Flight Centre reveals $700m raising to ‘trade through uncertainty’

Flight Centre has announced a $700 million fully underwritten equity raising that includes a $282 million institutional placement and a $419 million 1-for-1.74  non-renounceable entitlement offer.

Apr 06, 2020, updated Apr 06, 2020
Flight Centre has upgraded its earnings again. (Photo: Dan Himbrechts/AAP)

Flight Centre has upgraded its earnings again. (Photo: Dan Himbrechts/AAP)

It also has gained a $200 million increase in commitments from its banks and will also reduce costs by about $1.9 billion by the end of July 2020.

Flight Centre said the steps would mean it could trade through an extended period of uncertainty and disruption, continue to deliver high quality travel services to customers and capitalise on opportunities as market conditions improve.

The steps came after Flight Centre’s total global transaction value (TTV) fell in March to 20-30 per cent of normal levels as travel restrictions to stop the spread of COVID-19 were put in place around the globe.

Before the containment measures, Flight Centre said it had had been on track to deliver a record year of TTV in 2020 after generating $12.4 billion TTV in the first half, an 11 per cent increase, and further records of TTV in both January and February.

The founding shareholders Graham Turner, Geoff Harris and Bill James will pay out about $25 million to take part in the pro rata entitlements.

The placement to institutions will be at $7.20 a share, representing a 27 per cent discount to the last traded price of $9.91.

The public share offer will open on Wednesday, April 15 and close on May 1 and will also be struck at $7.20.

Flight Centre managing director Graham Turner said the steps were carefully considered and were designed to ensure that Flight Centre overcame the challenges that it and most other businesses across most industries faced.

It would also mean the company was “ready and well placed to benefit when the trading cycle improves, and as unprecedented travel and trading restrictions are lifted”.

“These restrictions are widespread globally and now typically include full bans on international travel, domestic border closures and the forced closures of shops that are not deemed to be providing essential services.” he said.

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“Together, they mean that our people are currently processing a fraction of the normal volumes at this time of year and the vast proportion of work previously carried out by our people has stopped.

“It is –without question –the most challenging period we have encountered in over 30 years in business and it is inevitable that some businesses across our industry will fail, given the significant loss of revenue that they will be experiencing now and for at least the next few months.

“With this funding in place and additional liquidity, we are in a much stronger position and are well placed to weather a prolonged downturn, which currently seems the likely scenario, and to then take advantage of the significant opportunities that will arise once conditions normalise.”

Flight Centre said its cost-cutting campaign would be worth about $1.9 billion and cost about $210 million to implement.

It will close more than 50 per cent of global leisure shops, including more than 40 per cent of Australian leisure shops.

It said the impact of the Government wage subsidy was being assessed but believes it will receive material support, both in terms of payments and an ability to retain more staff.

The combination of the capital, liquidity and cost-related initiatives would provide Flight Centre with substantial additional liquidity and balance sheet flexibility to trade through this period of dislocation and uncertainty across the travel sector.

Flight Centre’s activity follows a $346 million capital raising by Webjet.

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