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

Good day, and welcome to the Flight Centre Travel Group Limited Half Year Results presentation. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome our speakers to start the presentation.

Good morning, everyone. Thanks for joining us today for Flight Centre's half year results presentation. As flagged in our preliminary trading update a few weeks ago, it's been a fairly solid start to the new fiscal year. Shortly, you'll hear more about this from Adam Campbell, our CFO; Chris Galanty, our Corporate CEO; James Kavanagh, our Leisure CEO; Melanie Waters, our Supply CEO; and finally, our Head, Graham Turner. As usual, we'll then take questions. I'll now hand over to Adam, our first speaker for the low down on first half results and highlights.

Thanks, Haydn. Look, given we released high-level unaudited results a few weeks ago with the Scott Dunn acquisition, there shouldn't be too many surprises in the financials this morning. Our EBITDA for the first half of $95 million is above the guidance that we issued at the time of our AGM in November, and provides a solid foundation for us during the ongoing recovery and growth phase. It's worth noting that just 12 months ago, we reported an EBITDA loss of $184 million for the first half. So to see a $280 million turnaround in profit over just 12 months is a great testament to the company and all of our people. Our sales have been strong during the half with TTV of just under $10 billion, more than tripling TTV for the prior corresponding period. Those sales are generally being converted to revenue within our brands at better rates than the last couple of years. And the overall blended revenue margin for the group has improved as leisure share of overall TTV has increased from 24% last year to 44% in the first half of this year. Pre-COVID around 2/3 of TTV came from the higher revenue margin leisure brand. We would expect group revenue margin to remain below pre-COVID levels, primarily due to channel mix changes that our leisure strategies in particular, are delivering. As we've spoken to previously, we're very comfortable with the impact these mix shifts will have on revenue margin as they will also deliver reductions in our cost margin. Having said that, we do expect revenue margin within brands and channels to continue to improve as we see greater capacity and competition, particularly in the ANZ segment and as the current short-term impacts on margins start to abate. These short-term impacts include higher-than-usual airfares given some revenue is based on fixed dollar fees, a heavier-than-normal corporate sales weighting and high VFR and short-haul weightings, which we're beginning to see reduce. Gross margin has fallen below 10% for the first time, which is reflective of both the channel mix shifts mentioned previously and also the structural changes to our cost base made over the last 3 years. And we continue to see our businesses operating far leaner than they did pre-COVID. As you can see on Slide 8, our costs for the half are tracking 30% down on pre-COVID levels. And the investments that we've made to date, meaning we have capacity to service further sales volumes without materially increasing our cost base. On a segment basis, our corporate brands have continued their focus on growing to win and have outpaced the broader industry recovery. With $5 billion in sales for the half, corporate has recognized record TTV globally as well as in both the ANZ and EMEA segments. Our U.S. corporate business had TTV of just below the record FY '20 first half results and has had a very strong start to the second half. Our corporate business remains geographically diverse with just over 30% of sales generated in both ANZ and the Americas, 27% in EMEA and 11% in Asia. Our leisure brands, which JK will talk to shortly, have continued to see lower cost models gain in scale during the half and capturing a larger share of sales. TTV for the half was more than 5x the prior corresponding period. and grew by more than 30% over the seasonally stronger second half of FY '22. The leisure business also had a significant profit turnaround with EBITDA of $43 million versus a $140 million loss last year. From a geographical basis, ANZ and EMEA segments were both profitable on an underlying PBT basis, and the Americas profitable on an EBITDA basis. On the balance sheet, cash and investments of around $1.1 billion give us a really strong foundation to build from. Our operating cash outflows for the half were reflective of the traditional seasonality in cash flow patterns, where we typically accumulate cash in the peak booking season in the second half of the financial year and then pay our suppliers after financial year-end, resulting in cash outflows for the first half. The stock trading conditions in July increased the impact of the seasonality in the current half. But we do expect to see cash accumulate in the second half of this financial year. Skroo will talk through the outlook, but it is pleasing to see that the momentum in both our corporate and leisure businesses finished the half with has continued through January and the first couple of weeks in February. This strong sales momentum, the structural changes made to our cost base, the pre-investment that we've made for future growth, the recent acquisition of Scott Dunn and the strength of our balance sheet, all combined to give us a really solid foundation for the next 12 to 18 months. I'll now hand over to Chris to share his thoughts on our corporate business.

Thanks, Adam. So Adam has given the headline numbers. I'll give a bit of color to those numbers and also touch on some of our corporate strategies. So as Adam said, we've had a very strong recovery trajectory in corporate in the first half. And we believe we've outperformed the market across most of the key sales metrics. We've seen a first half 88% revenue recovery versus pre-COVID, 90% transaction recovery. And because of the increase in average transaction value, 104% TTV recovery. So this means a record first half TTV of over $5 billion for the first time ever in the first half, slightly ahead of financial year '20, pre-COVID and 150% up on the first half of 2022. Pleasingly, this means we're on track to deliver over 10 -- comfortably over $10 billion of TTV during this financial year, which will significantly surpass full year record of $8.7 billion, which we saw in financial year '19. Again, as we have graphic diversity and strength with roughly 30% of TTV generated in Australia, Zealand, Americas and EMEA and around 10% in Asia. Obviously, this depends on seasonal adjustments. We are gaining market share, and we have done this largely organically. And what we mean by organically is retaining customers and winning and onboarding new customers. We've got excellent customer retention rates again this year and a very large number of new account wins. So for the first half, we've signed new accounts with annual spend of around $1.25 billion, and this use 57% towards FCM, 43% corporate traveler. The wins are going are divided between the regions with the first time since the beginning of COVID. APAC actually recording the highest number of wins, but also strong wins in both the Americas and EMEA. So that means we're very confident about future growth continuing in both brands. We also expect to be entering the period now of more rapid profit recovery we're seeing a return on investment in some of the key investments we've made in both FCM and corporate traveler over the last 2 years, including brands, platforms, products and obviously bringing back a lot of people to service our customers, particularly in the last 6 to 9 months. We've invested heavily ahead of the recovery. That's been a strategy of grow to win over the last 2.5 years. And what that means is we bring back invest costs to invest in our ability to win customers, to onboard them, to design their solutions, to make sure they have a great trading experience with us ahead of really generating a lot of the revenues, and that's enabled us to have such a strong recovery trajectory. We have continued to invest in both technology and people, consultancy to help our customers achieve their sustainability goals. This is very important to some of our customers, and we believe we've got a very strong sustainability offering in both brands globally, and again, one of the reasons we're retaining customers and winning new customers as well. Again, we do expect to see improved returns flowing from economy discover efficiencies. We spend a lot of time and money onboarding new customers, particularly in the first 6 to 12 months. And as their travel programs settle down, we optimize them. We're able to get good economies of scale, and we expect to see good returns over the next 12 to 24 months. And finally, just to touch on Asia reopening, Asia, obviously, is the last region fully reopen with both Japan and China opening up recently, and we've seen some really pleasing numbers coming back in January and particularly February after the Chinese New Year. Just to touch on very quickly where we play, we have a 2-sided model with travel customers on the 1 side, there's the corporations and the SMEs, we've travel programs we manage. And then our supply customers on the other side, the airlines, hotel chains, et cetera. And us bringing those 2 customers together that we generate value in our business model. And again, we address the market with 2 brands, FCM in the large market enterprise space and corporate traveler in the SME space. It's that 2 branch statue that we believe has enabled us to grow back to successfully since COVID. I'm not going to touch on the SME market first. Last 2 years, I spoke a lot about FCM and some of the large market prestigious wins we've had. Well, the great news is that corporate travel is back, and I'm going to touch on that just reminded one that corporate traveler is, we believe, the world's largest SME-only in TMC, committed to SME customers with average spend around $200,000. Every customer gets a dedicated expert travel consultants, no call centers, dedicated person every time. We have launched successfully our proprietary digital platform, Melon, which gives customers great technology, purely dedicated and designed for SME customers. And unlike some of our larger customers where SMEs don't have access to private contracts with airlines or hotel chains. So our combined buying power gives those customers great content, great pricing and all sorts of travel content. The first half, corporate traveler impact has performed very well and does continue to win business from both competitors and is really disrupting that space with the new technology we've launched. CT operates in 6 markets, our traditional leisure markets. And although we saw an initial slower recovery trajectory compared to FCM, the last few months have seen a really strong recovery in the SME space. I think part of the reason for the slow recovery was a lot of the cuts we had to make to the business to achieve our cost objectives during COVID but we've been really strongly investing in bringing back people, getting the brand out there, making sure our sales people seeing more customers and, of course, launching a new product, that's really led to some significant growth in the brand. [ The first ] ever on track to secure new accounts with annual spend of over $1 billion in this financial year, which is a record. And the good news is that, that those are customers that we're winning are spread pretty evenly across all 3 regions, with North America, our most important future market, being a lead market just in sales. We continue to hyper-investing North America to fast-track growth, we started about particularly the U.S. business opportunities, such a large SME market, and we're growing really fast again there. And one of our [ tenets ] of growth is to reopen or to open a corporate village, as we call it, to house people in Central Manhattan to really take advantage of the growth opportunities in the New York area. And we have a Central Manhattan location opening in the next few weeks. Should touch on Melon, our proprietary digital platform, which, as many of you will know, we launched firstly in North America. I'm pleased to say that today over 85% of new customers joining corporate travel and now in the U.S. they go straight on to our Melon platform and it's getting excellent NPS scores of over 50, which I think is the absolute leader in the sector. So all in all, a great first half for CT and that we expect that trajectory to continue. Moving on to FCM. Just a quick summary of the strategic journey we've been on with FCM. Prior to COVID, we decided in 2017 to really position FCM as one of the few truly global TMCs, meaning that it's one of the very few TMCs that could actually successfully win and transact global business across the world, and FCM operates in 100 markets globally. We then move into the gross win phase where we really focused throughout COVID on winning business and retaining customers. We end up with excellent customer retention rate of 98%. And we won billions of dollars of new annual wins for customers, which has enabled FCM to grow back much faster than the market today. And now we're entering the new phase of really getting the benefits of this new scale. And we're investing in customer insights and new voice of customer program to really make sure we can understand customer needs and therefore, adjust our investments based on those needs, a really big focus on productivity and cost per transaction reduction, so really getting economies of scale and really making sure that we continue to invest on digitization, particularly in the service experience for customers. So some of the details behind FCM, yes, very strong TTV recovery in the first half, largely driven by customers' travel programs bouncing back, but more importantly, new wins of new customers being onboarded. FCM transaction volume is at 95% of pre-COVID levels now over the first half. The only reason we didn't get to 100% is probably Asian opening up, so confident we'll get to 100% in the second half and a very strong pipeline of new accounts, one across the world, but particularly in Asia, which is good to call out and is doing very well on customer wins. Good signs of recovery, as I said earlier, in both China and Japan and last 6 weeks have been very strong since the new year. I should call out here FCM USA, a very strong performance. [indiscernible] U.S. and North American, USA market has been challenged in some areas of disruption and various other issues. But actually, our USA business performed very, very strongly. I'm pleased to say that for the first time ever last month, FCM USA topped over 100 million of TTV in a month, which is great to see and a testament to all the new business has gone into that market. Really, the investment in proprietary differentiated technology. The FCM platform has been a key driver. Every new customer goes straight on to our new FCM platform globally and all customers -- all existing customers are in the process of being migrated. And we believe it really is a key differentiator. It's one of the reasons we win new customers, is that our technology offers customers a superior experience, and we're getting, again, great reviews on that. We launched our new next-generation service hub model in Europe and Asia. At the moment, which gives us really great customer consistency, but also good quality of scale, which will improve our unit economics in those 2 regions. And finally, we do expect to see further improvement in income per transaction, cost per transaction reductions over the next year. So increased income transaction as the business grows, but more importantly, reducing cost per transaction as we get economies at scale. So all in all, a pleasing first half for both brands and for corporate overall. And at that point, I'll hand over to JK to give you update on leisure.

