentiated from what the competitors have to offer, but both of which are specifically designed for their respective customer categories. The FCM platform launched originally in China, is now operating across all of our 100 markets. Every new FCM customer goes straight onto the platform and all of existing customers in the process will be migrated. Melon has gone live in North America, it's about to go live in the U.K. And again, both are receiving great feedback, and are one of the reasons that we are winning so much business right now. We also have our industry-leading organic growth, what we call our sales and marketing machine, and this enables us to reach more customers than any of our competitors and to convert them into new customers. And we share capability across both brands, but both brands have dedicated sales and marketing teams because the customer sales cycle is so different between the 2 categories. We then have a high-touch service automation. This is really our operations and trying to make it efficient as possible, particularly in FCM so we introduced artificial intelligence and robotics and automation and process transactions quickly and accurately, but we also backed up with great data and with a great offline personal experience for all of our customers, too. We then have that supply partnership and proprietary aggregation. Mel will touch on this later, but this is really about making sure we get the right content by the right channel to the right customer at the right time and being really world class at this, and I'd argue better than any of our competitors in the corporate space gives us the big competitive advantage. And the foundation of all of it is our people, our culture, our sustainability, really everything is built on our people and our culture. It's why we're different. It's why, ultimately, I think customers do business with us. They say they love our technology, they love our consultancy capability. But I think it's ultimately our culture that makes a difference. So just looking at the next 18 months. Firstly, what are we doing, we're going to focus on accelerating customer growth. We're going to continue our Grow to Win strategy of retaining customers. I'm proud to say that in FCM, our customer retention rates and our contracted customers is well over 98% again this year, but we're going to add more new customers to the business over the next 18 months and carrying on with our technology product rollout. We're going to accelerate service model productivity. This simply means being more efficient, so turning more of the revenue into profitability, giving a better customer experience in both brands. And finally, we're going to leverage our new market dynamics. It's really working with our supply customers who have their own strategy they want to achieve and they're using technology now to change that. And we want to be a key strategic partner in there. So really, the message for the next 18 months is carrying on the Grow to Win. It's working really well. We're gaining market share. We've delivered on the promises we've made to customers that we want to carry on doing that. So that was a brief summary on our corporate performance and strategy. I'll hand over to JK now to give an update on leisure.

