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Flight Centre Travel Group Limited
FLT: AU/ FLT.AX Recommendation
Industry: Consumer Discretionary
Current $36.85
At 31/8/2016
è Market Cap è Avg Daily Volume è Free Float Target $31.93
AU$3.6B 820,640M 50.49%
100.93M Shares Potential Downside 13%
Executive Summary
Key Stock Data Sep16
As per our valuation, we issue a sell recommendation for Flight Centre (herein ‘FLT’ or the
52 Week Range 45.37 - 29.38 ‘Company’). Our 12-month target price is $31.93AUD, with a projected downside of 13%. This
Institutional Ownership 62.45% has been calculated using a combination of (1) The Dividend Discount Model, (2) Discounted
Free Cash Flows to the Firm, and (3) several Relative Valuation techniques.
ROE 18.67
Current P/E 12.93
Investment Thesis and Outline
Est. International P/E 10.21 Industry volatility, lowered necessity for travel agency intermediation and little international room
Est. Domestic P/E 14.08 for expansion all collectively suggest that FLT will face future struggle. Declines in financial
performance of the Company in 2016 have resulted in weaker competitive positioning. We
EPS 2.42
believe this is paving the way to eventual stagnation of income, and hence loss of investor returns.
Est. EPS 2.69 A summary of our fundamental top-down analysis is as follows:
Price/Book 2.37 • High International Competition: Many key international players already dominate worldwide
1
Price/Sales 1.21 market share. We forecast eventual online market saturation, leaving little room for global
development unless FLT can steal revenue from its existing competitors.
Dividend
• Lowered Industry Commission Potential: Increased sales demand from price wars between
Div. Yield 4.30% domestic budget airlines cannot offset lowered commission revenues. Further, demand for
DPS 1.52 agency intermediation is decreasing as online platforms are making it easier for consumers to
5 year Dividend bypass the middleman, and compare the competition.
12.59%
Growth
• Shifts in consumer preferences: Consumer preferences have shifted and now favour
localised travel due to the weak AUD/USD primary pairing. This form of travel is simple and
Relative Performance does not usually require agency intermediation. Further, corresponding growth in inbound
S&P/ASX200 travel does not form revenue for FLT.
Ticker: AS51 • Expensive Capital Structure: FLT currently has the most expensive WACC of all peers as
2
1m 3.73 CAPEX is funded entirely through equity. As the Company is focusing on future expansion,
6m -25.46 this will reduce the profitability of such ventures.
12m -19.81
• High Expenses and Low Net Profit Margins: For the previous 3 financial years, operating
expenses have grown at a higher rate than revenues, leaving low and unimproved net profit
S&PASX 200 Consumer Discretionary margins. This has led to a ROA below peer average, and an ROE at a second all time low,
Ticker: S5COND causing concerns for shareholders.
1m 5.76 • Low Potential for International Profits: As FLT have shifted their focus onto claiming
6m -16.68 international market share, expenses incurred do not benefit from FLT’s economies of scale
within Australia. Consequently the bottom line for these segments is not as profitable as it could
12m -13.58
be if revenues were incurred domestically.
• Many investment risks are faced and inherently volatile: Operation within 14 countries
Source: Bloomberg & Team Estimates naturally causes high amounts of foreign exchange and economic risk. Further, FLT’s large
fixed expenses combined with commissions fluctuating due to price wars cause high operating
risk.
Income Statement
2016 2017F 2018F 2019F 2020F
($'000,000)
TTV 19305 20608 21879 23095 24234
Revenue 2640 2878 3058 3222 3372
EBITDA 409 456 459 473 482
EBITDA Margin 15.49% 15.86% 15.01% 14.67% 14.29%
Net Income 245 272 265 265 265
Net profit Margin 9.264% 9.466% 8.683% 8.240% 7.868%
Balance Sheet ($'000,000)
Total Assets 3001 3285 3596 3936 4308
Total Liabilities 1655 1812 1983 2171 2376
Total Equity 1346 1473 1612 1765 1932
Ratios
FCFF/Share 2.80 2.77 2.72 2.65 2.56
EPS 2.42 2.70 2.63 2.63 2.63
DPS 1.52 1.61 1.55 1.54 1.53
ROE 18.70% 19.33% 17.21% 15.72% 14.35%
ROIC 18.18% 18.30% 16.36% 15.03% 13.61%
1
Priceline (PCLN:US) $1,418.59, Expedia (EXPE:US) $113.13, CTrip.com (CTRP:US) $48.96
2
Above, also including Webjet (WEB:AU) $9.64, HelloWorld (HLO:AU) $4.30, Corporate Travel Management (CTD:AU) $18.14
1
Figure 2: Corporate Structure Business Description

Company Overview
Founded in 1981, FLT is an Australian based travel agency headquartered in Brisbane, Queensland.
The Company had its IPO in 1995, and boasts 2.64B in revenue and 3000 stores in 14 countries as
of FY16. Despite their name, FLT is not limited to revenues from airline ticket sales, and actually
provides a number of services within the travel industry, such as cruise lines, car hires, and hotel
accommodation.
Business Structure
Source: Flight Centre Travel Group Previously known as Flight Centre Limited, FLT changed their name to Flight Centre Travel Group
Annual Report Limited in 2013. Majority of the Company’s revenues are derived from the travel industry, where
they operate within leisure, corporate and wholesale sectors. Of the 40 brands under FLT, leisure
Figure 3: Recent Acquisitions has consistently remained the strongest sector, while the corporate division has grown to 33% of
revenues for FY16 under 6 dedicated brands. The Company are targeting consumers at many
different stages of travel: expanding their products to include tourist activity packages (Cruise About)
and currency exchange services (Travel Money).
Excluding the travel industry, in 2016 only 9.92% of total revenue was attributed to FLT’s other
companies. Evidently, FLT’s business structure is hardly diversified. This is due to the fact that
management are aiming to use such expansion into other areas to support FLT travel segment
growth simultaneously. For example, products from Buffalo Tours are sold within FLT’s travel
package bundles, and courses offered First Class Education Group include travel agency training
for employees.
Though originally a brick and mortar store based company, new technology developments are
forcing FLT to expand online to continue sustainable growth. The Company has shifted its business
structure by investing in online booking platforms, either by developing its own websites and online
brands such as Aunt Betty, or acquiring businesses who already have a foot in the door such as
BYOjet and Student Universe (Figure 3).
Source: Bloomberg &FLT annual

Company Strategy
Report FLT is undertaking a transition from traditional travel agency to a ‘person-to-person’ travel service
provider. This includes less reliance on physical stores and increased presence online. Further, the
Figure 4: FLT Revenue Break- company also wants to further personalise customer experiences, by giving agents the ability to
down work from home and build a selective customer base.
The Company is undertaking large geographical expansion, and does so primarily through
acquisitions. Within the last two financial years FLT have acquired several profitable companies,
such as StudentUniverse.com. It is expected that they will continue to capture market share through
this method.
Revenue and Expenses

FLT’s main source of income is on a commission basis with individual airlines. As these contracts
are largely discretionary, FLT’s revenue streams can fluctuate, particularly if high competition is
shrinking retail prices. These contracts include different commission streams, such as a flat dollar
amount per ticket sold, a percentage, and even overrides if FLT is successful in selling all their
holdings. FLT’s revenues are hence a percentage of their total transaction value (TTV); an unaudited
Figure representing the total price of transactions they have undertaken as an agent.
Source: FLT Annual Report &
FLT suffers from high operating costs, particularly through wage and rent expenses necessary to
Bloomberg
maintain their dominant brick and mortar stores. Management is making efforts to combine several
smaller stores into a few large ones to maximise efficiency. Further, as the Company is planning
Figure 5: Industry Sentiment
further expansion into digital platforms, this may also then cut these expenses.
Survey: Factors Essential to
tourism
Geographical Performance
FLT has operations across 14 countries, among which Australia comprises of 49% revenue. This
should come as no surprise as FLT have built themselves to a bellwether status within the domestic
market; with a total of 20,000 employees within Australia and 79% of the domestic industry revenue.
Following Australia are both the Europe and North America segments, at 15.6% and 11.2%
respectively. In FY16, South Africa hit a record first-half year result, becoming the third most
profitable country by TTV to EBIT margin.
FLT’s success however, is not consistent across the board. The INDUASIA segment contains India,
Singapore & Malaysia, Greater China and United Arab Emirates. FLT have had increasing issues
within this area and closed losses in FY16. However in order to compensate, management have
Source: Austrade made acquisitions within the area to capture increased market share. In particular, the Company
may expand into mainland China to add to their geographical diversity.
2
Figure 6: Terrorism Incidents Industry Overview and Competitive Positioning

FLT operates under the Travel and Tourism subsector of the ICB; an industry that currently has
an adjusted market value of $7.05B AUD and an adjusted 5-year CAGR of 11.16%. This growth
rate is dependent on macro-economic factors which highly influence the expected travel
expenditure of both corporate and leisure consumers. In particular, business and consumer
confidence levels, exchange rates, and discretionary income Figures all remain key drivers in the
revenue potential of travel intermediaries (Figure 5). Additionally, the industry is also subject to a
large amount of social and environmental challenges, such as Brexit, the Zika Virus and increased
Source: Global Terrorism Database threats of terrorism (Figure 6). These effects are further described in Appendix 2. These issues
pose great threats to consumer confidence levels; a crucial element to success within an industry
Figure 7: YOY International that survives on discretionary spending.
Travel Growth
Decreases in Outbound Travel Reduce Industry Sales
Currently, growth of total Australian overseas departures is below the 10 year YOY growth
average (Figure 7). This slow in outbound growth can be attributed to the weak AUD, as
international travel for Australian residents is obviously becoming more expensive. While this is
matched with a higher amount of incoming foreign travellers who wish to reap the benefits of a
cheaper exchange rate, Australian travel agencies such as FLT will not profit. This is because
bookings will likely be made from a foreigner’s local travel agency, or online platforms. We expect
this situation to continue and hence FLT’s revenue streams to struggle, as NAB economist
predictions favour a further weakening of the AUD (Figure 8).
Emerging Budget Airlines and Increased Aeroplane Capacity Reduce

Agent Commissions
The previous 10 years have seen the emergence of budget airlines revolutionise the travel
Source: bitre.gov.au; industry. This increased demand for cost-effective travel is being driven by shifts in consumer
IBISWorld; Team Estimates preferences (Figure 9), a large driver of Australian tourism. Combined with falling international
airfare prices (Figure 10) demand has increased significantly for FLT products.
Figure 8: Currency Forecast ($)
Yet this is not matched with corresponding profit growth, as commissions are also cut with retail
price. While the decision to offer these bookings is necessary to retain market share, it is expected
FLT’s profit margins will suffer considerably.
Increasing aeroplane capacity also has a similar effect. The enhanced supply of tickets is
expected to act as an incentive for airlines to offer overrides within their contracts. Yet inherently
with such over-supply, prices must be decreased to also increase demand. Combined with the
slow down of international travel, these increased capacities are eroding commission potential. It
is expected that this will adversely affect FLT, and that their profit margins will lower
correspondingly.
The Need for Travel Agency Intermediation is Greatly Lowered Due To 4