Thank you, Chris, and good morning, everyone. I'm pleased to give you an update on the leisure portfolio, and I'll focus on 3 core areas being trends, I look at our results and then an update on the progress of some of our strategic initiatives. Firstly, looking at trends. Well, customer demand continues to grow, which is really pleasing to see. And January alone saw a record post-COVID inquiry numbers coming through. We track our customer numbers month-on-month. And we're delighted to see that they are growing every month, both in-store and online. What's also interesting to see is that repeat customers who are returning are actually spending up to 17% more on their holidays. The Flight Centre brand is now appealing to a younger demographic and we've seen a drop in the average age from 59 down to 51, being a lot of new customers who are actually bringing the average age down. When we look at airfares, what was pleasing to see was some signs of airfares reducing from December through to January. Here in our major market at Australia, we saw domestic fares drop 12% albeit they are still higher than pre-COVID. International, we saw a decrease of 7%, again, also more expensive than pre-COVID. What this signals, though, is that airfares are starting to normalize. They have a long way to go, and we expect this to actually have an effect on increased customer demand as prices normalize a bit more. Earlier in the year, we shared with you some stats about visiting friends and relatives being more -- being larger than holiday makers in terms of our sales performance. That shift has now changed where holiday makers now make up about 48% of traffic out of Australia, one of our major markets versus visiting friends and relatives at 37%. Now this is still not as high as pre-COVID, which was about 57% holiday makers. But it's pleasing to see that this is changing because what it means is that we sell more higher-margin product sales when people go on holiday. To put into context, looking at July, 76% of our sales mix was air travel, whereas in December, it dropped to 69% and that has a corresponding effect true to our revenue margins, which we saw increase as the year went on. We expect to see more price tension at the Chinese carriers reenter the market, and we look forward to seeing prices drop further so that it can stimulate more demand. When we look at our results, Adam has touched on a few of these already, but I'll just repeat that it's great to see that our performance is now 5x greater than the first half '22, and we've also seen an online record sales of $770 million across the brands of Flight Centre, StudentUniverse and the Jetmax brand. The GDS statistics that we show and that we look at from market share evaluation shows that we're gaining share in our major markets and quite a lot of share growth in the last couple of months. So on to our strategy. Well, just to recap, things haven't changed too much in this space, but we have progressed quite a lot. What hasn't changed is that our main objectives in leisure are to differentiate and grow the Flight Centre's market-leading position in Australia, New Zealand and South Africa and fast track our growth plans in the U.K. and Canada. Number 2 is to grow rapidly in the luxury segment, which is evident through the recent acquisition of Scott Dunn, where integration is underway now. We're also keen to rapidly expand in the independent agent community, and I'll touch on that in a moment. Other areas of growth for us in the leisure business means we're focusing on accelerating our investments in our portfolio of complementary brands which really reflects the student market, the package holiday market with Ignite Travel and also the foreign exchange business with Travel Money. In leisure, we operate a diverse portfolio of brands to address different segments of the market. And what we like about this strategy is that it provides consumers with the widest range of products, services and value in travel. But in turn, it also gives us supply chain access to the most diverse range of valuable customers. It also gives our people the opportunity to have a great career path across different segments of the market. So going back to our strategy. Well, our stated strategy, which started in 2020 was to really transform the operating model, and this is starting to pay dividends going from a heavy bricks-and-mortar store model with a fixed cost employee business to a thriving multichannel business that has a diverse range of highly scalable and complementary independent and luxury offerings. So these businesses now make up close to 40% of our sales contribution alongside our flagship mass market brand Flight Centre. And on the chart, you'll actually see in the deck here, the real shift whereby in FY '19, 84% of sales came from employees in stores, whereas today, it's 68% in-store that's complemented with online at 19% and independent agents at 13%. So when we look to the future and areas that we're continuing to invest in, the 3 core areas that I want to share with you around the progress now. One is global expansion. We continue to focus on investing in physical growth of our brands and networks. So to do this, we aim to build out a luxury collection and soft on this evidence of just focused on the U.K., U.S. and Singapore, which will complement our associates in Australia and New Zealand. We'll continue to focus on growing our network and sales staff. And in the last 6 months alone, we've reopened 37 flight center stores and Travel Money is now to 60 stores. And across the network here, we've added 1,000 new sales consultants, which is a great achievement from our recruitment team. The independent division is now operating across 5 countries, which really is a highly scalable model that drives across the entire strength of the Flight Centre Travel Group capability that allows us to provide services to the independent community. So this division alone is now 150% bigger than pre-COVID. Other areas that we're investing in is [ taxability ] building, and we shared with you that our focus was on digitalizing the customer experience. Well, within the Flight Centre brand, our omni program is evolving quite rapidly now, which enables customers to seamlessly shop across all channels. In the past 6 months, we've rolled out a new CRM, new single global website, holiday packages are now bookable online and in-store and my account functionality being rolled out globally. The outcome of this is that within Flight Centre, we saw record sales of $445 million, and we know that we are outpacing the competition with regard to website visits. In other brands, we are investing in our digital capability. And in the foreign exchange business of Travel Money, we're investing in click and deliver, which will allow us the functionality and capability to click and deliver and reach more customers. Our independent division is also investing in digital capabilities with the launch of the new home portal. This really is a marketplace platform that allows our independent agents access to products, technology and services all within the one application, making it far easier to deal with the Flight Centre Travel Group and more efficient to be able to service their customers. We continue to invest in extending our product ranges and the process here is to make sure that we've got the widest range of products to be able to actually deliver exclusive services to our customers, wonderful holidays and great experiences. Some of the areas of focus in this space really is expanding our cruise range, our packaged holiday range within Flight Centre and expanding our luxury products range. Ancillary sales has also been a huge focus of the group, with the captains pack now rolling out globally outside Australia and already exceeding sales contribution of ancillary services of over 50%. The My Holidays business and My Cruise business, which is Holiday in a box travel brand is now 1 of the leading cruise specialist in Australia and also one of the largest suppliers of holidays into [ CG ]. The business has achieved great success over this period and is now almost 2.5x bigger than pre-COVID. We also continue to invest in the talent of our business and the capability that we need to ensure we've got a thriving business of the future. And doing this means we're investing in -- we've recommenced our talent management pathways, which includes our industry-leading staff development programs. Finally, what's important to actually stay true to is because we've transformed our business, simplifying the business will remain a core objective in the leisure business to ensure that we drive capital efficiency and productivity. At this stage, we've got an unbelievable amount of demand coming through, and we are twice as productive as we were pre-COVID. And some of the moves that we've made to actually continue to drive this productivity is that we've actually reduced the number of applications that our consultants use, which has improved their workflows, and it's actually resulting in excellent productivity. The results of this now is at 70% to 80% of sales are coming from around 30% to 35% of our traditional workforce. And I'd like to thank all of our people across the leisure business who are doing a fantastic job at continuing to look after our customers and sending them on the way to have an incredible travel experience. I'll now hand over to Mel Waters-Ryan, who will give you an update on supply.

