Making the change: agent to retailer
Flight Centre (ASX: FLT) is transitioning from a travel agent to a travel retailer. You may be wondering: what is the difference between the two, and what effect will it have on the company’s long-term prospects?
A travel agent earns a margin by selling commoditised products. Agents typically sell for the same pool of suppliers, allowing customers to shop around for the best deal. Agents generally compete on price, which can be a difficult value proposition unless you have considerable scale.
In contrast, travel retailers offer differentiated services which competitors find difficult to replicate. The ‘retailer’ still relies on suppliers to provide the primary products, such as flights and accommodation, but will combine deals with their own exclusive services, thus adding value for the customer. In this regard, Flight Centre wants their brand to be associated with convenient travel.
One service that a Flight Centre brand has introduced that has been warmly received by customers, is the Travel Butler – a free flight change service. This is a luxury that customers would actively seek Flight Centre out for, particularly as insurance if something goes wrong.
Flight Centre is also looking to allocate a travel consultant to each customer who specialises in destinations. Many customers use Flight Centre to book flights because of their Lowest Airfare Guarantee, but will not purchase any additional products. This untapped existing customer base presents a considerable opportunity for Flight Centre to generate income. The consultant’s role is to extend this conversation by making contact during the trip to suggest events, hotels and experiences only the locals would know about. This service is expected to increase the value to the customer, who may use Flight Centre to book these suggested products. This, in turn, improves the company’s bottom line.
Flight Centre has plans to increase its store presence by 6 to 8 per cent each year. This should maintain earnings growth into the medium term. But the intention to transition from a travel agent to a travel retailer demonstrates management’s focus on the long term, which is a key investment criterion for Montgomery Investment Management.
Both the Montgomery [Private] Fund and the Montgomery Fund own shares in Flight Centre.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
INVEST WITH MONTGOMERY
Roger Montgomery
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I understand they are appealing the decision albeit, according to reports, an email appears to have undermined their argument this time around.
Paul Audcent
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Wonder if the fact they have just been fined will make any difference to your opinions now Rog. I have used Flight Center a couple of times.