Source: NAB & Bloomberg L.P
Key Factors
1. Consumer Preferences Favour Simple Localised Travel: Increased consumer preference
Figure 9: Passenger Count for localised travel within Australia is evident by high passenger growth to domestic destinations
(Budget Vs Full Service) (Figure 11). While increases in discretionary spending would normally plant the perfect seeds for
growth within the travel industry, agencies cannot derive revenue from localised travel due to it’s
inherent simplicity. Consequently, this effect is expected to be disastrous for FLT revenues as
excess consumer income is spent on travel that does not usually require agency intermediation.
2. Online Platforms Create Higher Competition and Increase Direct Online Supplier Sales:
The online industry is highly concentrated by direct suppliers and major online agents, who
collectively hold 72% of revenues (Figure 12). Many of these well established travel companies,
such as airlines, hotels and other direct service providers face little difficulty in expanding online.
Due to the cost-effective nature of such a platform, these businesses are rapidly increasing their
direct online sales by directly marketing to consumers, cutting out the middleman (Appendix 4).
Source: QAN Annual Report Consequently there is a lowered necessity for travel agency intermediation.
Figure 10: CPI Adjusted Best Such a conclusion is supported by a study conducted by the European Journal of Tourism
Discount Rate Airfare ($AUD) Research in 2015 (Appendix 4). Particularly for frequent traveller, consumers prefer booking
directly online. This is due to the quick and easy nature of the platform, user desire to save
intermediation costs and the ability to effortlessly compare competitors at the click of a button:
increasing the risk of stolen market share.
Further, the study also concludes that online travel research has transformed into an
entertainment platform for consumers, who can come home after a long day at the office and plan
their dream holiday. While these persons are typically low-frequency travellers, and the study
suggests that they are more likely to require intermediation, they are inherently less profitable
than those who travel regularly. Hence the increased presence of direct online booking systems
pose a great threat to travel agency revenues.
Source: bitre.gov.au
3
Figure 11: Passenger Growth

(%) To Leisure Destinations As this technological expansion favours the easiest methods for consumers, it is likely that agency
presence online could become redundant. Companies such as Google, Facebook and travel
information websites like Tripadvisor are seeing exponential growth in their travel advertising
revenues. This is due to an increase in suppliers expanding their direct online marketing strategies
(Appendix 5). As a result it is likely that these large web conglomerates may look at directing online
traffic more efficiently, causing further disintermediation.
3. Airlines Directly Winning Corporate Contracts Cut Out the Middle Man: Another factor
responsible for agency disintermediation is an increased amount of exclusive contracts won by
airlines directly. Loss of large contracts with these corporate clients is resulting in further agency
struggles. Further, those clients that have been maintained are no longer as profitable, and likely
not to be renewed. This is because enhanced connection speeds have increased teleconferencing
capabilities, hence reducing demand for business travel (Figure 13).
4. Increased Technological Competition Challenge Agency Revenue At All Stages of Travel:

The rises of peer-to-peer travel services is causing further competition and further potential
intermediary redundancy. Agencies strive to target consumers at all stages of their travel, such as
Source: bitre.gov.au
hotel and vehicle hire, where corresponding commissions and packages can be made. However
low-cost alternatives like Uber and Airbnb are now also threatening these revenue streams
Figure 12: Australian Online (Appendix 3). Consequently FLT’s entire service revenue chain is being threatened due to micro-
Travel Agents (OTA) entrepreneurs.
All of these factors are expected to cause future revenue struggles for FLT as a travel intermediary.
Consumer preferences clearly favour online direct bookings without agency involvement. As agency
online sales are expected to continue stagnating, FLT cannot expect any further growth within the
industry from their online platform. Additionally, struggles to maintain corporate contracts, a segment
that accounts for 33% of FLT’s total revenues, are expected to be detrimental to sales.
FLT’s Online Expansion Lags Behind the Industry

Revenue streams within the industry saw massive growth within the 2012-2013 financial year due
to the weak AUD and resulting increased demand for international travel. These excess profits saw
many companies within the industry focus on a cost-effective online expansion. FLT however, was
not one of them. As a result the Company is expected to face struggles within this platform,
Source: IBISWorld
particularly as they face enhanced international competition and are falling behind competitors. This
is further elaborated in the Porter’s Five Forces model in Appendix 1.
Figure 13: Enhanced
Teleconferencing Ability on
Currently, Australia maintains a dominant online presence, with an Internet retention rate of 93.1%
Industry Corporate Travel
(United Nations, ITU, 2015). Naturally then, consumer preferences highly favour online platforms
due to their ease and efficiency, and so these have seen large success within the industry since
introduction. Consequently, there is little market share left to be won by those who did not originally
expand into the platform, such as FLT. While management aims to grow online TTV to $1B in 2017,
this is not feasible with the industry supply chain rapidly transforming. Further, FLT now face
competitors who solely exist online and hence have lower costs and higher profit margins. As half
of the world's population will have access to the Internet by 2020 (United Nations ITU, 2015), and
FLT is lagging behind in an industry expansion that will soon see their current brick and mortar stores
become obsolete, it is expected that they will struggle immensely.
Fierce International Competition Limits Organic Revenue Growth

FLT has attempted a global expansion over the previous decade, however competition is undeniably
Source: Bloomberg; United Nations high with Expedia.US and Priceline.US dominating the online market as a duopoly. The low
likelihood of FLT stealing market share from these dominant players coupled with the eventual
industry approach to market saturation both pose large barriers for FLT to gain online revenues.
Figure 14: Market Share of Total Admittedly, the Company has taken a dynamic approach to obtain market share by undertaking a
Rides (US) large amount of acquisitions and divestitures, particularly within demographic specific service
companies. An example is their acquirement of StudentUniverse (a total overview of all acquisition
activities can be found in Appendix 20. However the Company is struggling to transfer its domestic
success and economies of scale onto an international platform. Global competitors already hold a
large market share that FLT is struggling to steal (Figure 20). As a result the company’s continued
acquisitions are expected to be stagnant to revenues and are in fact distracting management from
further domestic profits. This is magnified as FLTs decreasing market share in Australia is corroding
their economies of scale advantage (Figure 17).
Online Expansion Will Cannibalise Sales and Increase Competition

Switching to a multi-channel agency also poses threats for FLT as this will cannibalize their revenue
streams. Majority of the Company’s traditional customer base originate from brick and mortar stores.
Source: Certify Report By moving online, this opens up an easy platform to compare competitor pricing. Consequently FLT
are providing their loyal, store-based customers a method to reconsider their agency options. As a
4
result, it is expected that FLT will struggle to retain their in-store customer base through this
Figure 15: Airbnb Number of transition, and so sales will suffer accordingly.
Nights Booked
The Industry Life Cycle Favours High Growth for Competitors
FLT currently resides within the mature stage of the industry life cycle. This is resultant from
management's strategy to protect its currently dominating market share and secure stable revenues.
The company’s competitors however, are all estimated to have a strong growth outlook, and hence
in a position to retain market share and greater benefit from industry success. Online competitors
Webjet and Helloworld have strong forecasted growth for FY17, largely due to strategic M&A
Activity. Although the online market is reaching saturation, these competitors are all stealing
proportions of FLTs market share, and so are within the shakeout stage of the industry life cycle
(Figure 18).
Source: Cowen &Company; Team

Estimates.
Investment Summary
Figure 16: Porters 5 Forces We issue a sell recommendation for FLT with a 12-month target price of $31.93AUD, representing
a 13% downside potential from it’s current stock price of $36.85 on August 31st, 2016. The three
valuation techniques used to derive our target price were the Dividend Discount Model (DDM), the
Discounted Cash Flow Model (DCF) and Relative Valuation techniques (RV). This downside is
driven by:
• Lowered agent commissions due to decreases in outbound travel and price wars;
• The high costs and little profit potential of international expansion both in store and online due
to existing competitors and forecasted online market saturation;
• Reduced necessity for agency intermediation within the industry;
• FLT’s below average capital structure; and
• The Company’s high and inefficient operating expenses and resulting inability to improve low
Source: Team Estimates margins.
Figure 17: Industry Market Share Investment Drivers

(Australia) Decreased Domestic Agency Commissions: High competition within the industry is resulting in
exceedingly low airfares, reducing commission margins for FLT. Despite increased demand due to
over-supply; revenues are still expected to decrease accordingly. Further, the weak AUD is resulting
in lower outbound travel rates, and so discretionary income is being spent on localised travel, which
has comparatively lower profits. While Australia’s cheap currency is increasing foreign travellers,
these consumers are likely to use their own respective travel agencies and so such an influx does
not lead to profits.
Low Potential for Profitable International Expansion: The online travel industry is highly
competitive as it combines direct suppliers and other agency competitors onto one easily
comparable platform. Many existing competitors, particularly the dominating international duopoly
of Expedia.US and Priceline.US, broke into online platforms earlier than FLT, hence securing a
competitive advantage (Figure 20). Consequently, the Company will need to steal existing market
share in order to break through within these markets. This is supported by our prediction that the
Source: Bloomberg market will reach saturation. The result is an increased price competition placing further downwards
pressure on revenue forecasts.
Figure 18: Stages in the Industry
Life Cycle FLT’s management is currently undertaking expansions through the costly acquisitions of
businesses within niche markets. However, this strategy is not permanently sustainable, and does
not improve the Company’s organic growth nor steal market share from other existing competitors.
Profit margins of international segments are also significantly lower than those within Australia, as
overseas expense structures do not benefit from FLT’s domestic economies of scale (Figure 23;
Figure 24). Consequently, management’s focus on international expansion will not result in
corresponding shareholder gains.
Lowered Necessity for Travel Agency Intermediation: Four key industry factors are adversely
affecting demand for FLT services. Firstly, consumer preferences have shifted to favour local travel:
Source: Team Estimates
an inherently simpler task generally not requiring intermediation. The industry’s expansion online,
Figure 19: FLT SWOT- Analysis secondly, has resulted in higher competition and increased sales between suppliers and consumers
directly. FLT is consequently cut out. Airlines are now also targeting large corporate clients,
contracts that FLT used to win. These corporate sales account for 33% of FLT revenues. Finally,
sales are being challenged at all platforms due to the rise of peer-to-peer travel services. This
include companies such as AirBnB and Uber, who are capturing market share from FLT’s car hiring
and hotel packages (Appendix 3).
Expensive and Below Average Capital Structure: FLT has the lowest amount of debt financing
among key industry players. While this might give reason for upside potential, FLT have confirmed
they will not take on any debt capital. Consequently they will continue undertaking much more
expensive investments than necessary, falling further behind competitors.
5
Figure 20: Revenue Comparison High Operating Expenses Drive Down Profits and Shareholder Returns: While FLT’s TTV
(US$ Million) (International) grew consistently over the last five years, this does not translate to their bottom line. This is
because expenses are growing at a higher rate than revenue streams, jeopardising profits.
Correspondingly, net profit margins have remained consistently low. Majority of the Company’s
high operating expenses are derived from rent and salaries, as they heavily rely on their bricks
and mortar stores for revenue. Consequently, these low profits are forecasted to continue, and
as revenue streams will be declining while expenses maintain steady growth, profit margins will
be squeezed (Figure 27).
Dividend Policy
FLT's payout ratios over the last five years have been in line with their dividend policy of returning
50-60% of NPAT to shareholders, with the only exception being FY14 when a fully franked
Source: Bloomberg dividend of $1.52 led to a payout ratio of 74%. This particular outlier was due to the directors
desire to share their strong cash reserves despite a low NPAT for the year. FLT’s current payout
Figure 21: Dividends & Payout ratio of 61% also sits slightly higher than usual, with the ten-year average being 55%. Our
(%) forecasts expect the Company to pay flat dividends of $1.61 per annum until FY20, as we believe
they will maintain a payout ratio of 60% while NPAT stagnates (Figure 21).
Investment Risks
The key risks that pertain to FLT include foreign exchange risk, economic risk, operational risk
and credit risk. The former risk includes translation and exchange risk due to their multicurrency
debt facility. Economic risk includes the high sensitivity global shocks may have on travel
behaviours and discretionary spending. The Company faces operational risk through decreasing
airfare prices, which lower commission streams, as well as the increasing threat of online
competitors.
Source: Bloomberg & Team Estimates
Figure 22: P/E Ratio forecast for