Thanks, JK. I -- uncanny, a lot of your numbers [indiscernible] isn't it. Good morning, everyone, as well. Just to remind everyone our supply area was really only formalized as the Dunn division late last financial year, I think, about April. And we did this in recognition of the strong proposition we can take to our suppliers globally and all our portfolio businesses inside like the Flight Centre Travel Group of providing are 1 doorway to the group and then distributing that content to our multiple brands and businesses. We have moved from being a part globalized procurement function to a core business service, able to make broad investments like we have done with TPConnects, create scalable industrialized shared capabilities and improved group returns, and we're well on that journey. The supply division, I think, well and truly allows Flight Centre Travel Group to become a leading global travel marketplace. The functions that we manage on behalf of the group by both corporate and leisure are listed at the bottom of that slide and really cover the gamut of procurement, content distribution, revenue and pricing management or really creating a capability that's used by brands locally and market and fulfillment. That is, tickets get issued, bookings are made and suppliers are paid. The aggregation of the function globally is in turn leading to additional developing capability, data analytics and robotics are particularly exciting and being embraced in the supply division, leading to better insights for our brands to drive improved customer offerings and deal at scale the vast amount of process work required in this industry, which is notorious for that bureaucracy. We are now in planning with our corporate and leisure management teams to help create better products for their customers and age brand differentiation. So what have we been doing since we formalized. Well, over the first half of this year, our supply team has driven many initiatives across the range of activities that I listed on the previous slide and results have been strong. We have signed many deals, we have [indiscernible] NDC capability. We have created additional revenue opportunities purely through aggregation, for example, the way we pay our supply chain is now leveraging some additional revenue, whilst dealing with a slightly broken and recovering travel industry and embedding some of the transformational platform changes we made during COVID. I'm not going to talk to them all, but 2 specific areas I think worth mentioning are firstly, our procurement and supplier relations area where our supply margins are performing to expectations. I can safely say, I don't think I've witnessed a busier time in the last 6 months in our supplier relations area. We remain very active throughout COVID, and we have been busy signing many deals. Yes, it's true [Audio Gap] based front-end commission cuts in this market, so specifically Australia and New Zealand became effective this year. But on the slide here, you can show broadly the positive territory we have achieved with the majority of our supply chain. We are seeing the return of volume targets. We are seeing an embracing of our global reach across a diverse portfolio with more global deals coming into play. We are seeing improved returns across our land portfolio and stabilizing travel patterns that JK spoke about led to better margins by the product mix sold. Secondly, in the next slide, our efforts in creating a new air capability and integrating our new air platform with TPConnects has been front of mind for us and supply over the last year as we strive to position FCTG as a leader in air content freedom. Now whilst we are still GDS first for air, we have invested in TPConnects taking a majority ownership late last financial year and are now working to deploy this platform globally. Being technically ready, however, to access NDC content allows us to work with key air partners as to exactly when, where and how we might actually choose to flick the switch. And I think this is important to note, the commercial offering and also the servicing capability, which lags behind offer creation for many airlines and can therefore negatively impact the customer experience, especially in corporate where there are high change rates are all part of our decision-making process. So we're currently targeting the end of this financial year for both B2B and B2C. That's not across all our corporate OBTs for quite a few technical accessibility of NBC content, and we welcome the opportunity to work with airlines on this long-term strategy who has the right technology, including servicing and the commercial offer. Finally, the Supply division also houses our travel services area, which you may or may not be aware of. This is our collection of at destination and external product distribution businesses, and I'm just going to give a very brief whistle-stop tour of those businesses. Discover, our DMC has returned to monthly profitability post Asia opening at the latter half of '22, Americas transformation and a very strong pipeline of sales won over the covered period. Grasshopper, which was a small acquisition we made during COVID has been busy bringing to market an active experiential and sustainable range. They recently launched as one example, Japanese E-bike Tours and the first season is imminently about to be sold out, which is great. Grasshopper is already at 25% up on pre-COVID TTV. Cross Hotels & Resorts now have 20 hotels and 11,500 keys under management. They've also launched a new white label hotel management solution. And again, post the Asia opening, we are seeing strong ADR or average daily rate and occupancy levels. So we look for a good future with our cross hotel. Our wholesale and external bed bank businesses formerly or now currently, I should say, GOGO, Infinity and the Travel Junction are undergoing transformation, including an integration. And in July, we will completely relaunch our new trade supply model. Our touring brands of Topdeck and Backroads are also set to return to profitability this calendar year following a limited '22 season where we tested the market both post 2 years of hibernation. But our forward starts are very strong. We're seeing a lot more of those sales direct, which is a better margin. And again, during COVID, we were able to make the required changes rapidly across the product offered, the operations and costs to ensure these businesses contribute profitably to the group moving forward. AVMIN and Air Charter business continues to win contracts in business and a strong demand period for FIFO work, the music industry, sports and government. And finally, I'm leaving you with a picture of our new Eco village in Bali, Kaura which will open in April and is a fabulous collaboration between sites and a Travel Group, discover our ocean-based DMC and the local village of Manges in Vale to create sustainable and locally run amazing travel experiences for our customers but also to put money back into that community. And I'm very proud of that, and it will be the first place I've [ said ] in my retirement year. Over to you, sir.

Thanks, Mel. Yes, after 35 years, Mel is retiring. She's 40, must be nearly 50 year. So and this is her last road show, I think?

Yes.

And Mel has been a big influence on Flight Centre Travel Group overall and particularly in the last [ Eurosam ] supply team. Thank you. Just you've heard all the information. I'll just give you a little bit of a wrap-up guidance, as you heard, I think from Adam, is in the $250 million to $280 million underlying EBITDA. And this excludes Scott Dunn. And generally, this means it's about 65% of our EBITDA, which is the normal seasonality. Also, we won a lot of accounts in the corporate area, Asia is opening up again. And of course, we had that -- the acquisition of 50% in Japan, which is coming back strongly. And obviously, China, where we've been for about 13 or 14 years is starting to really come back as well. Leisure is recovering well. We'll speak a little bit more about that. Generally, with growth, we'll be growing organically. A little bit of M&A Scott Dunn is one of the recent examples of it. So this slide, opportunities in a recovery mountain market. Not everything is great. If you look at Australia outbound is -- outbound from Australia hasn't recovered to pre-COVID. Departures, short-term resin departures is about 80%. And a lot of this lack of airline capacity, we're still only at about 65% to 70% of seats. And obviously, airfares are still quite expensive. So they're starting to run quite a few seats empty still because they're not discounting. Remember, the Chinese carriers returning to Australia, I think 5 carriers coming back in currently. And this will make a significant difference both in freight and once -- a lot of these are inbound travelers at the moment, we're probably only getting only 50% back to inbound tourists. These Chinese carriers will probably make a significant difference to that. As other carriers like Emirates is now back to like, for example, 3 flights a day, there's Brisbane coming up, so I think, 3 in Sydney and Melbourne. And most of these are A380s flights. So that's making a really significant difference, even Cathay that's been really struggling is back, I think, to 17 flights a week into Australia now. So this is all coming back, but it's going to take a bit of time. One of the positives for an organization like us is a heightened demand for assistance, which is on this slide. And obviously, as the as travel comes back, there's a lot of reasons that people need assistance. Most people who have done any traveling in the last 2 or 3 years realize that you do need a good travel adviser to help you whether it's in corporate or leisure. This complexity does play anywhere hands to a certain extent. It obviously plays against the online players because you're generally left on your own with that. The next slide is about the resilience of the global travel market, and this is a bit of a conundrum. The reality is that although travel is considered discretionary. When you have a look at -- there's a slide there that shows you the international and domestic travel, which are considered discretionary, two of the leading things that people actually do. So it's probably not really discretionary. The resilience of that global travel market is there for everyone to see. It's -- if you look at there's another graph there that shows you even with hiccups like -- I think there's 3 major hiccups here, 4 actually. One is the first [indiscernible] '91, then obviously 9/11 in 2001, the GFC in 2008, and obviously, COVID, which had a huge impact and it's coming back. We haven't got the rest of the graph there.

