In The Big Chair - Graham Turner of Flight Centre Travel Group

In September, Phocuswright published its Australia-New Zealand Total Market Report , which provides a comprehensive view of the region’s travel market, including detailed market sizing and projections, distribution trends, analysis of major travel segments and key developments. Below, PhocusWire speaks with the co-founder, CEO and global managing director of Australia-based Flight Centre Travel Group. The conversation has been edited for brevity.

Australia had some of the most stringent border restrictions, and now things have opened back up. Can you give me a sense of what you're seeing today and also how Flight Centre’s operations are different compared to pre-pandemic.

Australia did have large, long lockdowns. I think Melbourne was locked down the longest of any city in the world. ... Coming back, international capacity in the airlines has been very slow, but we expect to get back to probably 85% by February, assuming the Chinese carriers come back to some extent by then.

From Flight Centre Travel Group's point of view, we're in 25 to 26 countries now with equity operations. But still the three major areas are North America, the U.K./Europe and Australia/New Zealand ... they probably make up 80% of our business. And so obviously it does vary a bit depending on the geography ... but partly because of inflated airfares, we’re generally pretty much back to pre-COVID what we call current transaction value. In terms of actual transaction numbers, in our corporate business generally we’re about 95% back, in leisure, about 65 to 70%. So we still have a fair way to go, particularly as airfares will fall probably from January on.

Like most travel companies we’ve had a pretty tough two and half years. We lost during that time about A$1.3 billion so we have a bit to make up on that. One of our issues is our margin hasn't come back for a number of reasons. Mainly just the change in models with a lot more domestic travel, which is lower margin.

How have your operations been affected?

We’ve certainly taken costs out, and we don’t want to bring all the costs back. We had to close a number of locations particularly in North America and the U.K., but even in Australia we went from about 940 locations to about 450. We are starting to grow again and open more locations in leisure, but we're probably not going to get back to the previous number of bricks and mortar. And we certainly want to try to keep costs down, particularly in corporate as well. We brought in new platforms ... which will make us more productive. So yes we have taken advantage of the last two and half years to improve things, improve productivity.

In Phocuswright’s latest report on Australia and New Zealand, the data shows that online penetration really exploded during the pandemic there. Flight Centre still has hundreds of physical locations. What type of customer are you serving in that type of setup, and do you envision that you will always have storefronts?

We’ve got two main leisure brands that operate out of bricks-and-mortar, that’s Flight Centre and Travel Associates, in Australian anyway. The basis for Flight Centre is in bricks-and-mortar. That's how we've grown up, and we're just celebrating our 40th year this year. So whether here, Canada, the U.K., South Africa or New Zealand, the Flight Centre brand is seen as a bricks-and-mortar, “High Street” shopping center brand and we don’t think that’s going to change in the next 10 to 20 years.

But we have grown our online percentage significantly. I think pre-COVID Flight Centre did about A$8 billion – about A$5 to A$6 billion of that in Australia – and pre-COVID we were only doing 5 to 6% of that online through the website. That’s changed - now it’s closer to 20%. A lot of this is domestic, and as international comes back people will tend to want to speak to a travel consultant. Although online has become more prevalent... from what we see ... obviously it doesn’t suit everyone.

I noticed in the company’s latest full-year financial report, it says there will be a greater need for expert assistance and the current complexity in travel plays to Flight Centre’s strengths in both leisure and corporate. Can you talk a bit about that and are you developing any solutions to try to deal with that complexity?

Talking about corporate, just in terms of wins over the last two and half years, we’ve won just under A$6 billion in pre-COVID terms, so we put a lot of effort into winning in corporate. And in corporate although we do a lot of transactions online, it’s always backed by a lot of people. We are one of four or five major corporate players and it’s become very important to us. ... In business travel ... people are generally prepared to do it online, but our major feature is that it is backed by people.