FLT, domestic and international
peers
Financial Analysis
Expensive Capital Structure with No Plans of Changing
Comparative to the chosen peer group, FLT now remains the only major company within the travel
Source: Team Estimates industry that is not taking advantage of debt financing. (Figure 26). While this may immediately
seem like a good reason for upside potential, FLT have never once taken on long-term debt nor
Figure 23: International have any plans to. Although in FY16 both ROE and ROIC (18.7% and 18.17% respectively)
Segments remain higher than 5 year historical WACC (12%), ROE sits at a second all time low for the
company, suggesting future shareholder returns are limited (Figure 25).
High Operating Expenses Limit Equity Returns

FLT has continuously boasted a high and consistent ROE, largely as a result of their strong
revenue streams. The lack of debt capital creates a small book value size of the company, thus
creating an outstanding total asset turnover (Appendix 9). Such efficiency, however, is limited to
the books. FLT have an outstanding amount of fixed operating expenses, resulting in a
consistently low net profit margin (Figure 27). This has then resulted in an average return on
assets comparative to peers. (Figure 28) This translates into their ROE.
Erratic Capital Expenditure and High Lease Commitments Further

Decrease Profit Margins
Source: FLT Annual Report The Company’s major downfall lies in its large underlying expenses. Capital expenditure has been
volatile and hence not accurately predictable, leading to fluctuating profit margins (Figure 29).
Figure 24: Segment Summaries FLT currently utilize straight-line depreciation, which is incremental at 10% of yearly capital
expenditure; this expense alone grew 22.2% in FY16. For the previous 2 financial years expenses
have grown at a faster rate than revenues (2015: 10.6% to 7.0%, 2016: 13.4% to 11.2%). Further,
FLT operate their stores entirely through lease commitments, and so considerable cash flows
also go toward paying these rental expenses. FLT have a total of $654M of lease commitments
over the next 7 years, with an estimated present value of $529M (Appendix 8). Consequently the
Source: FLT Annual Report lack of any clear management strategy between capital expenditure and free cash flow, combined
with large amounts of short-term lease commitments, will greatly decrease shareholder value as
dividend payouts are hence derived from NPAT.
6
Figure 25: ROE and ROA International Expansion Will Jeopardize Net Income Due To Higher
Expenses and No Economies of Scale
FLT are quick to boast their international income diversity, with Australia comprising 55.4% of total
FY16 revenues (Figure 23). However differences in geographical expenses result in drastically
different statutory EBIT values, as Australia rose to 74% due to the clear presence of economies of
scale within domestic expense structure. Further, the segment’s profit margin stood at an astounding
21.15%, with the Rest of the World and US regions causing concern at 8.32% and
2.7% respectively (Figure 24). As discussed above, management is targeting strong international
expansion. In doing so however, the larger expenses faced in non-domestic regions will result in
lower profits than if such revenues were made locally. Also, the required capital expenditure to then
set up such income streams in these new segments will then further decrease profitability and
efficiency, drastically affecting shareholder value.
Figure 26: WACC Peer Revenues Internationally Are Not Justifying Costs
Comparison The company is adamant regarding their strong TTV growth as a major driver of their success,
however increased sales volume does not result in corresponding revenue growth. (Appendix 8).
When the margin between TTV and revenue is broken down per segment, they severely differentiate,
likely due to differentiating commission laws and standards.
Though overall revenue grew 11.2% in FY16, expenses grew 14.61% (13.4% excluding the one off
impairment charge), resulting in a 5.8% decrease in EBIT. When broken down into segments, all
regions had decreased profit margins in comparison to FY15 (Appendix 6).
As discussed above, FLT is losing market share due to its main competitors deriving online revenue.
While this area is one that FLT are looking to explore further, these trends will continue as younger
Source: Bloomberg & Team Estimates generations favor a technological approach. Despite the Company addressing this, they are still
undertaking large investments into physical assets and employees. This alone increased their wages,
Figure 27: Profitability Analysis rental and depreciation expenses by 11.91% in FY16.
The current management plan clearly favours long-term growth however financially this will not result
in increased shareholder value in the forecasted period. Instead it is expected that expense growth
will continue to surpass sales growth within the next four years, and so any eventual benefits to net
income will not fall within the forecasting period. Consequently, as the dividend policy sits at 50-60%
of NPAT, these growing expenses will be detrimental to shareholder profit.
Valuation
We have used a combination of three valuation approaches: the Dividend Discount Model (DDM),
Source: Bloomberg & Team Estimates the Discounted Cash Flow Model (DCF) and Relative Valuation techniques (RV). These have led us
to our weighted average target price of $31.93AUD indicating 13% downside potential. Each of
Figure 28: Peer ROA these methods have weightings of 20%, 40% and 40% respectively. These were chosen to reflect
Comparison that free cash flows are a better indicator of FLT’s future cash flows opposed to dividends, and also
to reflect our opinion that multiples are the key driver behind making a stock converge to it’s intrinsic
value.
DDM
Dividend Discount Model (20%)
$27.33
FLT has maintained relatively stable dividend payments over the

past 10 years, hence making the DDM an ideal valuation Weighted
Value
technique. The Company has maintained their policy of returning $31.93
50% to 60% of NPAT. Therefore, future dividends are predicted RV (40%)
DCF
(40%)
based on this policy being maintained with forecasted earnings. $33.10
$33.07
Source: Bloomberg
CAPM: The capital asset pricing model was used to determine
FLT's required rate of return at 8.51%.(Figure 31)
Figure 29: Operating Margin
Dividend Forecasts: We have assumed the Company will maintain a consistent 60% payout ratio
Analysis
of NPAT, and hence calculated future dividend payments based on our bearish net income forecasts.
Terminal Growth Rate: The Company’s terminal growth rate was estimated at 3% (Figure 35).
Notably, nearly half of FLT’s total revenues are generated from international markets. Therefore we
have incorporated the GDP growth rate of domestic and international markets to reach a suitable
terminal growth rate. We assigned a weighting of 75% to the average GDP growth rate of the three
most dominant markets (Australia, UK and US), consistent with revenue breakdown per segment.
The remainder is attributed to an average of Asia and South Africa (Appendix 11).
Two Stage Model: Currently our projected dividends indicate a decreasing trend due to our
Source: Bloomberg prediction that net income growth stagnate. However in times of struggling profits, FLT have
historically raised the payout ratio to avoid negative dividend signals. As the last three years’ d
ividends were paid at flat level, we assume that FLT will undertake a similar strategy on the basis of
our forecasted 2017 dividend ($1.61AUD) until 2020. After this, we assume the dividend growth rate
will be constant.
7
Figure 30:
Based on the above information and Appendix 12, we have reached an intrinsic value of $27.33AUD.
Additional sensitivity analysis has been conducted with two pairs of variables: payout ratio versus
cost of equity and terminal growth rate versus cost of equity.
Discount Cash Flow Model

We have also used free cash flows to firm (FCFF) as alternative future cash flow to estimate FLT’s
intrinsic value.
Source: Bloomberg. & Team Estimates WACC: We have considered two major uncertainties to estimate the cost of capital:
1. Historically low interest rates could entice FLT to take on more debt; and
Figure 31: 2. High volatilities in stock price and pressures upon future earnings create higher risk.
Consequently, we used a combination of current WACC (8.3%) and the 10-year historical average
WACC (12%) to reach our long-term estimated cost of capital at 10.15% (Appendix 11).
FCFF: We have computed FCFF from Cash Flows from Operations (CFO), which has been
projected by directly forecasting its components. Two essential components are receipts from
customers and payments to suppliers and employees.
1. We have set the growth rate of receipts at 6.3%, equal to forecasted compounded revenue
Source: Bloomberg. & Team Estimates growth from 2017-2020. Historically, these two factors have shown high correlation with minimal
spread.
Figure 32: 2. Similarly, we set the growth rate of payments equal to the compounded operating cost growth
rate for the forecasted period, at 6.7%.
CapEx Growth Rate: FLT has undertaken aggressive expansion in the past five years, and so we
assume they will continue to invest in fixed assets in accordance with the historic five-year average
CapEx growth rate of 11.5% (Appendix 11).
By applying the same LGR as above, we reached an intrinsic of $33.10AUD. The three key
variables used in sensitivity analysis are WACC, CapEx growth rate and LGR (Appendix 13 & 15).
Relative Valuation
Source: Bloomberg & Team Through our relative valuation model, we derived a target price of $33.07AUD using three key
Estimates multipliers: Price/Earnings (P/E), Enterprise Value/Earnings before Interest Tax, Depreciation and
Figure 33: Amortisation (EV/EBITDA), and Price/Sales (P/S).
This model is then further split into domestic and international to provide insight into differentiating
Company expectations within different playing fields. (Appendix:14).
Within the domestic comparable pool we have included HLO:AU, CTD:AU, WEB:AU and also the
S&P/ASX Consumer Discretionary Index. International peers consist CTRIP:US, PCLN:US,
Source: Bloomberg & Team EXPE:US and the MSCI World Consumer Discretionary Index. All chosen comparables are subject
Estimates to similar risks and growth potential. To derive our final intrinsic value, we have combined both
Figure 34: target prices, weighting domestic and international target prices based on their forecasted
proportions of total revenue as illustrated in Figure 34.
P/E and EV/EBITDA: These multiplies provide an insight into FLT financial health by taking into
account both the Company’s capital structure and earnings. Historically, both international and
domestic multiples have sat above FLT by the same margin.
Price/Sales: This multiple however, serves as an alternative and is useful for identifying how much
revenue the company generates in isolation, with less chance of accounting manipulation. However
as the multiple shows a limited picture by only capturing sales, we have assigned a weighting of
20%. P/S has also traded as a discount, with the international pool sitting significantly higher than
domestic (Appendix 14).
FLT has maintained a dominant presence in the Australian travel industry, hence explaining the
higher target prices in comparison to international for P/E and P/Sales. This further illustrates the
risk FLT will face as they expand internationally and compete with the international comparable.
Additional Sensitivity Analysis