So I've not been through all 4. So now it's time for a talk.

Exactly. We believe in the outlook that there's going to be strong ongoing demand. Yes, we have -- the world generally has lower unemployment. And you see the graph there, South Africa, which has -- traditionally has quite high unemployment, skills are a lot lower than it normally is. Quite of positives for Flight Centre, obviously, the high interest rates help our cash. The fact that we have over $1 billion in cash at any 1 time. Household savings generally are pretty good, and so really, the demand is not going to be an issue over the next 12 months what we can see. That's value for me. Thank you,.

Thanks, everyone. Let's now go to some questions.

[Operator Instructions] Your first question comes from the line of Benjamin Gilbert with Jarden.

It's actually Keegan Booysen from Jarden. I'll be taking the question today. Just first one for me. Just want to understand if you've -- whether or not you've seen a large acceleration in January TTV in line with some of the other players, Expedia, et cetera, that are reporting internationally, please.

Yes, Adam here. We've certainly seen January and in February trade has been really positive for us. We had a good -- really good month in January in both leisure and also corporate. And I might just get JK and Chris just to give a bit of flavor around both of those. So JK, do you want to add to that?

Sure, yes. Well, firstly, I'll just talk about the macroeconomic factors because if you look at household spending, a lot of the signs signal to spending intentions actually being down, whereas travel is the actual outlier. I think it's evident in some of the Commonwealth Bank reports that you'll see that travel is the outlier in that space. And that's actually showing up in the inquiry numbers that we're seeing coming through. December was actually a record inquiry numbers for us as a measure post-COVID, and then it's -- sorry, January was a record and now February is picking up again. So it just goes to show that inquiry is still very strong, and this obviously gets into the busier second half for us as well. So things are looking reasonably positive. Chris, do you want to give...

Yes, sure. A similar story. Actually, both January and February, good top line numbers pretty much around the world, actually. I think as I mentioned in the earlier recording, the pleasing thing is that Asia was the last region for us to really open up. And even up until the end of December, Asia was quite suppressed, but we've seen that really pick up quite strongly in the last 6, 7 weeks as well. So yes, it's a similar story.

No, that's great. And then just second one, looking at the revenue margins and the trend going to the second half, can you see -- I get an understanding of where you see them getting back to you. Just particularly if you look across the regions, there's obviously a bit of movements both up and down across all the geographies. So if you just put some color on that, please?

Yes, I'll start with that. It's Adam again, Keegan. But look, I'll start at a total group level. Certainly, what we've seen and will continue to see there is as leisure's share of the total TTV continues to increase, it's now at about 44%, 45% of total TTV. That will continue to happen, and we expect to get to a point probably where leisure and corporate is circa sort of 50-50 in terms of TTV, give or take 5% either way from time to time. So as that happens, we'll see the blended revenue margin increase. Within leisure, there's been a movement with the strategies that JK has been putting in place to the lower cost and lower revenue margin channels. But importantly, what we have seen, particularly in flights and the brand, but across most of our channels and brands themselves within those, is an improvement -- an ongoing improvement in the revenue margins. So revenue margins are improving, but the mix that we're seeing as a result of the strategies being deployed and then being successfully deployed mean that the blend is going to be different going forward. And we're very happy with that and very comfortable with that because the other side of that, that I think is important to hone in on is the cost margin. Cost margin is below 10% for the first time, I think, in our history, and that is largely to do with both that channel mix that we're talking about there, but also the structural changes that we made over the last 3 years and the ongoing discipline that we're seeing in our cost base. So it's important to look at both of those together. I don't know, JK or Chris, do you guys want to add any more color on that. JK?

Thanks, Adam. I think you've covered it really well. It's -- the business is different now, and it's by design. So if you look at sales contribution from one of our businesses like the independent model, which is now making up between 13% to 14% sales contribution, the revenue margin in that business is significantly less, but the cost margin is even -- is a lot less as well. But on a brand-by-brand basis, when we look at the Flight Centre business, we actually saw revenue margin uplift as the year went by. And I just -- I mentioned in some of the commentary there that one of the changes is that we're starting to see a lot more holidaymakers travel, and that means that we're seeing a mix in the products that we're selling. And we're actually selling some higher-margin products in there as well as the shift goes from a significant amount of air in the product mix, and that's reducing now to air crews, land, et cetera. So just looking at a brand-by-brand basis and also at a product mix within the brand.

I'll just say just from a corporate perspective, we do expect to see a gradual increase in revenue margin, and that's largely because of the increased speed of the Corporate Traveller brand recovery because their SME brand does operate to the high margin and FCM.

Your next question comes from the line of Wei-Weng Chen from RBC Capital Markets.

Just a question on your PBT. So I guess more recently, you guys have been guiding to EBITDA, but just wondering how we should be thinking about PBT. And maybe a good starting point is to talk about your corporate division. So on your slide, it looks like you're 80% -- 88% revenue recovered. PBT margins of that business is still materially below pre-COVID. Just wondering if you could speak to why we're seeing profitability still so low and when we should think about maybe a recovery to sort of FY '19 levels of profitability.

Yes. Well, it's Adam here. I'm going to just start with that at a high level, and then I'll get Chris talk to corporate in particular in terms of the second part of your question. I think the PBT and EBITDA, the difference that we've got there, obviously, for the first half is about $94 million, which is why we're effectively a breakeven -- or will be able to take breakeven for PBT. We expect that in the second half to be slightly better, so probably more guiding to over the $90 million impact in the second half just mainly due to some of the impact of interest rates coming on to the cash that we're holding. So that's -- if you're looking out for the full year, that's where we're sort of guiding to in relation to the bridge between EBITDA and PBT. In terms of conversion into EBITDA or PBT in corporate, Chris, do you want to talk to that?

Yes. Sure, Adam. Look, I think the reason our profit is trailing our revenue recovery is pretty simple in corporate. I think we've invested a lot of money in bringing back the business to make sure we grow. So we made the decision not to maximize short-term profitability, but to really grow the size of the business. And we've, as I said before, won and now implemented billions of dollars of new customers -- trading customers now over the last 12 months, last 18 months, and there is a cost to do that. So for the first year of an account, it's the highest year of running the account because we don't just trade it. We have the solutions designed to implement it. So what we've done is make sure we invest to grow to take market share. An important reason we do this is when we win these customers, particularly large market, but even SME, we -- this is reoccurring revenue. We keep these customers for a number of years. Our typical account -- signed account is a 3-year account or a 5-year account, and we normally expect them to trade at least twice. So if we win a 3-year account, that should be reoccurring revenue for 6 years. So we've invested to make sure we can grow, we can scale, and we have borne the cost of that this year. But again, we look to the medium-term growth rather than maximizing short-term profitability.

Yes, that makes sense. Just to follow up on that last comment then maybe. Does that mean at a 100% revenue recovery in corporate, we should still think about a PBT sort of below that $267 million pre-COVID number?

I think this year, you would, yes. But I mean, again, the aim of winning this business is to optimize the business. And that's why we talk about economies of scale and really digitizing more, and that's what my team are working on now, is making sure in the coming period over the next year or so we're really focused on optimizing that revenue. But if it was this year, if we got to 100% this year with the additional cost of growth, that would be the case.

Okay. At the medium term, you're not expecting any reduction in profitability sort of versus pre-COVID?

No. I think -- I mean, it all depends again on the balance of the 2 brands. So FCM has grown much faster over COVID. FCM trades at a lower profit margin than Corporate Traveller, but we're now seeing corporate traveler really getting back into its growth engine again, which is great to see. So if you have the same balance of FCM and Corporate Traveller as pre-COVID, we'd expect very similar profit returns.