Great. Thank you, Chris, and good morning, everyone. So it's my pleasure to give an update on the leisure category, and I'll focus specifically on some of the trends that we're seeing on our main leisure objectives and also the key areas of investments that we're focusing on. So pleasingly, leisure sales really accelerated in the second half of last year. And it's great to see that pent-up demand that everybody has been talking about is really turning into travel bookings despite the airline capacity challenges, disruption, rising prices, et cetera. And also, we see the beneficiary of this where we've actually been growing market share as a result in the 9 countries in the Southern Hemisphere. What's really happening what we're seeing with our customers is that there's certainly changed but also cautious. Some of the trends that they're booking a lot closer to departure now where we're seeing customers book about 70 days prior to departure versus pre-COVID would have been about 90 days. Pleasingly, we're also seeing that holidays are now replacing visiting friends and relevance travel or VFR travel for the first time. And we're also seeing that trips now are on average 3 days longer than pre-COVID. So while we call uncertainty is the new certainty in the travel industry, what we're also seeing is a renaissance of the trusted travel advisor. We're welcoming many new customers that they haven't actually booked with a travel agent before in our retail network, but also see many customers start to book online too, we will talk about in a few minutes. Our brands now have gone through a lot of rejuvenation over the past couple of years. And this means that we're also appealing to a wider audience and are actually seeing the purchase intent increase into a younger demographic where we've seen that purchase intent grow from 16% interested in booking up to 25% of customers in the younger age group, and that's actually flowing through the bookings, which is great to see. So the main 3 objectives in our leisure business now on the next slide is really #1 is about differentiating and growing Flight Centre's market leading position in the Southern Hemisphere in the countries we operate there, Australia and New Zealand, South Africa, while also fast-tracking plans in the U.K. and Canada, and that will be done with Flight Centre omni program which I'll speak to a little bit later. Number two, it's about rapid global expansion in the growth categories of leisure travel, which is really in that premium and luxury segments, but also in the independent agent community. And the third main objective for leisure is to really accelerate our investments in a portfolio of complementary brands. We call these product specialist travel brands, but also feeding future viable options that are really complementary to our main leisure strategy. So on the next slide, you'll see really our portfolio of brands in the leisure segment. And what's really unique about this proposition is that we have enough brands that appeals to wider -- actually can offer our customers with the widest range of products, services and value in travel across the diverse portfolio of brands. And the great thing about this, and it also is beneficial to our suppliers because in turn, it gives our supply chain access to the most diverse range of valuable customers. So the areas that we're focused on in the B2C segment, we're really focusing on growing Flight Centre, which is in the mass market category. Flight Centre has always been famous for flights, but we're now really offering an expanded range of value-focused holidays to complement the expertise and great value that we offer in the flight segment. In the premium and luxury travel category, Travel Associates went through a bit of a facelift and has repositioned itself as designing one of a kind travel experiences for discerning and luxury travelers. And those -- that segment is really returning fast into the marketplace and the business is growing exponentially. When we talk about our portfolio of complementary brands. These specialist brands, and we have many of them in the slide in the deck that you'll see a really focused on areas such as the ready-made holiday segment with MyHolidays or student travel online, the StudentUniverse, our brands that are quite specific in the segment of foreign exchange, like Travel Money Just to name a few. So over the past 2 years, while we've reshaped our retail property network, and in Australia, we talked a lot about this whereby a retail network is now within 50 K radius of 95% of our customers. We're also looking at ways to reach a broader range of customers. So we scaled up our offering and invested quite significantly in our solutions to the independent agent community. And we announced a few months ago just a partnership with Goldman Travel and Spencer Travel here in Australia with the formation of Link Travel Group. Now this group here is actually complementary to our broader strategy. We have a similar model that's up and running in New Zealand. And we're effectively looking at these agency member models and exporting this model, which is quite successful to be able to grow globally. On the next slide, you'll see by investing in these new channels and new models, over the coming years, we really expect to see Flight Centre continue to be the major part of our leisure portfolio that make up just over 50%. But we'll see these new complementary models making up also half of the leisure segment. And in the last quarter alone in FY '22, we're seeing independent is now 2x bigger than pre-COVID. And in our complementary portfolio, the Ignite business, which is MyHolidays, is now 50% bigger and the premium brand Travel Associates is also bigger than what it was pre-COVID. So on to the next slide, we'll look at the 5 key areas that we are investing in the leisure to achieve growth. Firstly, it's about global expansion of our brand, network, models and people. We expect to open a further 38 stores and Flight Centre in the coming year, which will really complement our omni travel offering, and we'll see more stores opened in the Travel Money segment as well. Number 2 is very much about digitalizing the customer experience. So we certainly didn't waste this crisis and invested heavily in digital customer solutions to really pivot our business from the traditional bricks-and-mortar business and to move more into this omnichannel segment. So we've spoken a little bit about omnichannel before, and I'm really pleased to say that the program of work is really on track to enable our customers to move seamlessly across online app, call center or in-store channels to be able to shop with their shopping carts and improve the customer experience. So what we've also seen here now is that online sales have grown quite considerably from 5% of our volume and now make up 20% of our volume even as we continue to grow. Our market share, which has been shared with us from our GDS partners shows that our online share has doubled to 24% in recent months. And we're also seeing now that about 65% of our customers' journey is actually starting on mobile and some of the reviews that are actually showing up on our mobile app shows 4.8 in the Apple Store, which has actually shown customer experience is actually supporting and enjoying the experience that we're providing. Another area of focus in digitalizing the customer experience is actually how we leverage data as a core asset. And just recently, our new artificial intelligence bot Annie has been set up to be able to provide good data insights that will really allow us to present product offers to our customers when they're most likely to buy. So this is all about helping to actually grow ancillary sales, use the assets we have and add more value to our customers to be able to actually increase top line and bottom line. And now I'll speak a little bit more about supply, but on the leisure segment, one of the areas that are designers that have been really focused on is about growing and expanding our range and actually creating new ranges that we haven't had before. So to attract more customers, we're really focused on designing more one of the client experiences. And you can see a slide there that I'll give you an example of some of the hosted tours that we're actually doing with our own people. We're really expanding our range in luxury and expedition cruises and a new range that will feature quite prominently is either tagging options that are sustainable options or ecotourism product that will position to our customers to enable them to make the choices day 1 when they're traveling. So all of these are actually complemented by the services that our customers that are familiar with such as the Captain's Package or purple ribbon service. And these -- this service ranks continue to have a lot of interest with our customers. So on #4, which is really about how we simplify the business. In our leisure business, we're on a journey to be more productive. We've spoken about this for many years. But over the past 2 years, we've made the effort to really rationalize a number of our systems and to make sure that we're actually operating the business with half the previous systems that we used to pass the various number of systems. We launched Helio, a new system in our business for our consultants to be able to sell more productively. And what we're seeing now is that our consultants are 2x more productive at a booking level and new starters to the group are also quite as productive. So as you know, the labor market is quite tight right now. As we're actually growing our customer and our consultants numbers, we're able to get them to booking quite productively. So I just want to close off with talking about our people, and they've been nothing short of outstanding as travel returns. We are in a tight labor market, and we are improving quite significantly and the good news is that the interest in the travel industry has really returned. And while at this tight labor market, we're now hiring over 300 staff a month, and we're seeing applications increase month-on-month. So there's renewed interest in the segment overall. It is a core capability of ours to be able to actually recruit at scale and actually invest training our people and also on focusing on our culture, which is why people stay. So there's a few more slides in there that highlights the various complementary brands that are in our portfolio. But I'll hand over to Mel now, and she will give an update on how we're going in supply.