Both the DDM and DCF methods highly depend on terminal value, in order to neutralise this
drawback, we conduct the following analyses to gain further confidence in our recommendation.
Residual Income: One of the key advantages to RI model is the reduced reliance on terminal value
for the determination of intrinsic value. Applying the same variables as the DDM, and taking current
book value into consideration, we obtained an intrinsic value of $32.25AUD. This is consistent with
the DCF results. Consequently while residual income was not taken into the final weighting
arrangement, the RI results confirm the results of our DCF model (Appendix 16).
8
Figure 35: Terminal Growth Monte Carlo: In addition to the sensitivity analyses conducted for each method, we have also
completed a Monte Carlo simulation on the basis of the DCF. In the simulation, we defined
assumptions for five major variables (receipts, payments, CapEx growth, WACC and LGR) and
applied reasonable standard deviations. After running 20,000 trials, the simulation results suggest
that more than 60% of total possibilities estimate a target price below FLT’s current market price
(Appendix 17).
Source: IMF & Team Estimates Scenario: To gain further robustness, a scenario analysis was also conducted based on all three-
valuation models, and has been explained with Monte Carlo distribution. The following table
Figure 36: Scenario Prices illustrates our forecasts for the decisive variables within the three valuation models for each case:
bearish, base, and bullish.
Bearish Assumptions: We assume that FLT’s revenue growth will be below the Australian
outbound travel growth rate of 5.5% (Appendix 19). This is then expected to lead to even worse net
income growth, and a lowered dividend payout ratio. In this situation, the Company will strive for
survival by maintaining a relatively high CapEx growth rate. Further, cost of equity and hence WACC
could rise due to higher risk.
Bullish Assumption: Here, we have assumed FLT’s revenue growth rate will outperform their 5Y
average, and stay in line with their historical 10Y long-term growth average by increasing
investments. Net profit margin will be improved, which will boost investor confidence and hence
decrease WACC.
Figure 37: Monte Carlo
Scenario Analysis
Key Variables Bearish Base Bullish
Receipts 5.00% 6.30% 9.00%
Payment 6.00% 6.70% 9.00%
CapEx 11.15% 11.50% 15.00%
WACC 10.89% 10.15% 9.40%
Cost of Equity 9.13% 8.51% 7.89%
Payout Ratio 50.00% 60.00% 60.00%
Figure 38: Risk Matrix Net profit 1.50% 2.00% 12.50%
Target Price $23.45 $31.61 $40.71
Up/Downside Potential -36.36% -14.21% 10.46%
Probability 0.2455 0.4551 0.2994
Probability Weighted Target Price $32.33
Potential Downside -12.26%
Investment Risks
By regressing FLTs monthly returns against the S&P/ASX200 and observing the coefficient of
determination, it is evident that FLT’s risk profile is relatively independent from the market.
Figure 39: Trade & Other Consequently, approximately 71% of total risk faced by FLT is unsystematic (See Appendix 19 for
Payables ($'000) time-varying volatility modelling) This can be attributed to the outlined risks below.
Foreign Exchange Risk

FLT plans to expand their international operations (Figure 42), increasing their exposure to foreign
exchange rate risk. As illustrated in Figure 39, FLT dramatically increased its foreign trade payables
by 118% between 2014 and 2016 (Appendix 22).
FX1 - Translation Risk: For functional and presentation purposes, FLT’s financial statements are
recorded in AUD. Transactions occurring overseas are transformed to Australian currency at the
time of the transaction. Conversely, Asset and liability translations occur on the date of the statement
using the closing rate. Any spreads arising from the translations are then reclassified to profit and
loss, which have a history of being highly volatile (Figure 40).
Source: FLT Annual Report
FX2 - Cash Flow: While forecasted cash flows are highly probable, they can be subject to
Figure 40: Net exchange forecasting error as the contracts are re-priced every 12 months. Over the previous 5 years,
differences on translation of variations in gains and losses from cash flow hedges have remained relatively low (Figure 41).
foreign operations ($'000) Mitigation: FLT is risk adverse in their hedging strategy. The Company aims to minimize exposure
and achieve a 1:1 hedging ratio. FLT treasury only enter into forward foreign exchange when
exchange forecasts become highly probable. Thus, speculation is not FLT’s hedging strategy.
Economic Risks
ER1– Consumer Confidence and travel patterns: Global shocks such as terrorism, political unrest,
natural disasters and social pandemics can have an adverse effect on consumer travel confidence,
potentially decreasing TTV. Furthermore, changes in discretionary income and exchanges rates can
alter consumer travel patterns.
Source: FLT Annual Report Mitigation: FLT’s strategy involves increasing their brand and geographic diversification to avoid
relying on a single segment.
9
Figure 41: Changes in Fair Value Operational Risk

of Cash Flow Hedge ($'000) OR1 - Budget Airlines and Price Wars: While lowered airfares result in increased demand, benefits
are likely offset as cuts in retail prices also erode commissions and overrides. Individual agreements
between each individual airline carrier outline guaranteed payments and volume incentives. Hence
if budget airfares continue to trend downwards, commission incentives and margins offered by
carriers may decrease to compensate.
Mitigation: FLT consultants have lowered their commissions in a bid to increase demand.
OR2 - Technology Disruptions: Rapid and continuous technology expansion of online booking
platforms is likely to constrain industry growth and impact FLT market share. Online industry players
Source: FLT Annual Report such as Webjet are able to enter the market with little capital and provide heightened price
competition. Consumers will then be able to bypass travel agencies and book directly with the travel
Figure: 42: FLT Australian provider.
Revenue Proportion Mitigation: FLT has acquired a number of brands such as StudentUniverse and BYOjet.com to
ensure they maintain significant market share.
Credit Risk
CR1 – Credit ratings: FLT is exposed to credit risk through their forward foreign exchange contracts,
their cash equivalent and available for sale assets.
Mitigation: All FFX contracts and 87% of liquid assets are equivalent to S&P rating AA to A-
(Appendix 21).
Figure 43: Board of Directors Corporate Governance

Board of Remuneration Ordinary
Directors FY16 ($) shares Governance
Graham 675,000 15,244,487 As an ASX listed company, FLT utilizes the corresponding corporate governance principles. While
Turner
Managing
most principles are implemented, the company does not separate the remuneration and nomination
Director/CEO committees as per Principle 2: ‘structure the board to add value’. Consequently, FLT has a rating of
Gary Smith 201,218 15,000 4.49 out of 5 based on our estimations, so is bested by some competitors such as Corporate Travel
N.E. Director Management, who have implemented all principles (Appendix 27). FLT meets all six OECD
Chairman
John Eales 150,848 3,000 Corporate Governance Principles. Further, the Company shows growth in their environmental and
N.E. Director social scores yet a decline in corporate governance as provided by the Thomson Reuters Asset4
Robert Baker 150,503 2,500 database (Figure 45; Appendix 25).
N.E. Director
Board of Directors
Source: FLT Annual Report FLT’s independent directors only hold small amounts of shares, which could lead to a moral hazard,
as they may not act in the shareholder’s best interest but rather in their own (Figure 43). Further,
Figure 44: Board Members FLT has the smallest board of directors’ comparative to all peers worldwide, with only four members
opposed to the international average of eight (Figure 44). Consequently, the Company does not
have a separate audit and remuneration committee. Also, FLT does not have a female director. This
has been historically proven as suboptimal, as females improve company performance, risk
management and the quality of the decision making process. The absence of such diversification
and gender equality can lead to one-sided decisions (Appendix 26).
Corporate Social and Environmental Responsibility

The Company founded the Flight Centre Foundation in 2008, supporting organisations engaged in
movements for the environment, children, education and cancer support (Appendix 23). FLT
provides employees the opportunity to volunteer their time to charities and community organisations
while still being paid, and matches their donations dollar for dollar. The Company was recently
Source: Bloomberg appointed to the top ten ASX listed charity givers (Australian Charities Fund, 2016). The
Foundation's charity partners are non-political and receive limited or no support from any
Figure 45. FLT ESG-Scores government entity. Overall, donations to communities since its foundation amounted to $7.7 million
Asset4 at the end of the 2016 financial year.
Source: Thomson Reuters Database
10
tg2016 | CFA Institute Research Challenge
Appendix: 1
Force 1: Threat of New Entrants
1) Strict Regulatory and financial monitoring pressures on new
agents Supplier Power
2) Existence of Economies of Scale and incumbent exclusive
partnerships makes entry difficult and/or unprofitable
3) Rise of technology based travel advice allows low cost and Threat of Threat of New
innovative myriad micro-entrepreneurs to quickly gain market Substitution Entry
share. However online market heavily dominated.
4) Higher comparable Profit Margins for Online Travel Booking
services
5) Large Network effect of current market leader (FLT) provides Buyer Power
Competitive
more tailored and cost effective service to clients. Rivalry
Force 2: Threat of Substitute Products
1) Holds largest market share, however there are highly
substitutable branch and online travel booking services.
2) Other Flight Planning Services, particularly low-cost online travel booking services. However, buyers are still
dependent on a quality face-to-face tailored servicing.
3) Brandjacking: illegal use of popular brands by brandjackers to drive traffic to their sites without the permission of
brand owners. Potentially drawing away revenue and reputation of FLT.
4) Disintermediation: Especially on a domestic level, as Australian’s typically avoid travel agents when travelling
domestically. Additionally airlines are now directly approaching customers reducing potential commissions for FLT.
Force 3: Bargaining Power of Buyers
1) Easily substitutable for other agents, and thus can negotiate price wars between agents.
2) Information Asymmetry: Lack of pricing information, especially on grounded services (hotels) between customers
and suppliers creates dependency of buyers. This due to the complexities of travel.
Force 4: Bargaining Power of Suppliers/Sellers
1) High Threat of backward integration from Airline suppliers due to online pricing
2) Grounded travel Services (hotels) have little influence of FLT, as their revenues are highly dependent on the agency
relationship.
3) High Competition between suppliers, creates higher commission potential, and low bargaining power.
4) Enhanced Capacity and supply of available airline seats has enhanced the negotiating power for agents to receive
more commissions in order to fill the excess supply.
Force 5: Competition in the Industry

1) The Innovative Deployment of online travel agency models are showing higher levels of profitability than store-
based agents.
2) Enhanced online competition has forced FLT to enhance their online presence to keep market share. But, this has
cannibalised their store sales.
3) Still the market leader with economies of scale advantage.
4) Competition is fierce for offering low-cost travel services, hence marketing, brand awareness and online strategy
will give the competitive advantage.
Appendix 2: Current Issues affecting Travel