Okay. Great. And then just the next question just on some of the significant items that have been taken below the line. The employee retention costs have gone from $11 million last year to $16 million. What should we expect going forward? And can you maybe speak to the rationale for excluding these costs from underlying EBITDA?

Yes. It's Adam. The second half expectation should be around $14 million. And then in full year FY '24, it should be $14 million as well, but that's for the full year. And the reason is that the 2 plans that are in place tail off over that next 18-month period. The rationale for it, there's really 2 areas in there. There's one employee plan -- retention plan or the post-COVID recovery plan. And then a second one called the Global Recovery Rights plan. What they are, are they're retention plans basically for both our senior executives and -- which is the post-COVID recovery plan. And the GRR, the global recovery plan, is for all of our employees globally, where we issued all of our employees who were with us during COVID at a set point share rights that would vest the first set vest being today, I think, actually with these results being released, and the second set vest this time next year when we release the half year December '23 accounts. The rationale of putting this below the line is our pure retention one-off retention plans that we put in place to keep our key people all through the COVID period. They're not an ongoing cost to the business, thus, it is part of our previous cost base. They're simply there to be the one-off plan to see us through COVID. But like all of the areas that get put below the line -- I mean, we pull it out of the number. You can do what you feel is most appropriate with it when you're analyzing it. But for us, because of the one-off nature of it, they don't pull on the basis of the ongoing result.

Sure. And then just last question for me. Just wanted to talk about Slide 8 around cost efficiencies. So your costs are about 70% of first half '20, but I note that your revenue is sort of 65% of first half '20. So I guess simplistically looking at that, your costs are actually probably running ahead of your recovery. So I guess my question is, when should we start seeing leverage coming through from this cost base? And what do you think that ultimate efficiency number will be?

Yes, it's a good question. I'm not sure that the revenue is the right number because there is a difference in the margins even without the channel mix there that we've spoken to previously. So volume perspective, our volumes are still above -- tracking a bit above that 70% overall, which is probably a better comparative for it. The answer to that is probably linked a little bit to what Chris was talking about earlier in terms of a lot of the costs that we've got there is in pre-investment in bringing on board new clients through corporate. But also, a lot of those costs are built around some of the investments we've made in our technology streams in particular. So within leisure, we've been heavily investing in technology to assist with productivity for our people. We've been investing in technology to further enhance and enable the website. And we've been doing similar things through our Mel supply area feeding into our corporate and leisure business and as Chris spoke, to the corporate business itself. So we see that we're in a bit of an inflection point now, where we should be close to see more of the benefit from that -- those cost bases come through as the volumes start to pick up. And just remember as well, a lot of the cost base for a company like ours is a fixed cost base in terms of support and structures around that, which through COVID, we weren't able to cut as deeply as we would otherwise. But as the volumes come back, we shouldn't see significant increases going forward as well. So where do we think we'll get to? Well, we haven't guided on that specifically. But we do expect that costs will come up further than where they are now as we continue to get volumes up to prepandemic levels. But certainly, we expect that the cost base will be operating less than 100% of pre-COVID levels at that point in time. So I guess the answer is somewhere between where we are now at 70% and where we were pre-COVID.

Your next question comes from the line of Mitch Sonogan with Macquarie.

Just looking at the FY '23 guidance, where you confirmed there the $250 million to $280 million underlying EBITDA. Can you maybe just provide a little bit of color about how you're thinking about what would drive the result to either end and I guess, how that second half '23 is tracking versus your base case there in the middle? You obviously talked about some pretty high activity levels in January and Feb. Consumer spending has been better. So just trying to understand your basis behind that and how you're tracking.

Yes, it's Adam here. Look, I think the reality is that we've given a fairly wide range, as you'd expect. There's still a bit of volatility in the line in terms of growth coming through more generally, which is why we've given that wide range. And frankly, the last couple of years have shown that we probably need to be prepared for various things. If I look at both ends of it, the bottom end is really probably assuring that there's a bit more of a tightening and an impact from some of the macro conditions that we're not seeing at this point in time. And that could be across both -- corporate in particular, but both corporate and leisure. If we saw that those things tightened more than we're anticipating, then that could bring us down to the lower end of that guidance. From an upside risk, look, I think it's really about not having any of that impact coming through, everything really continuing to grow at slightly higher rates than we're expecting, perhaps capacity coming back in the ANZ market a little bit more quickly than we're anticipating. We'd probably see that as well as probably a bit more of a better result in some of our noncore or brands that aren't spoken about as much such as our touring and other experience businesses, which have a peak period in the sort of major earning periods. So some of those are probably the swing factors. In terms of the January, February trading data, as we said, it's been pretty strong for us. We're pretty happy with what we're seeing in both leisure and corporate over the first sort of 6 or 7 weeks of the calendar year, but it is still early days. So I've probably been in this long enough not to read too much into the first sort of 5 or 6 weeks of any period, but it's certainly heading in the right direction for us at the moment.

Yes. Great. And maybe just one for JK. Just thinking about the Australian outbound business. Obviously, overall seats, I think [ he was ] talking about you're seeing that still constrained out of Australia, but we are seeing increasing capacity coming from other airlines. Are you able to give us any color about what you're seeing within your business in terms of forward outbound bookings, say, over the rest of calendar year '23?

Yes. Thanks. So look, the forward bookings are in line with our projections, which is why we're reasonably comfortable with the performance so far at the beginning of the year. But our forecast and projections are based on capacity returning to what's actually projected. So if you look at, say, domestic outbound out of Australia, it's still about low 90% of pre-COVID, and it's getting up to that magic 100% towards the middle of this year, but there's a lot of nonfactors as to whether we'd achieve that. But if you look at international, that's starting to certainly move now, where if you look at, say, pre-Christmas, was about 70% and now it's kind of -- the month of February is expected to be around the mid-70% of pre-COVID capacity and increasing, but still not getting up to 100% this year based on some of the forecast. So even if you go out to June, we expect to get closer to about high 80s percent in capacity. And with all things going well with capacity levels, we're reasonably comfortable with the range that Adam has put out.

Yes. Excellent. And just a final one from me. Just on the corporate business, $1.25 billion won in the first half, and you're talking about Corporate Traveller on track to win over $1 billion over the full year. I guess can you just touch on the broader environment that you're seeing, so the tenders across both parts of that corporate business? Are they still coming out at a pretty similar rate? And I guess can you also touch on the key reasons why you're seeing this elevated tendering environment?

Yes. Well, we -- I mean, the tendering environment is carrying on as per usual. We actually saw quite an increase in tendering over the COVID period actually. So a lot of travelers had to put their business up for tender over COVID. There have been some customers who decided not to, and they're coming up this year. But there's nothing exceptional we're seeing in terms of tendering on the contracted side. Obviously, the way Corporate Traveller operates, it doesn't tend to go through a tendering or RFP process because it's winning smaller accounts. The average customer size is around $200,000. It typically works in a non-RFP environment. So what that means is those customers could be won at any time and any period. And I think across the 4 regions, probably the only change we're seeing is more activity in the last few months in Asia. The other regions have been pretty consistent, and we expect that activity in Asia to continue to pick up, particularly now with, as I've said earlier, Japan and China opening. But really, overall, we're not seeing any differences in the market than would be expected.

Your next question comes from the line of Hailey Kim with JPMorgan.

My first question is just on the staff. I think you mentioned that you're investing in your staff base and you've restarted the staff development programs as well. Can you just talk about the travel agent shortfalls in corporate and leisure segments? And maybe perhaps within the leisure segment, the breakdown between mass market and luxury. And then how many additional staff would you actually really see to be up to service the strong demand that's coming through? And then just lastly, given the increased travel agent productivity with investments that you made in technology, where do you see your employee cost getting to when you actually get to a full revenue recovery?

Chris, do you want to start with corporate, give us a flavor around where you're at with your staff numbers and productivity?

Yes, sure. Look, we're pretty much fully staffed now. We brought a lot of staff back in the last 12 months. I mean the real ramp-up in recovery started pretty much 12 months ago, and we've been in a recruitment -- rapid recruitment period in most parts of the world over the last 12 months. So we're pretty much fully staffed. So there may be some additional headcount brought on if we win some big accounts and we need staff to serve that particular account. But beyond that, we're really in a process now of training staff who've been on board in the last 6 months rather than recruiting any more staff.