Good morning, everyone. Thank you very much, JK. In the latter months of last financial year, we formalized the creation of our supply division in recognition of our strategic commitment to a shared group capability in this key space, which you've heard both Chris and JK referenced. The supply pillar really has 3 core areas of responsibility. The first is to deliver and oversee on behalf of our corporate and leisure divisions, their content and distribution needs. The second, to grow and capitalize on our destination and product businesses. And the third is the growth horizon for Flight Centre Travel Group by delivering content and platforms to other travel businesses. So firstly, as a supply marks for our corporate and leisure brands, we ensure the breadth and depth of content, both global and local they require, is there to support all their customer needs. This amalgamation of content then also allows our brands to innovate product offering for their customers and assist differentiation by leveraging content maybe not traditional to their travel segment but available from supply. The supply division also then has a mission to simplify and reduce cost and friction to technically connect with our group for our supplier partners. By creating a one door entry point effectively into the entire FCTG brand portfolio, we can provide better value for them as well as for our own businesses by simplifying and providing access to this content in one place. And you see is an example of this strategy in play. And in April, you may remember we accelerated the acquisition of the majority stake in TPConnects, the Dubai-based business. This was to ensure access to differentiated air content for the entire group. And by bringing together our 40 years of capability and the technical prowess of TPConnects cements us as leaders in the global air marketplace. To be honest with the start of the pandemic, it was unclear whether airlines would continue to see NDC as a key strategic objective. This has become clear that they do, and we want to work with our air partners to deliver on this and be the distribution group of choice. So on the next slide, you can see we've arrived at some of our own projections regarding NDC penetration, but I don't think these have been pulled from anywhere. We've kind of normalized what we've read about over the coming years, and we see ourselves very well positioned to capitalize on this channel, while still having a GDS-first approach. So moving on to our supply and destination businesses. They're also now recovering and looking to solid futures. During quite the limited '22 season, it's selling into a full '23 program and advanced sales are going well across both Topdeck and Back-Roads. Discova has returned to profitability in the Americas, is now opening up across Asia as both countries open and has a strong pipeline of new accounts won during the pandemic to start trading. Cross Hotels has continued to expand its keys under management and the cross group was in fact profitable just in the month of July gone. All of these businesses and businesses have customers and it's beyond those of our FCTG leisure and corporate divisions, while also providing unique product opportunities to promote for these brands customers as well. And JK mentioned sustainability, Discova is helping drive a suite of ESG initiatives. Our Manggis village project in Bali where an eco-tented camp is under construction is an example of this and demonstrates our commitment to sustainably open up the world for those who want to see. I'm excited to be fully focused now on leading our supply division. I feel like I've got the band back together, where we can both help enable the aspirations you've heard about and plans for both our corporate and leisure pillars and develop further horizons of growth for the group as a whole. Thank you. And I'll hand back now to Skroo.