Spread of the Zika Virus
Most Popular Travel Destinations for

Australian Travellers (ABS Data)
New Zealand
Indonesia
USA
UK
Thailand
China
Singapore
Fiji
Japan
India
11
Zika Virus
The top 10 international destinations for Australian Travellers are shown in the above table. The transmission of the
deadly Zika virus has been reported in 50% of the most popular travel destinations. Thus, it is expected that international
travel demand will decrease through fear of contraction when travelling. Although it could be argued that the Zika virus
would simply cause travellers to change their travel destination, this is not so easy. A key reason for these travel locations
is their low-cost, and short distance from Australian Airports. The majority of south-east Asia has been infected by the
Zika Virus, and thus the closest alternative is the European region or the northern parts of Asia. However, these are
generally more expensive alternatives and thus may not be of adequate substitution for Australian Travellers. There is
also the alternative for the Middle East, but travel to these countries has decreased by the effect of terrorist associations
which are discussed next.
Terrorism
Since 2000, there has been a nine-fold increase in the
number of deaths from terrorism. More recently the events in Global Terrorism Threat
France, Bangladesh, turkey, United States as well as
Australia highlight the increased threat at high-target areas. 50,000
The Australian Government has listed mass gathering places Number of
such as hotels, markets, public transport, airports and tourist 40,000 Incidents
sites are a common target for terrorism activities. Australian’s Deaths
are viewed by the levant (ISIL) as a key target for terrorist 30,000
attacks. Even in cases where Australian’s weren’t Injuries
necessarily the target, Australian citizens are still harmed by 20,000
indiscriminate attacks. The immense fear from Australian
Travellers particularly after events in 2016 has created a 10,000
culture that hesitates to travel. A common trait is to cancel
flights and travel after a major terrorism event, even if it is in 0
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
another country. A survey in 2015 compiled by YouGov has
shown that 10% of American travellers have cancelled their
trip in response to terror, and 18% have delayed their travels.
The world is now on red alert (figure 3), and we expect this Source: Global Terrorism Database
adjustment to consumer preferences will cost the travel
industry, and thus the travel agent industry.
Brexit
The effect on the UK leaving the European Union caused an immediate downturn on the world travel market. However
the effects on airline share price, exchange rates and consumer confidence have already started to adjust from June.
However the long-term effects are not fully realised yet. We expect the travel industry in Australia to have limited effect
from the Brexit other than a decrease of UK tourists in Australia, which would be offset by an increase of Australian
passengers to the UK. Although, once the Brexit is fully undertaken there may be a change in visa protocol which overrides
the current no-visa policy for Australians holidaying in the UK and EU.
Ultimately the Brexit has the biggest effect on the UK and European travel market. Thus with FLT deriving 13% of their
profits and revenues from this continent, they are at risk of long-term revenue slowdowns. The International Air Transport
Association has predicted
by 2020 UK air passengers could be 3-5% lower due to a downturn in economic activity and fall in sterling.
The Insurance Industry

The insurance industry has faced rising costs in the form of reinsurance expenses over the past five years. An unusually
high incidence of natural disasters and terrorist encounters around the world has led to a rise in the volume and value of
insurance claims, forcing reinsurers to increase premiums (Wu, 2016). Ultimately, indirect costs of travel are increasing
and this correlates with a decreased consumer confidence in travel due to the current aforementioned global risks. What
was once seen as a safe and reliable place to travel, is now sacrificed due to the increasing threat of terrorism. Which
has forced insurance companies to raise their risk-adjusted premiums. This problem also relates to FLT’s Travel insurance
revenue stream. Thus enhanced insurance premiums are reducing the total Passenger outflow as well as the profit
margins of Flight Centres Insurance Products.
Source: Wu. T. (2016). IBISWorld Industry Report OD4216. Travel Insurance in Australia. Retrieved from http://www.ibisworld.com.au
Appendix 3: The Sharing Economy

The Travel industry like most industries are rapidly expanding into peer-to-peer services. The low-cost options as well as
direct exposure to locals is providing a more authentic and cost-saving experience compared to traditional Travel
operations. Micro-entrepreneurs are offering alternatives in an array of travel sectors such as hotels (Airbnb),
transportation (Uber, Lyft), dining (Eatwith, Feastly) and tours (Viator, Vayable). This growth is not just left for leisure
travel, business travellers are increasingly adapting their Travel & Expenses (T&E) budget for more cost-effective sharing
economy services.
12
Holiday rental sites like Airbnb, are currently the main driver of growth in peer-to-peer travel services. HVS a global
hospitality service has estimated that hotels are losing approximately $450 million in direct revenues per year due to the
peer-to-peer economy. Additionally amongst a survey of 300 hotel groups, 70% predict Airbnb will pose a significant
threat over the next 3 years. These effects have large impacts on the revenue of Flight Centre hotel commissions.
Uber and other ride-share tech companies have now surpassed the total transactions for car rental companies, which
were once a typically stable revenue stream for travel agencies. This has been caused by a fundamental change of
business and leisure consumer preferences. The increased convenience of hailing and payment efficiencies is
encouraging the switch to Uber. On a corporate level, ride-sharing is becoming the industry normality for business travel.
Especially as Uber has released a business platform which allows employees to charge their rides directly to the
corporation's expense account. This poses a large threat to the car-rental industry, and this is evident from large car rental
companies like Hertz and Avis experiencing depreciating share value.
However, there is positives for the industry. Rental car companies like Hertz have partnered with Uber to rent older cars
to Uber drivers unable to afford a car. Thus Hertz can secure rentals on older cars they would typically sell. Although the
additional revenues may offset some lost revenues caused by Uber, the same cannot be said for travel intermediaries.
Flight Centre only receives commissions from their travel clients renting cars, thus the substitution for the more cost-
effective Uber, will decrease the commission potential from the car rental revenue stream of FLT.
AirBnB Number of Nights Booked

Airbnb Satisfaction Vs. Hotels
600
No Nights Booked (Mil)
500 Leisure
400 7%
Airbnb less satisfactory
10% Corporate
300
200
30%
100 Airbnb about the same
39%
0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Est. Est. Est. Est. Est. 63%
Airbnb more satisfactory
Source: Cowen &Company ; Team Estimates 51%
0% 15% 30% 45% 60% 75%

Source: Cowen &Company ; Goldman Sachs.
Market Share of Total Rides Market Share of Total Rides (Q2 2016)
60.00% 54.70%
(US)
50.00% 48.70%
14% Ride Hailing
37.20%
40.00%
30.00% 37.30% Car Rental
20.00% 14% 48.70% Taxi
10.00% 8.10%
37.30%
0.00%
Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016
Ride Hailing Car Rental Taxi

Source: Certify Report
Source: Certify Report
Major Car Rental Companies: Stock

Performance
80 Avis (CAR.US)
60 Hertz (HTZ.US)
40
20
Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16
Source: Bloomberg
Sources: Certify. (2016). Certify SpendSmart Reports. The Changing State of Business Travel. Retrieved from https://www.certify.com/Infograph-SpendSmart-
Full-Year-2015.aspx
Goldman Sachs. (2016). 2,000 US Consumers – Goldman Sachs Global Investment Research. Retrieved from http://www.goldmansachs.com/what-we-
do/research/
Kurtz. M. (2014). HVS Reports. In Focus: Airbnb’s Inroads into the Hotel Industry. Retrieved from http://www.hvs.com/article/6952/in-focus-airbnbs-inroads-into-
the-hotel-industry/.
Wu. T. (2016). IBISWorld Industry Report OD4216. Travel Insurance in Australia. Retrieved from http://www.ibisworld.com.au
13
Appendix 4: Travel Disintermediation

The intensity of competition between intermediaries and direct suppliers is predicted to continue to intensify particularly
in the airline and hotel sales sub-sectors. Hotels are constantly overwhelmed by the market power, and thus reliance on
travel intermediaries. Thus Hotels have low negotiating power which corresponds to high commission for travel agents.
Consequently, they have been active in their direct distribution with strategies like loyalty programs, social media
interaction, metasearch channels and review sites. These strategies are working, and are expected to cause a
comparable increase in their bookings through disintermediated marketing. Airlines are also in large competition and thus
suffer from low negotiating power with travel agents. These non-negotiable costs from commissions can impose on profit
expansion.
Additionally, airlines have a problem marketing ancillary services with travel intermediation, as sales are typically a
standard seat with no up-selling potential. Thus airlines are adapting online and re-utilising commission payments into
offering customers increased flexibility, additional services as well as rewards for customers booking directly.
Thus by 2018 we predict the inflow of customers for hotels and airlines will increasingly come from direct online bookings,
with intermediation sales remaining stagnant.
A study by the European Journal of Tourism Research was conducted to analyse the preferences out of 5, and thus
favourability towards the disintermediation when making hotel reservations. The following key points were derived:
• The internet is preferred for convenience goods and low-involvement products, while traditional channels (travel agents) are
preferred for complex products. But the complexities are progressively being relieved with further online innovation.
• Occasional travellers preference travel agent interaction, while frequent buyers prefer online booking services, thus
disintermediation.
• Most respondents are open to further utilising direct online bookings if the process becomes more flexible, cost-effective,
convenient and available 24/7. Which is continually coming to fruition.
Source: Source: Del Chiappa, G., Lorenzo-Romero, C., & Gallarza, M. G. (2015). Attitudes towards disintermediation in hotel reservations: Spanish travellers'
profile. European Journal of Tourism Research, 9, 129-143.
Appendix 5: Big Data Analytics

With a Targeting Advertising system, tourism operators
can advertise directly to interested consumers with a Google Advertising Revenue
history of relevant travel searches. As the ads are
120.0
targeted, the cost are lower as there is no need for a
Billions of $USD
globalised mass marketing strategy. A once competitive advantage of 80.0

selling contracts to large travel agencies able to mass market. Google is
forever progressing to a complete online service. Therefore there recent 40.0
induction into travel intermediation is in line with this objective. The launch
of Google Hotel Finder and Google Flights although currently a slow- 0.0
growing utility, still possesses potential with ever expanding service
functionality. Thus Google, will shake-up the travel industry and play a
large part in its future. Evident in countless industries Google has entered. Source: Bloomberg
Facebook is the largest Social media platform, and Facebook Advertising Revenue
is important for the travel industry in marketing to 80.0
Billions of $USD
consumers. Facebook is a key tool in the inspiration

and willingness to travel due to the photo and experience sharing
functionality. Thus it is beneficial to the travel industry. However, the 40.0
capacity for hotels and airlines to directly market to their customers as well
as create a continual customer engagement is stimulating
disintermediation, leaving travel agents irrelevant. The ever expanding 0.0
member growth is further incentivising travel operators to adopt this
marketing strategy and this is represented by the increasing advertising
revenues of Facebook. Source: Bloomberg
TripAdvisor is the world’s largest online TripAdvisor Revenue Growth

platform offering travel reviews on hotels, 3.0
Billions of $USD
restaurants, attractions and destinations.