Yes. Thanks, Chris. Hailey, from a leisure perspective, over the last 6 months alone, we've hired over 1,000 sales staff, and I think it's a great achievement from our recruitment team. I know there was a lot of questioning as to whether we have the capability to do it, but we're pretty good at this experience of bringing on new people, training them up into the system. And the fact that we implemented new systems, our new staff members are twice as productive on a booking level as to what they were pre-COVID. So in terms of future staff growth, we are still continuing to recruit, and we expect to have at least 200 new people join the organization on a month-by-month basis. Also factor in that we will have some people leave the organization, which is just normal course of business. But the investments that we've made in the system means that we're aiming to actually sustain some levels of the productivities that we've got right now. And from an overall cost base, we see that the target economics will be in line with employees as the cost will be proportionate to the actual volume growth that we see returning back.

All right. And then my next question is just on the corporate segment. Can you just -- you gave a lot of color around the regional breakdown of the corporate clients, but can you just provide some details around your leverage to different industries in the corporate division in various regions? And also, you talked about the tendering activities are still happening in the FCM brand, but would it be fair to assume that the incremental account wins going forward is likely to be driven by the SME accounts through your Corporate Traveller brand?

Well, you're starting with the customer base. So one thing we've maintained from a pre-COVID period, we've maintained it throughout our wins, is that we're very diversified. So actually, there's no one sector that we are -- that we overindex in, in any region. We really remain pretty diversified, and it's more about finding customers who appreciate our customer value proposition. They can be from any sector, and we've done well, for example, in Australia this year winning a lot of universities. We've had a good run of that in the education sector. But we've also done well in the same market in retail, in mining and other areas as well. So we actively have always in both brands pursued a customer diversification strategy, and we stick to that. I think that the -- although I've been talking about the resurgence of Corporate Traveller, actually, FCM is having a very strong year for wins as well. So I think that we see FCM carrying on winning. We're not slowing that down at all. The only thing that's happening is that CT is now back winning. In fact, one of the changes we had for the first few months this year was although we were signing customers in our North American business, because we were so understaffed, we couldn't actually place the business, which is kind of an odd problem for us to have. So because of -- because we're now fully staffed in most parts of the world, we're having no problems there now. And hence, we're seeing Corporate Traveller growing fast again. So I think we carry on investing to grow in both brands. We don't want to slow that down at all. But I am pleased to say that CT is back again, which is good news.

My last question is just on the incremental revenue to EBITDA margin conversion. I could have missed it, but I haven't really seen any commentary on targeting 50% incremental revenue to EBITDA margin, especially during the recovery phase in the second half as well as heading into FY '24. So can you just talk about this a little bit, whether there's been any change to this target?

Hailey, no change to it. We're aiming for 40% to 50% conversion during the recovery phase. So effectively, we're taking that sort of 6 months by 6 months. So certainly, for the next 6 months, our expectation is that we'll be in that range, and we were at 39% for that first half.

Your next question comes from the line of Tim Plumbe with UBS.

Most of my questions have been asked so I might just ask 1 or 2. And the first one is just around leisure, if possible, please. I mean thinking about the productivity improvements and maybe the stronger performing consultants that have remained, once we return to business as usual and just thinking about the employee-based model part of leisure, how do you think about TTVs to sales staff versus pre-COVID levels? Is 1.2x the right kind of level? James, I know that you were talking about 2x, but is that sustainable?

No. Look, the 2x is more related to novices that join our business, but overall productivity levels now across the group would be about 50% greater. And I suspect because of the investments that we've made, we want it to sit at around 30% to 50% greater subject to overall inquiry levels coming through.

Great. And just the second one on corporate. I appreciate January, February pretty strong. Are you able, Chris, to talk at all about any discussions that you're having with your major FCM and corporate travel clients in terms of their travel budget expectations for the year?

Yes. I mean we -- so most of them are going to carry on traveling as they have for the last few months. Now there was talk coming into the end of calendar year of people running out of budgets because airfares were much higher earlier in the year. And what we've seen in January is that they've just restarted their budgets, those working on calendar years. So what we are seeing is that there's a couple of interesting trends. One is that people are often now taking longer trips and actually going for longer stays, and that's maybe doing fewer trips but longer ones. But we're also seeing conversely, particularly in countries like the U.S.A., where you've got a much more distributed workforce now. So a lot of people have moved out of the office or even moved back to a home state then carry on working. We're seeing customers organize more meetings and events for their staff and the part, which is travel, that really just didn't exist to that extent pre-COVID. So I think the budgets remain pretty consistent from what we've seen before, and the January, February trend seems to reflect that.

Right. And apologies if I missed it, but just a final one in terms of Corporate Traveller. Can you talk to us about what percentage of new customers are coming from previously unmanaged pool versus those won from other competitors, please?

Yes. We don't actually report on that as a global KPI. But typically, it does depend on the market actually. So if you look at something like the U.S.A., they're winning more from other agencies, typically. As you look at a market like Australia, there's actually quite a large proportion of our managed business being won. So we don't actually measure it as a percentage. It does vary by market, but both categories are pretty well represented in the brand wins.

Your next question comes from the line of Mark Wade with CLSA.

Followed turnaround more on, keep it going. A question for Mel, perhaps. So can you comment on the company's ability that you've had to better convince the general public and the suppliers of the value-add services that Flight Centre can provide? And I'm thinking of ways you can better monetize this and how that might impact with your departure and Greg coming in. So yes, just on working with suppliers and the public to convince them of the services.

I actually might get JK to answer some of the -- or Chris to answer some of the services because that's their job to sell to the customer. But sorry, I didn't quite hear you. But thank you, as you said, between being great [indiscernible]. I don't think so, to be honest, because Greg and I have worked together for a long, long time. Greg has been managing the supplier relations part of our business for years actually. It's kind of a bit of a general question. I think one thing to point out is we remained very active with the supply chain during COVID, even though there wasn't much happening in terms of flights, et cetera, particularly in this marketplace. And I think that continuous high level of engagement we have with our supply chain is a real positive for the group, and we certainly have had a lot of feedback. And that's why I think we've been busy signing deals, I'd like to think busier than anyone else. Because this concept of coming in through one doorway, which was sort of former, I think, through the supply division and getting the entire group's business, including now the new segments like JK's independent strategy and leisure, et cetera, is really proving, I think, to be valuable even more so to the supply chain because through one deal, I can get -- there's multiple portfolio of corporate leisure brands, and we can actually actively work with them to chase down the customers they want. And I'll use Chris' example with the SME space. The supply chain probably is more happy to work with us on getting an SME customer than they are a TMC customer, which often just move around different TMCs. To that point, [indiscernible] and I had managed a lot of them, had an opportunity to buy more to upsell into higher categories of fares and to have more ancillaries, if you like, sold to them. So I'm not quite sure what the question was, but I think we will do well and continue to do well as having better or optimal market sort of deals, and then work with -- and that's what I mentioned. We're now working with corporate in Malaysia in terms of how do we actually grow that product mix, how do we get more components attached, not just in leisure but in corporate as well. So it's quite a good sort of symbiotic relationship. We show where there's opportunities, and they come to us where they think they're different as well. And I think that will help push that conversation further than it ever has been.

Yes. Apologies, Mel, if it broke up. Yes, I think that touched on -- I mean, I was really just trying to get a handle on how you conceptualize monetizing better the supply that you provide to the travelers going -- whether it's with booking fees or you mentioned ancillary services and just really had to try and maximize that. So that was useful.

Yes. Okay. Thanks, Mark.

And secondly, look, the -- I'm not sure who -- maybe one for Skroo or Haydn. I mean, look, so far, demand has been really solid despite these higher ticket prices. I know you've spoken about them coming off. And I guess, intuitively, that will be a positive through a response to volume. But just are you able to try and give us a sense of how responsive do you think the leisure and business travels really will be to lower-priced tickets? And can you offset that price decline with volume?

Mark, yes, this is going to be a difficult one. But I think that the -- probably the mix of business is still skewed towards the fact that the holidaymakers haven't come back to pre-COVID levels yet. And of course, that's where our -- particularly our mass brands like Flight Centre make a lot of their money out of. There is -- the airlines, obviously, particularly the airlines' fuel prices, as you saw from Melon, are relatively high compared to pre-COVID. But I think the high ticket prices are generally there because there's not as much capacity back yet. As the capacity comes back, as airlines want to sell the -- all their seats, there will be these discount air fees come back, particularly in the international routes. Already, you will have seen flying to New York or L.A. in particular, it was around that 20,000 mark -- or 18,000 to 20,000 for business class and 4,000 or 5,000 sometimes for economy. And generally, if you look into the future, even at reasonably peak times, that's come back a lot to more normal. It's still 30% to 40% above overall, but we think this will come down not to pre-COVID levels probably in the next 6 months, but certainly, it'll be a lot closer to that perhaps 10% to 20% above pre-COVID by the middle of the year or certainly the end of the year. And I think that will stimulate demand, particularly for the international travel or the holidaymaker, which will be -- is quite important for leisure, particularly in the mass brands like Flight Centre.