Thank you, Mel. Again, that's very interesting and exciting, particularly the supply and in-destination businesses. So just in, I suppose, a very brief summary, we see the next 6 months continuing to be underlying profits on a monthly basis. As I said, it's going to be a bit lumpy. But certainly, in the capacity and the supply of particularly premium seats, particularly around Christmas and is one of the issues, but we think that will return a lot more normality in the new year. And the second half, we certainly feel will be a reasonably profitable half for us getting back into the -- whole travel industry getting back to pre-COVID levels, probably in the -- around Christmas in the financial year '24, we think. But obviously, that's assuming there's no more COVID madness and the government restrictions and that sort of thing. But I think we can probably open up for some questions now. Haydn?

[Operator Instructions] Our first question will come from Mark Wade with CLSA.

Great presentation. Starting with -- we've heard about the strong demand, new customers, higher market share than before COVID and high degree of bookings being modified. And I completely buy into this argument that expert travel advice is more relevant than ever. But the question is, are you being appropriately compensated for your services from the travelers and the suppliers?

Mike, it's Skroo here. Look, there's a range of issues at the moment. You will have heard Qantas, for example, is one of the couple of -- a few airlines that have dropped margin. But -- and there's a mix of business is different, too, to pre-COVID and that will change to back to more normal. Obviously, we've got more domestic business. We're doing more online. So and also more domestic online and more corporate business, particularly in FCM where we won some big accounts. So yes, but we think this -- this overall revenue will -- is increasing, but whether the margin gets back to pre-COVID levels, we just don't know at the moment. What do you think, Adam?

No, I agree. I think that's exactly right. There's a lot of factors at play when you're looking at the specific look in revenue margin, there's a lot of factors at play. It's just too early to talk to. And I think given the whole industry is in that early phase of recovery, there's a lot of moving parts here at the moment.

Yes, sure. And the staff plan of new hires, your own business looks like it's got about 700 fewer selling staff than 6 months ago, but up on a year ago. I mean how have you managed to navigate some of these real extreme challenges posed by the industry restarting and...

Look, as we said, we are employing about 500 people a month. And obviously, you still lose some, too. But I'm not sure where that number comes from because we've basically been growing staff for the last 6 months, and most of those are frontline...

It's in the deck, Skroo.

Well, that's Haydn's fault. But I'm not sure how to explain that, Haydn.

Yes. It was got from 6,384 at the half to now 5,706 is the exact numbers. I mean you're adding a lot, that's the main thing.

Yes. Well, pre-COVID, in total staff numbers, we had -- I think we said this 21,000 approximately. And we went down when we had to cut our costs down to that [ 70 million ] a month. went down about 7,500. We're at about 10,500, 11,000 now, and we've been growing that for the last 6 months. There's also -- we're also growing quite a few of our independents and third-party people who obviously wouldn't be on our books. They're contracted to us, independent contractors and people like that, but I'm not sure -- but I can't explain those numbers other than that because we have been growing each month for the last 6. So -- we're just having a look and see what we got wrong.

That's right. And in the 99 Bikes business, like I know it's a small part of the business, but it looks like you had a really tough second half, I mean profits collapsed. How much of that's got to do with the market? How much is it more internal factors such as Matt's departure?

Look, Matt is still there. He's -- I think he's official title is Executive Chairman. He certainly taken more of a backseat. But there's no doubt. I think the COVID year, they did about $52 million PBT. And last year, it went down about just under $40 million, yes, about $35 million. I think, in the end. And they've had to take a bit of a hit there with being overstocked. And so they've written off stock that they still have to sell. But I think if you look at pre-COVID, I think they're $18 million or $20 million profit. So they've grown quite a lot in the last 2 years, as you know, not just in stock and that numbers. And we've -- I don't know whether we've announced, but we've bought a business in the U.K., and that's -- I'm reasonably bullish that they'll come back. But yes, they've certainly got some growth pains and they certainly are overstocked and I have written some of that stock off. And if you want to buy a bike the next few months, there will be some pretty good bargains around just to get back to the right stock levels.

Fair enough. Last one, if I can squeeze it in. How come EBITDA has become the preferred metric for financial performance for the business. I mean this is before about $180 million of lease costs and D&A and true interest. So why not PBT or even EBIT back in the day?