With 340 million unique monthly visitors interacting with 350 million reviews 2.0
and opinions covering 6.5 million accommodations, restaurants and
attractions, the site is a large data tool within the travel industry. 1.0
With the review platform being the foundation of the site there is more
reliable and transparent services directed to clients. Additionally the site 0.0
offers a metasearch function which compares the prices of these travel
options with the added benefit of reviews and opinions. The site has thus
become a travel intermediary, with the utility of huge data analytics. The
Source: Bloomberg
comparative metasearch function enhances the competitive landscape
between airlines, hotels as well as internal intermediaries, ultimately reducing margins across the globalised industry. The
14
increased revenues of Trip Advisor is indicating these travel services are advertising more directly to their consumers
online through a review-based large-data platform rather than using a travel agent.
Appendix 6: TTV and EBIT Breakdown
EBIT values are non-statutory and unreconciled. All figures are displayed in AUD
Appendix 7: Segment Margin Break-downs by country

2016: Displayed in Millions Australia US & Mexico Europe Rest of the World
TTV 10,045.9 3,003.3 2,164.4 3,732.5
Revenue 1,323.6 333.2 331.4 467.8
Revenue Margin 13.2% 11.1% 15.3% 12.5%
Statutory EBIT 280.0 9.0 50.3 38.9
Profit Margin 21.2% 2.7% 15.2% 8.3%
2015: Displayed in Millions Australia US & Mexico Europe Rest of the World
TTV 9,561 2,454 1,893 3,413
Revenue 1,234.6 287.0 285.9 417.5
Revenue Margin 12.9% 11.7% 15.1% 12.2%
Statutory EBIT 271.7 22.1 52.4 33.3
Profit Margin 22.0% 7.7% 18.3% 8.0%
Appendix 8: Financial Statement Forecasts

Total Transaction Value
FY FY FY FY FY
($'000,000) 2017F 2018F 2019F 2020F
2012 2013 2014 2015 2016
TTV 13,238 14,359 16,049 17,598 19,305 20,608 21,879 23,095 24,234
Australia 7,845 8,516 9,116 9,561 10,046 10,347 10,606 10,818 10,980
Rest of the World 2,410 2,670 3,117 3,413 3,732 4,031 4,333 4,637 4,938
US & Mexico 1,684 1,727 2,089 2,454 3,003 3,454 3,937 4,449 4,983
United Kingdom & Europe 1,154 1,188 1,533 1,893 2,164 2,381 2,571 2,726 2,835
Other Segment 145 159 195 276 359 395 431 465 498
Income Statement
($'000,000)
Revenue 1,786.8 1,950.5 2,212.4 2,367.4 2640.3 2877.8 3057.6 3221.5 3371.7
Australia 1,023 1,112 1,222 1,235 1,324 1,357 1,393 1,422 1,438
Margin 13.0% 13.1% 13.4% 12.9% 13.2% 13.1% 13.1% 13.1% 13.1%
Rest of the World 300 333 367 406 434 485 519 550 587
15
Margin 12.4% 12.5% 11.8% 11.9% 11.6% 12.0% 12.0% 11.9% 11.9%
US & Mexico 204 208 247 287 333 406 460 517 577
Margin 12.1% 12.1% 11.8% 11.7% 11.1% 11.8% 11.7% 11.6% 11.6%
United Kingdom & Europe 157 174 224 268 314 341 372 393 407
Margin 13.6% 14.7% 14.6% 14.2% 14.5% 14.3% 14.5% 14.4% 14.4%
Other Segment 144 159 184 201 262 288 314 339 363
Margin 99.8% 99.9% 94.3% 72.7% 72.9% 73.0% 73.0% 73.0% 73.0%
Operating Expenses 1,460 1,565 1,820 1,955 2,231 2,421 2,599 2,749 2,890
Growth 7.2% 16.3% 7.4% 14.2% 11.26% 12.28% 11.27% 12.24%
Salaries Wages and Employee
952 1,038 1,152 1,284 1,433 1,590 1,718 1,821 1,912
Benefits
Growth 9.1% 11.0% 11.4% 11.6% 11.00% 8.00% 6.00% 5.00%
Rental Expense 114 116 129 143 159 172 183 188 194
Growth 2.4% 10.6% 11.2% 10.7% 8.7% 6.0% 3.0% 3.0%
Other 396 418 483 529 621 659 698 740 784
Growth 5.6% 15.8% 9.4% 17.5% 6.0% 6.0% 6.0% 6.0%
EBITDA 327 386 392 413 409 456 459 473 482
EBITDA Margin 18.2% 19.8% 17.7% 17.4% 15.5% 15.9% 15.0% 14.7% 14.3%
Capital Expenditure 45 41 46 73 94 105 117 130 145
Growth 12.1% -8.5% 13.2% 56.9% 29.5% 11.5% 11.5% 11.5% 11.5%
Dep & Amort 49 49 54 54 66 76 87 98 111
EBIT 277.8 336.4 338.2 358.8 343.0 380.2 372.2 374.2 371.0
Total Non-Operating Loss -13 -13 15 -7 -2 -4 -2 0 -3
Pretax Income 289.4 349.3 323.7 366.3 345.0 384.3 374.6 374.5 374.3
Income Tax Expense 90 103 117 110 100 112 109 109 109
Tax rate 31.21% 30.19% 30.76% 30.06% 29.13% 29.12% 29.12% 29.12% 29.12%
Net Income 200 246 207 257 245 272 265 265 265
Net profit Margin 11.20% 12.62% 9.35% 10.84% 9.26% 9.47% 8.68% 8.24% 7.87%
Growth 23.0% -16.0% 24.0% -4.7% 11.4% -2.5% 0.0% -0.1%
Balance sheet
FY FY FY FY FY
($'000,000) 2017F 2018F 2019F 2020F
2012 2013 2014 2015 2016
Total Current Assets 1,554 1,785 1,888 2,153 2,263 2,477 2,711 2,968 3,249
Total Noncurrent Assets 561 588 523 635 738 808 884 968 1,059
Total Assets 2,115 2,373 2,410 2,788 3,001 3,001 3,001 3,001 3,001
Total Current Liabilities 1,149 1,288 1,261 1,453 1,567 1,715 1,877 2,055 2,249
Total Noncurrent Liabilities 108 59 51 65 89
Total Liabilities 1,258 1,346 1,313 1,518 1,655 1,812 1,983 2,171 2,376
Total Equity 857 1,026 1,098 1,270 1,346 1,473 1,612 1,765 1,932
Total Liabilities & Equity 2,115 2,373 2,410 2,788 3,001 3,285 3,596 3,936 4,308
Converting Lease agreements into Debt Present Value of Future Lease Commitments
Commitment Present Value
Assumptions and Notes Year
($'000,000) ($'000,000)
1. Commitments between 1 to 5 and 6 to 7 years are
1 139.167 131.29
averged in order to compute present value
2 84.261 74.99
2. Pre-tax cost of debt is used as discount rate to
3 84.261 70.75
compute PV = 6%
4 84.261 66.74
3. Lease commitments are from end of 2016 Financial
5 84.261 62.96
Year
6 89.0415 62.77
Commitment ($'000,000)
7 89.0415 59.22
<1 139.17
Total 654.294 528.72
1 to 5 337.04
Stated Operating income 241.2
6 to 7 178.08 + PV of Lease commitments 528.72
Total Commitments 654.29 * Pretax cost of debt 6%
PV of Commitments 528.72 = 272.92
16
Appendix 9: Du-Pont Breakdown

2012 2013 2014 2015 2016
Net Profit Margin 11.20% 12.62% 9.35% 10.84% 9.26%
Asset Turnover 0.88x 0.87x 0.93x 0.91x 0.91x
ROA 9.90% 10.97% 8.65% 9.87% 8.45%
Asset / Equity 2.53x 2.38x 2.25x 2.20x 2.21x
ROE 25.04% 26.13% 19.48% 21.67% 18.70%
Appendix 10: ROA Comparison

2012 2013 2014 2015 2016
FLIGHT CENTRE 9.9% 11.0% 8.7% 9.9% 8.5%
CORPORATE TRAVEL 16.6% 11.3% 8.7% 7.7% 8.2%
MANAGEMENT
WEBJET LTD 25.3% 6.9% 14.4% 10.5% 11.3%
Average 17.3% 9.7% 10.6% 9.4% 9.3%
Appendix 11: Significant Valuation Variables Explanation

1. Capital Asset Pricing Model (CAPM). This report utilises CAPM to determine FLT’s cost of equity
CAPM Explanation
a) Beta. Regression of FLT’s weekly returns against ASX200 using 2- Beta 0.928 (a)
year data. Adjusting the raw beta (0.892) to reflect future beta under Risk-Free Rate 2.95% (b)
assumption that security’s true beta will move towards to market Market Premium 6.00% (c)
average of 1 over time. Formula used in adjustment: 0.67 x Raw Beta Cost of Equity 8.51%
+ 0.33 x 1 = 0.928
b) Risk-Free Rate. 10-year Australia government bond yield was chosen as reference rate. Given that 10Y government
bond yield has been decreasing dramatically and there are still more uncertainties on future cash rate, we decide to
combine the average of past two-year and five-year average yield to represent future risk free rate.
10Y Australia Government Bond Historical Average Yield

2-Year Average 5-Year Average Weighted Yield
2.64% 3.26% 2.95%
Source: Bloomberg
c) Market Premium. The market Premium was extracted from ‘KPMG Valuation Practices Survey 2015’ and ‘Social
Science Research Network’, all of which indicate a 6% premium of Australia equity market. Furthermore, potential
volatility of market premium has been incorporated into sensitivity analysis.
Source: KPMG Source Social Science Research Network
2. Terminal Growth Rate
17
In this report, we use GDP growth rate as the indicator of future terminal growth rate. However, FLT’s revenue from
domestic operations has shrunk considerably, hence Australia GDP growth rate no longer has the full representativeness.
Following tables demonstrate the process of estimating terminal growth rate.
2006 2007 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F
Australia 3.1% 3.8% 2.7% 3.1% 2.7% 2.3% 2.3% 2.8% 3.3% 3.00% 3.03% 2.94% 2.78%
US 2.67% 1.78% 2.53% 1.60% 2.22% 1.49% 2.43% 2.43% 2.40% 2.50% 2.38% 2.13% 1.96%
UK 2.7% 2.6% 1.5% 2.0% 1.2% 2.2% 2.9% 2.2% 1.89% 2.22% 2.21% 2.14% 2.11%
Asia 10.11% 11.20% 9.64% 7.83% 6.92% 6.91% 6.76% 6.59% 6.40% 6.32% 6.26% 6.32% 6.34%
South Africa 5.60% 5.36% 3.04% 3.21% 2.22% 2.21% 1.55% 1.28% 0.61% 1.21% 2.06% 2.40% 2.40%
Source: IMF
Historical Average Forecasted Average Weighted Average Final Weighting G x W
AU 2.9% 3.0% 2.93%
US 2.1% 2.3% 2.21%
UK 2.2% 2.1% 2.13%
Average of developed market 2.42% 75% 1.8%
Asia 8.24% 6.33% 7.29%
South Africa 3.06% 1.74% 2.40%
Average of emerging market 4.84% 25% 1.2%
Terminal Growth Rate 3.0%
3. Weighted Average Cost of Capital (WACC)
FLT’s WACC has been swing since global financial crisis. We weighted its 10-year historical average WACC and current
WACC to arrive at 10.15%, which is also consistent with 10-year average WACC excluding GFC outliers. In the scenario
analysis, we use this two reference WACC with different weightings to determine WACCs for bearish and bullish cases.
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
WACC 7.50% 7.29% 16.23% 16.37% 14.85% 12.62% 11.25% 12.02% 11.58% 8.83%
Current WACC 8.30%
10Y Average 12.00%
Equal weighting 10.15%
Source: Bloomberg, Team Estimates
Bearish Case WACC Bullish Case WACC
WACC weighting WxW WACC weighting WxW
Current WACC 8.30% 30% 2.49% Current WACC 8.30% 70% 5.81%
10Y Average 12.00% 70% 8.40% 10Y Average 12.00% 30% 3.60%
Weighted Average 10.89% Weighted Average 9.41%
4. Capital Expenditure Growth Rate (CapEx)

FLT’s capital expenditure experienced dramatic increase in the past 5 years. We assume this trend will continue given
that its international and digital expansion are most likely maintained, but the abnormal growth occurred in 2015 was
eliminated from our estimation.
Capital Expenditure Growth Rate

Year 2011 2012 2013 2014 2015 2016
Capital Expenditure Growth Rate -39.84 -44.57 -40.78 -46.21 -72.50 -93.85
CapEx Growth Rate 11.9% -8.5% 13.3% 56.9% 29.5%
Average (Excluding abnormal in 2015) 11.5%
Appendix 12: DDM Valuation