Agree. And last one, just perhaps one for Adam. I mean with over 110 shareholders on the registry at August last year, they all put in $30,000 to this SPP. You had raised over $3 billion. So how do you kind of toss that up against the idea that you're reviewing the capital structures to try and optimize those?

Yes. Look, the SPP has been very well received, [ spilled ] over until I think the 6th of March. Remember, this has been well received, as was the placement itself. So really good to see that. I think the thing we need to keep in mind is the placement price is looking like it will be around that $14.60. So I think there's a way up there. I don't think we want to necessarily be trying to raise too much additional cash out of that at a very low share price and diluting our existing shareholder base. So we've got a pretty healthy balance sheet there. I think, Mark, with the $1.1 billion of cash, that should grow over the next 6 months with the operating cash inflows that we're expecting. So I would suggest that we're not going to be able to overrate by much, if at all, out of that share placement.

Your next question comes from Darshana Nair Syama with Goldman Sachs.

Maybe for JK just in terms of Americas and Asia. I noticed that the momentum is probably weaker than the rest of the regions. So can you give some color on any notable trends that you're seeing from the consumers as you're recovering in this region?

Sure. Well, our Americas division is performing to our expectations, but remember that we made some tougher calls in that market during COVID to restructure the business and the operating model. And the mix of brands that we operate out of the Americas, one is the student market with StudentUniverse. Some of the challenges they had with recovery was a large part of their business was actually Chinese students, which made up about 20-odd percent of the total. We also operate the independent marketplace, and that's performing to expectations and we expect it to grow. We've really shifted now our intention with the acquisition of Scott Dunn we'll be looking at the luxury segment. So in terms of our focus, it's performing to our expectations.

Okay. And secondly, maybe about the conversation with suppliers as well. Given that ANZ recovery is now pretty strong, can you give us a sense of how is the conversations proceeding in -- specifically in the region? And how do we expect revenue margins to compare versus pre-COVID from a volume incentive perspective?

Darshana, we're having really productive discussions with the majority of our, I think you mentioned, in this region, the ANZ region, with all suppliers. I mean, as I said, remember, there was a blanket reduction in the marketplace that became effective 1 July this year here in New Zealand. But we've had good discussions about, okay, it has had an impact on our revenue margin. There's no doubt. But do we now have other mechanisms to help recoup and recover, whether that's through volume-based deals, which we are seeing again? It was very hard at the beginning of this financial year because we had 2 years of a completely disruptive travel pattern in Australia particularly, so we put in place relatively, let's call it, generic Flight Centre and Travel Group deals. We're now revisiting a lot of those. We're getting a bit of a patent. We can see capacity to the future. So we're having very good discussions about retaining volume deals, balancing the old guarantees versus growth targets, et cetera. So I don't -- it's hard to sort of pick out anything particular, but most airlines are working with us. And again, as I said, I think they see that because we're recovering perhaps a bit faster than market in many instances, we're having -- sorry?

I was just going to say, do you want to talk NDC specifically?

Yes. Well, the other line is NDC. I think that's one of the things I pointed out in the deck. We have been very proactive in this space. We've spent a lot of money. We're trying to make sure that we are a market leader, and I think we are. We will be technically fairly ready by about middle of this year for a fairly broad distribution to get access to NDC content with an airline that gives us the right commercials. And again, as I said, remember, the servicing capacity has to be there as well. So again, we're trying to position ourselves as an air leader. I think we have been for the 31 years I've been in the group, and I think we're coming out of COVID in that space again, and I think that's showing in our supplier relations and procurement area.

Okay. And lastly, on the ANZ business and corporate. Thanks for the color for the breakdown of new account wins in different regions. But can we understand if there's any major businesses pending onboarding in ANZ? And how should we think about corporate outlook in this region?

Yes, it's a good question. Actually, very strong this year. So there's no one huge customer being onboarded at the moment. We've got a collection of great brands being onboarded across different industries. So actually, ANZ performed very well in the last 6 months from a sales perspective, and many of those customers are being onboarded as we speak. And that's in both brands. So obviously, more of the household brands you've heard of typically trade in FCM. But in both large market and SME, ANZ, particularly Australia, is performing very well.

Your next question is from the line of Brian Han with Morningstar.

A couple for me. Adam, a question on cash flow seasonality. The expected conversion in the second half, would it be materially different to historical trends pre-COVID? Or will there be any unusual factors we need to be aware of?

No. I don't think there should anything too unusual in there, Brian. I mean the only thing you'll see if you look at the balance sheet is contract assets that we've got are a bit larger and have grown fairly significantly during this first half. We should recover those. So there might be a slightly more positive SKU than what you would typically see in that first half. But other than that, I don't think there should be too much else that would be a significant difference.

Fantastic. And Chris, in the corporate division, what percentage of the TTV do you think is on a fixed fee basis? And do you remember what it was pre-COVID?

So we have 2 types of fee in corporate. We have a management fee, which is typically a cost-plus model, and then we have the transaction fee. Actually, neither are really fixed. So one is a percentage over costs, and the other one is a fee for a service. So we have different types of service fee: a booking fee, the change fee, an account management fee and consultancy fee. The change between transaction fees and management fees, in FCM, it's gone more towards management fees. But transaction fees still remain overall in corporate, the majority of the fees that we charge.

Okay. And James, I understand that Chris probably has more visibility to provide a TTV picture for the full year. But do you want to have a go to what TTV might be for leisure for this year?

Look, I think it depends on capacity coming back. But I think our -- the forecast of TTV, you can probably reverse engineer, in fact, from the numbers that are in the guidance level there. But we're performing as we expected TTV. We'd expect it to be in the tune of about $10 billion thereabouts.

Great. Okay. Before I go, congratulations, Mel, on your retirement. I take it that you'll be aiding a lot to Scott Dunn's TTV over the next few years?

I have prepared me that well throughout my career, yes. So, I don't know, but thank you very much, Brian. I appreciate that.

Your next question is from the line of Abraham Akra with Credit Suisse.

I think my first question is more, like, to Adam. Within the Leisure result. I'm just curious with the brick-and-mortar online channel and independent-agent channel are all profitable on profit before tax line in the first half of '23.

Just a little check, the profitability check.

Yes. They -- when we look at profitability of the channels' independence, that they're all profitable at this stage. We've got 1 or 2 of the online brands within the overall portfolio that are actually at a breakeven list. But overall, we're seeing as a -- that's on a year-to-date basis. But when you look at them on an individual month coming out as demand has picked up in the last quarter and going into the new year, they're profitable.

I just want to confirm, brick-and-mortar is also profitable for the 6 months?

Yes.

Yes? Perfect. And also on the back of Wei-Weng's question in regards to corporate. At what level of revenue recovery in corporate do you expect to follow profit before tax margin? Do you exceed the FY '19 level of 3%.

We don't expect that this year, no. So what time are you referring to?

So this is for the 6-month period or for the year. So revenue covers, you'd exceed for capital levels soon. But at what level does the revenue so have to be in corporate for tax margin of TTV to be 3% or above like in FY '19?

Yes, it would certainly need to get, at this stage, above 100%, simply because of the increased costs we've got this year. But what we expect to see over time is the -- our ability to optimize the trading volume means that we should get back to that level of profitability. I think the one change we're going to have this year with getting to 3% is the fact that STN has come back as a bigger portion of the business than Corporate Traveller. So if we get to 100% revenue today over the next few months, STN a larger percentage of that. And STN has always and continues to operate at a lower profitability level. But again, we are seeing Corporate Traveller growing, so again, rapidly. So over time, we should see that percentage of CT's overall volume increasing.

Great. And lastly from me, for the leisure business, maybe pass way them again. What level of flight credits remain in the system? Will that continue to be extended by the airlines?

Yes. Well, A, not sure of the exact number, but we've watched through most of them now at this stage. And we've got some remaining still that have been extended out a little bit further. But most of the bookings coming through now are mostly kind of new sales.

Your next question is from Sam Seow with Citi.

Just quickly, volume-based revenue, talked about it coming back. Can you maybe just provide us some clarity around how soft that line currently is and maybe the shape of the recovery profile, maybe second half '23 versus first half '24.

Sam, I don't think -- we're sort of looking at it with a bit of a puzzled look. But I don't think we caught what you actually said there. Could you just run us through that again?

Overrides or backend revenue.

Oh, overrides.

Yes.