Yes, Mark, look, we made a change about 12 months or a couple of years ago, really, when we started to look at the -- go into convertible bonds, in particular, just change of the profile there for us and certainly, at a group level, that's the sort of the way that we're looking at it at the moment. We are at times Hansa to make sure that we are disclosing, obviously, at a PBT line, so people can sort of talk to any of those. But also just for a bit more comparability with some of the peer set who report that level. But you're right, it's not quite as clean as it used to be, particularly with the lease accounting. So we try and give that full both PBT and EBITDA.

We'll keep going with the both, that would be helpful. I mean those rivals just don't have that huge lease cost base as well. All right, guys, it looks you're heading in the right direction. So congratulations and keep it going.

Our next question will come from Tim Plumbe with UBS.

Just 2 questions from me, if that's all right. First one, probably for Chris. If we think back pre-COVID, I think you guys were doing about $10 billion of TTV in calendar year '19 for the corporate. PBT of $285 million, so call it a PBT margin of 2.9%. You guys had some really substantial and impressive wins over the last few years. So $5.8, I think from memory, you guys adjust that for like a 20% structural impact when you're coming up with those numbers. And if that's the case, how are you guys thinking about everything once it does return and once you get a normalization of airfares and TTV, et cetera? Should we be thinking about the $10 billion becoming $8 billion post structural and then adding $5.8 billion on to that? And then the second part, just around PBT margins of 2.9%. Is that the right way to be thinking?

Yes, it's a good question, Tim. I think that we're moving so far away from 2019 now. We're really referring back to that just to give you some a view of consistency our size. But we're very much looking to the future now. So as you can see on the chart we set out, we think by this year, we'll be TTV wise about 120% of 2019. I think 2019, we got to AUD 8.9 billion for the last full financial year. So we're expecting to be significantly above that now. And I think that in terms of PBT margin, yes, look, I think we're very comfortable we'll get back to those levels. As you can see in our slide, the message we're trying to communicate is that we've got economies of scale in the corporate business in both FCM and CT. And our intention over the last couple of years is to build a high-quality scalable business that's what we've done. So our cost base is very much geared towards being able to grow. And as we grow more transactions flow through the business, more of it converts to profitability. So we're very confident we can get back to that PBT level. Whether we do it this year or not, time will tell. It's all about us scaling up again. But the emphasis for us is consistent growth every year through retaining customers, winning customers, and we believe we're very much on track to do that.

Got it. So just to clarify, when you say PBT level, are you talking PBT margin level?

Yes. We think we'll get back to that PBT margin level, absolutely. So again, it just comes out to scaling back. So at the moment, we are very much invested in being able to grow. So we're not trying to maximize short-term profits. We're very much saying we're trying to build a long-term business. As scale comes back, the PBT margin will return in corporate.

Got it. And June 23, 70% from pre-COVID customers with a 70% market recovery. Does that imply that you guys are now thinking that the structural -- longer-term structural impact will be lower than you previously thought?

Yes. I think the 70% is -- we didn't know where the market will come back to. We said somewhere between 60% and 70% is what we felt. And that's what we're still thinking. We think it will get back to about 70%. So to be honest, it's very difficult to tell because the customers have proved probably more resilient than we thought, bearing in mind there is still part of the world you can't travel to. There's still some significant capacity issues in some markets, particularly Australia, for example. So it may be we're being a bit conservative there, but we're calling 70% because if folks is our management team on saying do not be reliant on the market recovery into 2019, grow by winning new customers. So that number kind of works for us in terms of driving our growth.

Got it. And the second question, probably for James, just in terms of the leisure business. Having tried to get quite recently, the wait-times fairly substantial, which suggests that demand is well outstripping the capacity to supply within at least the Australian leisure market. I think you guys had mentioned that you had 4,500 applicants. You're putting on 300 heads. Is there some sort of like there any reason why you couldn't just take on a huge number of staff and do an extra big training recruitment drive, given that imbalance at the moment that you're seeing between demand and capacity to supply?