FY2016 2017F 2018F 2019F 2020F
Net Profit After Tax 259.14 272.43 265.49 265.44 265.28
Payout Ratio 0.61 0.60 0.60 0.60 0.60
Dividend Paid 158.40 163.46 159.29 159.27 159.17
Weighted Average Ordinary Shares(WAOS)100.90 101.71 102.53 103.35 104.18
DPS 1.52 1.61 1.55 1.54 1.53
DPS, Adjusted 1.52 1.61 1.61 1.61 1.61
Underlying Dividend Growth 0.06 0.00 0.00 0.00
18
Terminal Value 30.08

Present Value 1.48 1.37 1.26 22.85
Intrinsic Value
Intrinsic Value (2016/6/30) 26.96
Target Price(2016/08/30) 27.33
Current Price(2016/08/30) 36.85
Downside Potential -26%
Appendix 13: DCF Valuation

Forecast FY2016 2017F 2018F 2019F 2020F
Cash From Operating Activities
Receipts From Customers 2680.2 2849.05 3028.54 3219.34 3422.16
Payments To Suppliers And Employees -2213.90 -2362.23 -2520.50 -2689.37 -2869.56
Cash Paid For Taxes -108.5 -121.23 -135.45 -151.34 -169.09
Cash Paid For Interest -28.85 -29.59 -30.35 -31.12 -31.92
Interest Received 27 27.46 27.94 28.42 28.91
Total Cash Flows From Operations 355.95 363.47 370.18 375.92 380.49
Free Cash Flow to Firm

Year FY2016 2017F 2018F 2019F 2020F
CFO 355.95 363.47 370.18 375.92 380.49
Interest Expense 28.85 29.59 30.35 31.12 31.92
(1-Tax) 0.71 0.71 0.71 0.71 0.71
CapEx 93.90 104.70 116.74 130.16 145.13
FCFF 282.50 279.74 274.95 267.82 257.98
Terminal Value 3716.41
Present Value 253.96 226.62 200.40 2699.81
Intrinsic Value
Sum of PV 3380.78
Debt 76.80
Value of Equity 3303.98
WAOS 101.00
Intrinsic Value(2016/06/30) 32.71
Target Price (2016/08/31) 33.10
Current Price 36.85
Upside potential -10%
Source: Team Estimates & Bloomberg

Appendix 14: Multiple Pricing Model
Assumptions
1. Weighting between domestic and International is based off forecasted proportion of FLT's domestic and international revenue
2. Forecasted peer multiples sourced from Bloomberg L.P, Earnings & Estimates
3. Historical date contains outliers and therefore medians are used to determine discounts
4. Target Price calculations are based off pro forma financial statements
Earnings Multiplier (P/E) Ticker 2011 2012 2013 2014 2015 2016 2017F
Domestic
Webjet Ltd WEB AU 13.84 17.97 50.92 9.98 13.62 25.88 24.27
Helloworld HLO AU 16.03 29.84 8.97 — — 162.11 25.29
Corporate Travel
CTD AU 14.44 11.9 27.52 33.79 36.69 32.41 31.64
Management
S&P/ASX 200 Consumer AS51COND
19.99 24.99 36.79 1,149.25 19.74 18.08
Discretionary Index Index
Industry Median for each

15.235 17.97 26.255 33.79 36.69 29.145 24.78
year
Flight Centre Travel Group FLT AU 15.44 9.46 16.01 21.6 13.39 14.38
Historical
1% -47% -39% -36% -64% -51%
Premium/Discount
Historical Median Discount -43%
International 2011 2012 2013 2014 2015 2016 2017F

19
CTRIP CTRIP US 20.89 28.33 45.11 178.43 42.21 129.2 44.13

Priceline Group PCLN US 22.94 22.23 31.65 24.91 26.01 21.06 17.88
Expedia EXPE US 11.9 22.73 33.2 25.62 73.35 22.91 17.3
MSCI World Consumer
MXWO0CD 14.72 18.04 18.9 18.38 18.79 16.76 14.86
Discretionary Index

17.805 22.48 32.425 25.265 34.11 21.985 17.59
year
Flight Centre Travel Group FLT AU 15.44 9.46 16.01 21.6 13.39 14.38
Historical
-13% -58% -51% -15% -61% -35%
Premium/Discount
Target Price (P/E)

2017F Domestic International
P/E peers median 24.78 17.59
Discount 43.19% 42.61%
Target P/E 14.08 10.10
EPS 2.69 2.69
Target Price 37.94 27.21
Weighting 47% 53%
Weighted Target price 32.27
EV/EBITDA Ticker 2011 2012 2013 2014 2015 2016 2017F

Domestic
Webjet Ltd WEB AU 8.64 11.05 23.74 5.86 6.4 20.84 15.24
Helloworld HLO AU 9.84 10.98 3.76 3.1 — — 7.62
Corporate Travel
CTD AU 9.86 7.43 16.69 20.53 20.39 19.17 19.92
Management
S&P Consumer Discretionary AS51COND
9.11 36.95 12.93 14.37 17.95 14.49 13.32
Index Index

9.475 11.015 14.81 10.115 17.95 19.17 14.28
year
Flight Centre Travel Group 5.21 2.79 7.07 8.19 4.89 5.98
Historical
-45% -75% -52% -19% -73% -69%
Premium/Discount
International Ticker 2011 2012 2013 2014 2015 2016 2017F
CTRIP CTRIP US 13.88 22.48 35.64 1198 213.6 — 43.55
Expedia EXPE US 6.1 11.15 12.13 13.28 22.86 11.62 9.34
MSCI World Consumer
MXWO0CD 7.54 8.4 9.81 10.05 9.85 9.79 8.16
Discretionary Index

10.71 12.785 16.915 15.67 20.915 11.62 12.05
year
Historical
-51% -78% -58% -48% -77% -49%
Premium/Discount
Target Price (EV/EBITDA)
2017F Domestic International
EVEBITA peers 14.28 12.05
Discount 60.53% 54.78%
Target EV/EBITDA 5.64 5.45
EBITDA 456 456
Implied EV (BB) 2572 2487
less Debt 1812 1812
Add Cash & Cash Eq 1600 1600
Value of Equity 2360 2275
Outstanding Shares
101 101
(million)
Weighting 47% 53%
20
P/Sales Ticker 2011 2012 2013 2014 2015 2016 2017F

Domestic
Webjet Ltd WEB AU 3.53 4.29 4.6 2.02 2.04 3.79 4.71
Helloworld HLO AU 0.92 0.46 0.44 0.42 0.58 0.93 1.58
Corporate Travel
CTD AU 2.57 2.15 4.02 4.88 4.89 5.24 5.37
Management
S&P Consumer Discretionary AS51COND
1 1.18 1.57 1.42 1.57 1.59 1.8
Index Index

1.785 1.665 2.795 1.72 1.805 2.69 3.255
year
Historical
-34% -36% -28% 17% -20% -55%
Premium/Discount
Historical Median Discount -30.81%
International Ticker 2011 2012 2013 2014 2015 2016 2017F

CTRIP CTRP US 6.06 4.65 7.34 5.27 8.33 7.77 5.73
Expedia EXPE US 1.14 2.05 1.97 1.91 2.42 1.92 1.68
MSCI World Consumer
MXWO0CD 0.73 0.84 1.15 1.14 1.19 1.08 1.03
Discretionary Index

3.235 3.35 4.655 3.59 4.73 4.28 3.705
year
Historical
-64% -68% -57% -44% -69% -72%
Premium/Discount
Historical Median Discount -65.94%
Target Price P/Sales
In Millions except per share Domestic International
P/Sale peers 3.26 3.71
Discount 31% 66%
Target P/SALES 2.25 1.26
Sales 2878 2878
Outstanding Shares (millions) 101 101
Sales Per Share 28.47 28.47
Weighting 47% 53%
Appendix 15: Sensitivity Analysis

DDM Sensitivity Analysis DCF Sensitivity Analysis
Scenario 1: Payout Ratio & Cost of Equity Scenario 1: CapEx Growth Rate & WACC
Rationals: Rationals
1. Company could change dividend payout ratio either upward or 1. WACC could rise if either increase in cost of equity or substantial
downward due to potential furure better off or distress use of debt
2. FLT's cost of equity could increase or decrease due to high volatility
or depreciation of aggregate risk free rate
Cost of Equity CapEx Growth
27.33 7.50% 8.00% 8.51% 9.00% 9.50% 33.10 10.5% 11.0% 11.5% 12.0% 12.5%
50% 33.13 29.84 27.10 24.90 23.00 11.0% 30.10 29.84 29.58 29.31 29.04
Payout 55% 33.26 29.97 27.22 25.03 23.13 WACC 10.5% 32.12 31.84 31.56 31.27 30.98
60% 33.38 30.09 27.35 25.15 23.25 10.2% 33.70 33.40 33.10 32.80 32.50
65% 33.51 30.22 27.47 25.28 23.38 9.5% 37.08 36.75 36.42 36.09 35.75
70% 33.64 30.34 27.60 25.40 23.50 9.0% 40.18 39.82 39.46 39.10 38.73
Scenario 2: Cost of Equity & Terminal Growth Rate Scenario 2: WACC & Long Term Growth
Rationals:
1. Terminal growth rate could be in line with historical sustainable
growth rate
2. Cost of equity could rise when company increase leverage
Cost of Equity Long Term Growth
27.33 7.50% 8.00% 8.51% 9.00% 9.50% 33.10 2.5% 2.7% 3.0% 3.3% 3.5%
2.5% 30.5 27.7 25.4 23.5 21.9 11.0% 28.19 28.73 29.58 30.50 31.15
Growth 2.7% 31.6 28.63 26.15 24.15 22.4 WACC 10.5% 29.96 30.57 31.56 32.62 33.38
3.0% 33.4 30.09 27.35 25.15 23.3 10.2% 31.34 32.02 33.10 34.29 35.14
3.3% 35.5 31.74 28.68 26.26 24.2 9.5% 34.26 35.08 36.42 37.89 38.95
3.5% 37.0 33.0 29.7 27.1 24.8 9.0% 36.90 37.88 39.46 41.21 42.48
21
Earnings Multiplier (P/E) EV/EBITDA