So the overrides that we've got for the first 6, remember though, that, particularly in the Australia and New Zealand market, where we're basically quite down in international travel for [ 2-odd ] years. We're starting to see a recovery of the override profile back to pre-COVID levels for pretty well in most categories. Air has still a little bit to get there, but that's just the set of the results of that we're just starting to see the increase in volumes coming through. So we're pretty confident over the next 6 to 12 months, we'll return to a similar level that we were seeing pre-COVID. But yes, Air is still probably the one that's just -- it was a bit softer in the first 6, but we're starting to see that change. We've worked hard that last 6 months and volumes started to grow and then into this year as well. The Australia and New Zealand market is still in a very unique situation because of the capacity constraints that JK mentioned as well. By the way, we started to talk to some of the Chinese carriers. And we're only seeing at the moment that, for sure, that, for us, have loaded in the systems, but I thought that those will impact those conversations. But yes, slightly softer on Air, but recovering. And most other categories were pretty well, I suppose, to where we were pre-COVID.

Got it. And then the $0.12 and $0.07 ticket price decreases that you mentioned in Jan, what base is that? Is that December? And does that impact your kind of supplier override bucket agreements if the ticket prices are coming off. Just trying to think -- is that -- yes, just trying to see how that plays out.

Are you referring to the air price reduction on month-on-month?

Yes.

Yes. Yes. So that was December -- the January average ticket price is lower than the December ticket price. And with -- in terms of the ticket price and the volume, you would expect that the ticket prices start to drop, the volume start to pick up. And bear in mind, too, that the airlines by and large, control the pricing. So if the airlines are dropping the pricing, it's probably to stimulate a bit of volume. And then we think that volume will flow through.

I was going to say, Sam, it's an age-old problem, the trade-off between cheaper prices and more volume. We -- when we do, do our override deals, we have a really good look at what's in the system capacity and their expectations, so we really have those conversations with the supplier. And if there was something ridiculously happens that would cause us to come back to the table, it's that dramatically affected the volume, particularly obviously, for us in a down in trajectory. But we look at -- we do a lot of numbers rolling pre any discussions and make sure we're talking with the carriers about what they're seeing as well.

Yes. And just to add to that, Sam, even though there's been a price reduction month-on-month, we've actually seen volume growth as we've gone into the new year, which has increased demand coming through and seasonality trends that are actually driving greater volume coming through.

By the way, it's very different profile destination by destination. But -- so again, it's the -- but the blended average is hard to take -- it's hard to break much into. We don't think there'll be too much further price reduction, if we're honest, for the next 6 months, I think, which is what [ Scurry ] said.

Yes. Yes. That's cool. And then just quickly, housekeeping on gross margin. Obviously, it looks good, below 10%, but inflated TTV. Guessing it helps taking out those employee retention costs. Just wondering, did you have any level of overstaffing or a number that you'd call out? And what kind of cost margin will you need to hit to get your 2% PPT?

No, we don't have any overstaffing. I don't think overstaffing's been too much from -- other than in corporate where Chris has probably pre-invested as he was talking about earlier in some of the implementation teams. And that's probably kind of ahead of the curve. I don't think I'd call it overstaffing in as much as we wouldn't see that reduce. But it's -- those levels are now -- they are ready to handle future volumes coming through. In terms of the margin, yes, I mean, look, there's no doubt that cost margin is being impacted a bit by the inflated air fares as has the revenue margin when we're comparing the reductions that we see there. It's also being impacted by the success of our strategy, particularly in leisure, of really driving forward our low-cost channels; and it's also been impacted by the structural changes that we fundamentally made to the business; and lastly, the ongoing discipline that, as I said, had been pretty impressive internally in terms of how we're managing that cost and getting the right balance between cost reduction or cost stability and investing in the areas that we need to keep the line of sight, not just on our monthly or 6 monthly results, but over the next 3 to 5 years as well. So I think all those things have played a bit of a part there, Sam. Again, we haven't broken down where we believe that the revenue margin or cost margin need to get to the -- to 2%. But I would say that my expectation is that our cost margin will continue to fall from where it is right now. And whilst we'll also see revenue margins in brands are continuing to improve, it will be a mixture of the 2 that will get us that combined 2%. So there's a mix -- a bit of a mixed bag between the 2.

Your next question is from Belinda Moore with Morgans.

If I could potentially ask 3 questions. So first of all, Chris, around corporate. You've delivered $80 million today. Are you sort of expecting that sort of 35%-65% EBITDA split like group guidance? Maybe then a couple of questions for Adam. Adam, the other division, negative 28%, can you give us a little bit of a breakup around corporate costs versus the other mix in there and how we sort of see that division for the full year? And then this net interest line, today, the corporate costs alone 41% versus 27%. How are you seeing that for the full year? That would be my questions. And if I could just reiterate congratulations to Mel on all the success you've had in the travel industry over the last many years and all the best in the future.

Thanks, Belinda.

Chris, do you want to start? Do you want to talk about your $80 million EBITDA and where you see that going over the second half at a high level?

Yes. Sure. Well, Belinda, I don't think we're breaking out guidance based on Corporate and Leisure at this stage. But I think typically, what I will say is that the second half of the year in Corporate is generally stronger than the first half, and we see that trend continuing.

And just in terms of the harder division there, Belinda, the main sort of driver in that number, particularly as I look at it compared to last year, I mean we've now got TPConnects investment in there. TPConnects a really important strategic investment for us, particularly as we're adapting to and implementing our strategies around NDC capability. That business had a net investment or loss of around $4 million for this half, which wasn't there last year because the acquisition only -- full control, only took place in late April, I think it was, of '22. So that's in there, our Pedal Group is in there. Pedal Group has, as expected, had a much softer start to this financial year than the previous year. You remember, I think, Belinda that over that COVID period, Pedal Group, really, really outperformed. And as the market there is starting to stabilize, results are less than what they were last year, and that's about a $9 million impact in that other segment from the Pedal Group change in results. We had a good chat with them last week. Actually, I think the [ retailer ] felt these really good strategies on how to continue to generate sales in the market. They've got a lot of stock there. They've got some new products coming in, which is the really high-end e-bikes and those sort of things. So the next couple of years looks pretty good, I think, for Pedal, but certainly, at the moment, they've come off versus where they were in the 22-year. The other thing that sits in that pillar now is our experiences businesses. So Topdeck, Back-Roads Touring, Discova, Cross Hotels, Grasshopper, who knows, AVMIN.

AVMIN.

So some of those other businesses sitting there. That actually improved like-for-like versus last year, which is great to see. Still in a loss position overall, but we're hoping to see that flip to a small profit in the second half in that experiences business as well. And the other piece that sits in there outside the sort of head office corporate costs is our GOGO hotel business over in the Americas. So that's had a couple of million loss for the 6 months as well as it's starting to increase and the leisure business over there, as JK spoke about starts to build. So there's a keeping that sit outside of the head office costs. So you said $28 million loss for the first half. We expect that over the course of the second half that, that'll improve a little bit. And so I'm expecting around about $50 million full year loss in that segment. So the main thing that should swing that a little bit for us, I suspect, is going to be in the Pedal Group. We will see second half seasonality swing there. So we get a bit more profit, kind of a couple of million more profit coming through and our share of that result. We'll also see the touring and the destination businesses hit their peak periods late this year. We should get some upside there versus the first half as well. So there'll be a bit of a swing in those non-corporate or non-head office costs in the second half that should see land somewhere around about that $50 million mark.

That's very helpful. And just a bit of color around this net interest that sort of is obviously -- is blowing out quite materially.

Net interest is -- so net interest is made -- a couple of things in there, Belinda. You've got interest income, obviously, on the cash holdings that we've got offset, and that's largely offset by direct interest expense on the debt facility. So they're both around about $12 million, which largely offset each other; and lease interest is about $4; million and amortization of convertibles, which is the big one in there of $24 million. So that move, in particular, the amortization of the convertibles has increased by about $8 million half-on-half. This one, we've now the full impact of the second set of convertibles flowing through. So I expect the net interest will actually, again, improve a little bit in the second half. Just as our cash builds, we'll get a bit more of a return. Clearly, interest rates, when you're holding cash is a positive. So we'll get a slight improvement coming through there. So again, I would expect that net interest will be a slightly better number for the second half versus first.

There are no further questions at this time. I will now turn the call back over to presenters for closing remarks.

Thank you very much, everyone, for joining us today. A bit of a marathon effort, this one. We're around, obviously, so give us a call if there's anything you need and we'll try and get back to you as quickly as we can. Thank you, Mel. Do you want to make any closing remarks, your highness?

No, but it's been very nice speaking to you all over the years. Let me try and work out how many years I've been working. It's just about 12. And I'll see some of the over next few days, but thank you. I think Flight Centre Travel Group is very well placed to capitalize over the next year or 2. I'm certainly going to be a self-funded retiree, looking for shares to deliver a return, too, so I feel very comfortable investing in this company as I leave it, but thank you.

Thank you, Mel. Thank you, everyone.

Thanks, everyone.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.