Carmel Fisher - Flight Centre takes off. Who says you can't make money in the airline industry?

I had a look at Flight Centre this week after a friend sang its praises, not as a travel company but as a business that has thrived when it really shouldn’t have.  Travel companies are always top of the list when we think about the businesses that technology will render obsolete.  Who needs a travel agent when you can book your entire holiday online?

Last week Flight Centre Limited announced a bumper profit of $A246 million and forecast a A$370-385 million profit for the 2014 year.  Obviously somebody still uses their services!  Flight Centre really is an inspiring case study and its founder and CEO Graham (“Scroo”) Turner has become something of a superstar in the Australian corporate sector.

Scroo (nicknamed after the Turner screwdriver) started business by investing $1,300 in a second-hand London double-decker bus and running European tours for young travellers.  When he sold Top Deck Travel it had a fleet of 80 buses.  He returned to Australia and set up Flight Centre in 1981, building it from a single store in Sydney’s Martin Place to Australia’s largest travel company with 2500 stores with over 13,500 staff in 11 countries.

Flight Centre revolutionised air-travel retail by building a model that was based on volume rather than margins.  They found a price advantage by bypassing ticketing wholesalers and seeking out less well-known airlines.  

Flight Centre listed on the Australian Stock Exchange in December 1995. After two decades of rapid growth in revenue and profits, the company experienced its first ever decline in annual profit in 2005.  This stumble occurred after Turner’s temporary departure as chief executive when he handed the reins to a senior manager.  It wasn’t just management concerns that saw the share price plummet - worries about the evolution of online DIY travel didn’t help, and neither did the acquisition of one of North America’s largest travel agents in 2007 – the company is yet to make this business profitable.

Along the way, Flight Centre has faced other battles, including the disintermediation of the travel industry which saw airlines try to edge travel agents out.  In 2006, Qantas announced it would no longer pay commissions to travel agents for domestic and New Zealand flights and would reduce international commissions by 33%.  Other airline suppliers followed suit.   

Scroo took these battles head-on, insisting he would only deal with airlines that played fair and allowed a margin to be made by both supplier and distributor “It’s got to be a two-way thing.  For any manufacturer of whatever, whether it’s air travel or other goods or services, you’ve got to have a win-win situation.”

The Australian Competition and Consumer Commission believes that this approach with the airlines amounts to price fixing, and Flight Centre is still battling the ACCC in what Scroo regards as a competition law test case.

Despite operating in a difficult (and supposedly obsolete) industry, Flight Centre has been a strong performer and one of the highlights in an otherwise ordinary Australian profit reporting season.  And the company and its CEO show no sign of slowing down.  

This is one flight that has really taken off.