Leisure is a bit different. Particularly coming out of COVID, it was a lot more complex. And we had to lose a lot of people during COVID ... we are still understaffed here. The pictures of customers queuing outside our Flight Centres was pretty common and is still happening. It’s not only us - generally most of travel here is still understaffed. We are employing about 500 people a month globally. We need about three or four thousand more people. ...  Pre-COVID we were 21,000 and by the end of this year hopefully we’ll be at about that 14,000 or 15,000 mark. But hopefully we can do pretty close to our pre-COVID transaction value, which was about A$24 billion with that 15,000 or 16,000 people.

The complexity is improving, but our market, particularly in leisure, most of our customers tend to have more complex than just a single point-to-point airfare type of booking.

Flight Centre Travel Group has several corporate travel brands operating in nearly 100 countries, with the largest being FCM Travel. In what ways do you think business travel has been permanently changed due to the pandemic?

We were wondering if it would come back to the same level, the same opportunities as pre-COVID ... and we think it will take a while for the overall market to get back to 100%, maybe two to three years, because people have found other ways to communicate.

And then obviously you’ve got the overarching theme of sustainability. That’s one of our jobs – to help companies not only spend less on their business travel but for it to be more sustainable. And part of that is not traveling as much. That’s one of our offerings. How do you help companies that travel to not only spend less but not do as much travel and be more sustainable if at all possible.

I think most companies are finding out that for a lot of important things to get done, you need to have face to face, but people are being more careful about how and when they do that.

I'm not sure I've ever heard a travel industry CEO says his job is to help companies travel less. I fully appreciate your point, but it’s interesting you see your role in that way to help your clients be smarter about sustainability.

Yeah, well in leisure travel, obviously you don't advertise so that people don't go, but certainly in corporate it’s a key thing. When we win a contact it’s generally a five-year contract and that’s often one of the important things that obviously they are looking for ... how they can do it more sustainably. For most of the large corporates, that’s one of their platforms.

Can you just talk a bit more about anything that Flight Centre Travel Group is doing in regard to sustainability?

A lot of our business travel is done in air and at the moment with air, the airlines – IATA has pledged to be carbon neutral by 2050 - and there’s no real indication of how that’s going to happen. ... There’s no indication that I’ve seen that electric plane transport is going to be here in the next 20 to 30 years. Certainly sustainable fuel is being produced, but not in any sort of quantities, and it is very expensive. Hydrogen if it can be applied to conventional planes or engines is one of the things that we might see some progress in.

From a travel agency point of view, from a booking point of view, the main thing we can do is - we can’t change what the airlines are doing and it’s not our area of expertise - we can look at where people stay, how they travel to try to make sure they are staying in more sustainable hotels ... and also trying to make sure people aren’t traveling unnecessarily.

But sustainability, I assure you, it’s one of the things that that companies like ours have to get serious about. We have small sustainability teams working specifically on trying to make our operations more sustainable as well as helping customers and clients to travel more sustainably. The issue is what can you do and what is genuine sustainability [versus] what's saying the right thing and what they call greenwashing.

Flight Centre has made several investments and acquisitions in the last few years. How do you determine whether to buy or build?

Generally we’ve grown mainly by growing organically. For example, in business travel, winning more accounts. But in the late ‘90s we bought a few key companies in the U.S. and the U.K. as the basis of growing our corporate business more rapidly. At the turn of the century, we were probably 95% leisure and now we’re about 50-50... And I think corporate will outgrow leisure. But generally we can grow organically once we have the basic business in place.

But for leisure there are a few areas where we are not heavily represented, particularly in the northern hemisphere for example, high-end luxury leisure travel. So in cases like that we may look at probably a smallish to medium-size acquisition. Same in corporate - we have mainstream corporate businesses but if it’s niche and you need niche and different technology and marketing, we certainly would look at that.

We bought TPConnects and that will be a major player in technology for us both in leisure and corporate moving forward. So some of these areas where we don’t have the capability to build ourselves, particularly if it’s a tech play ... or if we see a gap in our own operations, we’d certainly look at M&A. But the other thing is you need to make sure it's good value. The areas that are successful now are becoming quite expensive.