That's a good question, Tim. I mean, we certainly go through a rigorous selection process to make sure that we can have expert consultants on the front line. And even though we have that number of applications, there's a lot of sorting to figure out which consultants are actually fit for the industry, particularly at a time where we need to do a lot of troubleshooting, a lot of triage. So we're certainly converting those applications and upskilling as fast as we can. But we suspect it will probably be a little bit lumpy for some time over the next few months in terms of just because of all the challenges and the disruption that's going on. But certainly, we're hiring rapidly and the response times are reducing as supply starts to come back on board.

Our next question will come from Ben Gilbert with Jarden.

Just a quick one from me. Just in terms of the revenue margins. I appreciate the question before, but would you expect those to move above that 10% as we move forward? Like if you look at the premium piece and how you've talked about the changing mix in leisure. I would expect that should probably still move closer to pre-COVID versus now? And have you seen any impact through July with the changes in the commission structures in Australia?

Look, I might start with that, Ben, it's Adam here. Certainly, I think the expectation over, as we progress, is that those revenue margins will certainly continue to improve for various reasons. And I can get perhaps JK to talk to the Australian space or actually Mel probably from a supply perspective. But we would certainly expect them to continue to increase. As you said, the commission reductions only came into effect for July, but we are certainly seeing some of the other areas and other factors that have impacted on revenue margins start to stabilize, albeit in the early phases of that. But Mel, do you want to talk to some of those timing issues?

Yes. Ben, there's a couple of key drivers of revenue margin. And as we've highlighted, pricing is the biggest one at the moment. Remember, it is our lowest margin product. And thank you, Mark, for pointing out are we getting paid enough from our supply chain on a couple of instances, no we're not. But that hasn't changed. But so the air yield is driving a suppressed margin. The other ones are basically sales mix and business mix, whether it's FCM to CT or offline to online, which I think we've indicated, we were sort of strategically aiming for in some areas. And then the third area is perhaps is the supply margin. Some of that's timing. So something like GDS last year where we were in negative and actually didn't start earning, I think, until June, that started to correct itself. Timing of overrides crews we get paid on availed, but we recognize sold at a revenue line, et cetera, et cetera. So some of that timing will adjust. So yes, we're building up for kind of when does that normalize and a lot of that will be dependent on when this air pricing starts to normalize. But we do expect them to start increasing where they end, again, depending on what the strategic intent is for both the corporate and leisure guys will kind of dictate that. I will add on nearly all our supply margins apart from a few airlines, we're holding or improving on where we were at pre-COVID. So we don't have any issue in the majority of our supply space.

That's helpful. So I suppose sort of wrapping that up with some of the other comments, the aspirations, medium term, is still to get above a 2% PBT margin at group level.

Yes.

Yes, that's right. And I think the key thing there, Ben, is any reduction in that revenue -- pre-COVID revenue margin that we see through some of the channel changes, et cetera, that we've been talking about for a little while now will be more than offset by the efficiencies and the structural cost base changes that we've been putting in place over the last couple of years.

And the product...

And ultimately, you're going to have a much lower capital base now, too, right, given you've got considerably less leases you mix towards online and mix towards corporate, so your return should be materially higher.

Yes, that's right.

Next question will come from Darshana Nair with Goldman Sachs.

My first one is regarding the physical presence of the leisure brand. Now thanks for the forecast in terms of FY '25 outlook between mass market complementary and premium. Can you give us a sense of how your physical presence in these brands compares versus pre-COVID levels in each region?

JK?

Sure. So thanks for your question. The retail network is definitely downsized from where we were pre-COVID. In markets like Australia, we're down by about almost slightly less than half of the network that we had previously. It's important to note that with that network that a lot of it wasn't necessarily performing pre-COVID. So even though we have structurally changed the size of the network, we're now at about the 469 locations globally, including some of the Travel Money outlets. And of those that we have, we've got about 80%, but 82% open now, and we'll progressively open up about another 38 over the coming year. And we think that, that's the right-sized network for us to be able to actually balance the other models that we have operating, being online and also the independent agent community. And that will enable us to actually grow our sales volume being a different business model than what we were pre-COVID. So it's not just all about a shop network anymore, it's very much different models within the leisure business going forward.

May I just confirm that 369 is your full capacity, including the progressive reopening? Or is that what it is as of today?

No. Sorry, it's 469. And 469 are the ones that are opened currently, and we'll open an additional 38 coming for Flight Centre, and there'll be some more Travel Money stores that we'll open as well in the foreign exchange segment.

