Flight Centre (ASX:FLT) revealed a 10% lift in underlying profit before tax, or PBT, to $226 million for nine months ended March 2026. Corporate PBT grew 23% to $177 million, while leisure PBT was up just 2% to $136 million. Corporate costs increased 22% to $87 million.

Why it matters: Adverse external factors have ostensibly had minimal impact on Flight Centre overall. While the Middle East conflict began in late February 2026 and various macro headwinds have been building since, group PBT for the March-quarter surged 19% to $103 million.

  • Beneath the surface, however, causes for near-term concern remain. Costs-of-living are escalating in the current June-quarter, with inflation, interest rates, and petrol prices all crimping discretionary spending power.
  • These challenges risk halting the momentum of the corporate travel unit that has delivered three consecutive quarters of approximately 20% PBT growth. It may also halt the nascent recovery of the leisure travel unit whose PBT grew 8% in the third quarter, after a 4% fall in the first half.

The bottom line: We retain our $18.50 fair value estimate for Flight Centre, with our earnings forecasts intact. Our fiscal 2026 underlying PBT projection of $327 million is within management’s reiterated guidance range of $315 million to $350 million.

  • Our forecast 13% increase in fiscal 2026 PBT implies fourth-quarter PBT growth of 22%. This may appear delusional, given the macro risks, compounded by the translation effect of AUD strength. But the prior-year comparison is soft, and there are internal levers to minimize the earnings impact.
  • Shares are trading at a significant discount to our intrinsic assessment. Investor trepidation is understandable. However, history has shown that the risk/reward proposition for investing in no-moat Flight Centre is when external conditions are near their pessimistic nadir.

Flight Centre earnings holding up so far despite adverse external conditions

Flight Centre is one of the world’s largest travel agents, but it still generates substantial earnings in Australia and New Zealand. Unrivalled scale and brand strength in the domestic travel market have delivered buying power and pricing flexibility that resulted in high returns on capital. Flight Centre has a strong network of services that has driven solid end-user traffic and bookings over the past 20 years, but we do not believe this is sufficient to protect the company against online competitors over the next 10 years.

Due to the discretionary nature of travel and high levels of operating leverage, earnings can be very volatile.

Flight Centre’s significant scale and extensive store network have made the firm a key distribution channel for travel suppliers and generated cost advantages that enable it to offer competitive prices. However, with the threat from online competitors increasing, we believe physical stores are likely to lose relevance in the long term.

From about 2005, facing a maturing domestic market, the company increased its focus on offshore markets, particularly the United Kingdom and the United States. The group made several offshore acquisitions during this period. The company is also increasingly focused on corporate travel, which is more structurally resilient than leisure. Corporate Travel earnings are now comparable with leisure travel earnings.

Bulls say

  • A strong balance sheet allows Flight Centre to take advantage of weakness in the economic cycle via opportunistic acquisitions or increasing market share via investment in marketing initiatives. It also enables the development of new products to more effectively address specific market segments.
  • Brand strength provides a potent underpinning for the blended online/physical store offering.
  • Travel agents are customer aggregators. As it is the largest agent in Australia, scale enables Flight Centre to negotiate favorable deals with travel providers.

Bears say

  • Domestic market success does not guarantee long-lived success of offshore expansion.
  • Occupancy and staff costs reduce the competitiveness of brick-and-mortar travel agents, such as Flight Centre, relative to online-only competitors who contend with much lower overheads. New generations of consumers are increasingly confident about shopping online, which reduces the cost of market entry for new players.
  • Exposure to consumer sentiment and discretionary spending results in volatile revenue. High levels of operating leverage exaggerate the earnings impact.

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