Okay. My second one is probably for Chris. In terms of the revenue recovery in corporate, now we've noted that revenue was back 80% and volumes at 89%. Can you give us a sense of what was the margin impact between the mix being between like SME and large corporates and versus higher ticket prices.

Thanks, Darshana, for the question. Yes, so it's a good point. So what's happened is the very large wins in FCM has meant that FCM, which is our large market customers have recovered slightly faster than SME, which does slightly reduce the revenue versus turnover. And it's not that Corporate Traveler is not growing and recovering. It absolutely is. It's just that we've won so much new business and the growth has accelerated. And the average ticket value has increased, and therefore, that does reduce revenue margin slightly. Again, we see this as very short term. We think that the average ticket increase very much a supply-demand imbalance, which eventually will resolve itself over time. So we're actually pretty confident in corporate. And we're actually talking now about income and revenue per transaction internally because I think that's more of a relevant KPI for us because, ultimately, we, in the short term, can't control the supply issues. The airlines tell us they're going to address it over time, but it's not that we can control. So we're actually pretty happy with our revenue. We think as that chart showed in the presentation, it is all about economies of scale. As volume kicks in, you'll see profit per transaction improve, and that's what Grow to Win is all about.

Yes. If I may just quickly follow up maybe between the large customers and the SMEs, within your cumulative new wins of $5.8 billion, how is that roughly split?

The majority is FCM. So I think this is something like 2/3 FCM, 1/3 Corporate Traveler. And the reason we report FCM is we can actually -- because they go into a longer solution design and implementation, we actually talk about number in advance. But the advantage of CT is when we win business, it trades normally within 30 or even 60 days. So FCM is a long pipeline. It's stretching out up to a year. Corporate Traveler really, we're already talking about wins in the immediate future. So it doesn't have the length of pipeline.

Our next question will come from Wei-Weng Chen with RBC Capital Markets.

Just first one on the leisure space. So there were a few trends, I guess, during COVID, which were considered structural, that turned out they were. Now I guess on the flip side for you guys, we've had no travel for a few years, and now we're seeing a natural kind of release of pent-up demand. I guess I am trying to ask what the -- what your sense is on how much we can breathe into some of these early trends we're seeing into leisure, things like 3 days and older on average, increased relevance of advisors, et cetera? I guess what's your view on the structural and what may be kind of temporary?

Well, you're cutting out a little bit there, but I think the fundamental thing for JK is really some of the early trends that we're seeing at the moment, JK, around that demand piece there, the length of trips, that renaissance we're talking about the travel expert. How does that -- has that flow out over the next couple of years and beyond?

Yes. Look, certainly, over the next year, there's no doubt that a travel agent will -- is going to be in high demand because of the amount of uncertainty. And we have certainly seen new customers come in that have never actually used an agent before. So that's showing that there's a lot of uncertainty, but customers are definitely keen to travel. So even though the prices or fares are quite expensive in some seasons, we think that travel will continue even though we actually come through this, and there will be a lot more. Once we start to see a lot more capacity coming to market, you'll then start to see a fair bit of supply and demand, reducing the actual cost of travel. So we anticipate that travel is going to be here for the long term. We don't see it actually slowing down. But we just need to see a bit more capacity coming to market, and that will stimulate more demand. The other thing as well is remember that we don't have a lot of Chinese carriers operating at the moment. Typically, when the Chinese carriers come back into market, prices start to drop, competitiveness starts to increase. And that will stimulate more demand as well overall, which will be good for the industry. So we can't really see -- I can't imagine it's going to slow down too much. But certainly, there is a lot of support required for people on trips given the amount of disruption that we continue to see with cancellations, last-minute changes, et cetera, et cetera. Well, probably one of the other ones that is pretty relevant is if you look last year ABS data for outbound, I think 48.3% of the people who traveled overseas said they will be were [indiscernible]. It's normally much lower than that. It's normally like mid-20s, so about double in percentage terms. Those people, I think, Mel, mentioned earlier on the call, those people tend to book the flight but no attachment and things like that. The holiday makers have started to pick up a little bit. I think in June, the number was a lot higher than what it had been. And as that VFR percentage starts to normalize, we should start to get a little bit of a benefit as well in the leisure space as the holiday makers come back in greater numbers.