Scenario 1: Discount & EPS Scenario 2: Debt & EBITDA
Rationals: Rationals:
1. Changes to industry comparables can cause the discount rate to 1.FLT can increase or decrease their debt levels
increase further or become a premium 2. FLT's Earnings may increase or decrease
2. FLT's Earnings may increase or decrease
Domestic Domestic
Discount Debt
37.94 39% 41% 43% 45% 48% 23.35 1631 1721 1812 1902 1993
2.43 36.74 35.44 34.14 32.85 31.55 411 22.60 21.70 20.80 19.91 19.01
2.56 38.78 37.41 36.04 34.67 33.30 434 23.87 22.97 22.08 21.18 20.28
EPS 2.69 40.82 39.38 37.94 36.50 35.05 EBITDA 456 25.14 24.24 23.35 22.45 21.56
2.83 42.86 41.35 39.83 38.32 36.81 479 26.41 25.52 24.62 23.72 22.83
2.96 44.90 43.32 41.73 40.15 38.56 502 27.68 26.79 25.89 25.00 24.10
International International
Discount Debt
27.21 0.38 0.40 0.43 0.45 0.47 28.04 1631 1721 1812 1902 1993
2.43 26.30 25.39 24.48 23.58 22.67 411 26.82 25.92 25.03 24.13 23.23
2.56 27.76 26.80 25.85 24.89 23.93 434 28.32 27.43 26.53 25.64 24.74
EPS 2.69 29.23 28.22 27.21 26.20 25.19 EBITDA 456 29.83 28.93 28.04 27.14 26.25
2.83 30.69 29.63 28.57 27.51 26.44 479 31.34 30.44 29.55 28.65 27.75
2.96 32.15 31.04 29.93 28.81 27.70 502 32.84 31.95 31.05 30.16 29.26
P/Sales
Scenario 3: Discount & Sales
Rationals:
1.FLT can increase or decrease their debt levels
2.FLT's earnings can increase or decrease
Domestic
Discount
64.11 27.73% 29.27% 30.81% 32.35% 33.89%
2590 $60.27 $58.99 $57.70 $56.42 $55.13
2734 $63.62 $62.26 $60.91 $59.55 $58.19
Sales 2878 $66.97 $65.54 $64.11 $62.68 $61.26
3022 $70.32 $68.82 $67.32 $65.82 $64.32
3166 $73.66 $72.09 $70.52 $68.95 $67.38
International
Discount
35.92 59.35% 62.64% 65.94% 69.24% 72.54%
2590 38.59 35.46 32.33 29.20 26.07
2734 40.73 37.43 34.13 30.82 27.52
Sales 2878 42.88 39.40 35.92 32.45 28.97
3022 45.02 41.37 37.72 34.07 30.42
3166 47.17 43.34 39.51 35.69 31.86
Appendix 16: Residual Income Valuation

FY2016 2017F 2018F 2019F 2020F
Book Value 13.34 14.39 15.46 16.44 17.40
EPS 2.57 2.68 2.59 2.57 2.55
Dividend 1.52 1.61 1.61 1.61 1.61
Residual Income 1.43 1.45 1.27 1.17 1.07
Terminal value 19.92
PV 1.34 1.08 0.92 15.14
Intrinsic Value 31.82
Target Value 32.25
Current Price 36.85
Downside
Potential 14%
22
Appendix 17: Monte Carlo Simulation

Variables Mean St.Dev Distribution Forecast: Target Price
Receipts Statistics: Forecast values
2017F 2849.053 85.47 Normal Trials 20,000
2018F 3028.543 90.86 Normal Base Case 33.1
Mean 33.61
2019F 3219.341 96.58 Normal
Median 33.29
2020F 3422.16 102.66 Normal
Standard Deviation 13.82
Payments
Variance 190.98
2017F -2362.23 70.87 Normal
Skewness 0.1685
2018F -2520.5 75.62 Normal
Kurtosis 2.84
2019F -2689.37 80.68 Normal
Coeff. of Variation 0.4111
2020F -2869.56 86.09 Normal
CapEx Growth Rate 11.50% 0.35% Normal
WACC 10.15% 0.30% Normal
LGR 3.00% 0.09% Normal
Appendix 18: Scenario Analysis

In addition to the scenario analysis for DCF, we further extend this DDM
and RV (P/E) to arrive the weighted average intrinsic value under each
case. The chart on the left briefly present the final aggregate scenario
analysis
Bearish case has a value of AUD23.45, while bullish case has a price
at AUD40.71. This represents 25% probability downside and 30%
probability upside potential in accordance with Monte Carlo simulation
distribution. However, overall, there would be more than 60%
probability that the stock price will below current price.
23
Appendix 19: Australia Short-term Outbound Travel Modelling & Stock Return
Volatility Modelling
1. Multiplicative SARIMA (Seasonal Autoregressive
Moving Average Model)
FLT generates half of its annual revenue within Australia, on
which outbound travel has a significant impact. Therefore we
forecast the next 5-year outbound travel movement by using
a multiplicative SARIMA to model this essential growth driver.
The graph on the right demonstrates the trend of movements,
and the table below illustrates the forecasted future outbound
travel growth.
Australia Short-term Outbound Travel (In Thousand)

Year 2016 2017 2018 2019 2020 2021
Outbound 9685 10180 10823 11442 12068 12711
Growth Nil 5.1% 6.3% 5.7% 5.4% 5.3%
2016-2020 average 5.5%
2. GARCH (Generalized Autoregressive Conditional

Heteroskedasticity)
Although FLT is currently traded with a relatively lower beta,
it is necessary to examine its time-varying volatility. By
running GARCH model, we found the GARCH effect is
significant indicating its time-varying riskiness. This result
further support our argument relating to the potential
up/downward cost of equity and WACC. The graph on right
side presents the time-varying standard deviation of FLT’s
stock since its IPO in comparison with historical return
standard deviation
Appendix 20: Recent Acquisitions
Acquisitions Date Currency Price Stake Main Objective

st
Student Universe 21 December US$ $28m 100% Expand Online Platform
st
BYO Jet 21 December AUD$ $2.52+ 70% Entry into Low-cost Market
th
Business Travel 14 March € Unknown 100% Expansion into European Market
Development
Student Universe
Overview
Student Universe is currently the world’s leading travel booking service for students and youth. They offer special student
online rate on flights, hotels and tours. The company is in association with dozens of World-class partners and over 70
Airlines. Student Universe launched in 2000 and has branches in Boston, London, Toronto, New
York and the Philippines.
Details of the Acquisition
st
The Acquisition was made on the 21 December 2015 for $US 28 million after 18 months of
negotiations. The agreement states that student universe will operate under the management of
Flight Centres Americas President.
Acquisition SWOT Analysis
Strengths Weaknesses
• Enhanced economies of scale power • Intense online competition
• Strong Online Platform • Concentrated international competition
• Leading youth travel booking service • Heavily US Based
• Overvalued acquisition
Opportunities Threats
• Expand Online Presence • Alternative Management leading to inefficiencies
• Access Niche Market (Key Demographic in • Online Market Saturation
Travel) • Unrecognized revenue expectations
• Student and Youth Market is one of Travel’s
fastest growing sectors.
24
BYOJET
Overview
BYO Jet is an Australian family owned and operated travel agency that operates in Australia, New Zealand, Singapore
and South Africa. Launch in 2010, the company is an online booking service which offers the lowest price guarantee on
over 300 worldwide airlines.
st
Flight Centre Acquired a 70% stake of BYOjet on the 21 of December, after 3 months of
negotiation. Flight Centre will pay BYOjet's parent company Professional Performance
Systems $2.52 million upfront, plus a second payment for 70 per cent of 6 times the online
business' 2016 financial year EBIT, less the original amount. There has also been placed
call and put options, so that Flight Centre may control 100% of the company in 2018.
• Enhanced economies of scale power • Undefined cost of Acquisition creates additional risk
• Decreased competition • Intense online competition
• Expanded employee base • Concentrated international competition
• Financial options to acquire remaining 30% in • Alternative Management leading to inefficiencies
2018. • Enhanced EBIT of BYOjet may lead to expensive
• Expand Online Presence acquisition
• Better exposure to Asia Markets • Online Market Saturation
• Exposure into low-cost market • Low-cost sales can cannibalise full service revenues.
Business Travel Development (FCM Travel Solutions)

Overview
Business Travel Development was a Dutch Travel Agency with a store-based operation. They
specialised in full-service corporate travel for business clients. They have had a lengthy relationship
with Flight Centre, having been the network’s independent licensee in the Netherlands since 2005.
Flight Centre has acquired 100% of Business Travel Development to continue operations in the
Netherlands. The company originally named Business Travel Development will now operate under
the Flight Centre corporate brand FCM Travel Solutions. This new business will be overseen by
Flight Centres UK office. The cost of this acquisition is currently undisclosed.
• New exposure into Europe • New competition in unknown market
• Larger Corporate travel coverage • New branding has very low market awareness
• Access to Netherlands Market
• Low-risk and cost-effective entry into
Netherlands market
• Better exposure to European Markets • Undisclosed price is alarming to shareholder sentiment
• Diversify Corporate Travel operations • Alternative Management leading to inefficiencies
• Decreasing Corporate travel passenger growth
Acquisitions since 2010
Year Company Announced Details Based in

Total Value
2010 FCm Travel Solutions India $15 million Purchase of remaining 44% interest India
Private Ltd
Gapyear.com N/A Social Networking Business UK
Garber’s Travel Services Inc $10.4 million Purchase of the remaining 74% interest in Garber to US
the 26% FLT acquired in 2007; Corporate Travel
Provider
2012 GoVolountouring Ltd A$130,000 Online community for volunteers, overseas teachers, Canada
and learners' abroad
2014 Travelplan Corp Ltd A$2.07 million Corporate travel business UK (Ireland)
Top Deck Tours Ltd US$15.9 million Specialized in tour operations UK
2015 Koch Overseas de Mexico US$1.4 million Corporate travel management business Mexico
Travelonomy ltd US$28 million Studentuniverse.com (Appendix 19) US
25
Professional Performance US$1.81 million Owners and operators of BYOjet Group which is an AUS
Systems Pty Ltd online travel agent specialized in ultra low cost
airfares
2016 Professional Performance US$0.5 million AUS
Systems Pty Ltd
AVMIN Pty Ltd A$1.224 million Aircraft charter and logistics specialist AUS
Worldwide Aviation Services A$297,000 Small corporate travel business MY
(WAS)
Maya Events A$361,000 Event management and production company HK
Business Travel Development A$2.649 million Corporate Travel Agency based in the Netherlands NL
Source: Bloomberg and Company Information
Appendix 21: Credit Rating
Credit Rating - Cash, Cash Equivalents & 2014 2015 2016

AFS Financial Assets % $'000 % $'000 % $'000
At 30th June $'000
AA and Above 0.75% 9,756 0.00% 2 0.01% 189
AA to A- 91.25% 1,188,912 88.74% 1,289,933 87.14% 1,324,926
BBB+ to BBB 5.20% 67,724 8.94% 130,023 10.45% 158,828
Non-investment grade/ unrated 2.80% 36,530 2.32% 33,688 2.40% 36,566
Total 1,302,922 1,453,646 1,520,509
Appendix 22: Foreign Payable and Receivable Exposure

Trade and other Trade & Other
2014 2015 2016 2014 2015 2016
payable Receivables
Australia 763,308 622,162 1,003,462 Australia 555183 648182 646677
Us Dollar 92,249 251,862 332146 US Dollar 15954 21816 20567
British Pounds 11,323 14,811 24519 British Pound 674 858 707
Euro 24,345 30,361 54284 Euro 1705 8468 1034
Thai Baht 17,974 19,408 798 Fijian Dollar 334 778 770
Fijian Dollar 23,709 25,706 20099 New Zealand 720 796 976
New Zealand Dollar 10,680 11,105 14232 Other 1902 2142 1445
Canadian Dollar 5,865 6,089 9097 Total Trade and other
576472 683040 672176
Hong Kong Dollar 4,270 4,226 4666 receivables
Singapore Dollar 8,491 9,261 9760 21289 34858 25499
Total Foreign Trade
United Arb Emirates
3,966 3,998 1325 and other receivables
Dirham
Increase/Decrease of foreign exposure between 2014 &
Other 14,384 14,179 2706 19.78%
2016
Total Trade and other
payable liabilities
980,564 1,013,168 1,477,094 Source: Flight Centre Travel Group, 2015
Total Foreign Trade
and other Payable 217,256 391,006 473,632
Liabilities
Increase/Decrease of
foreign exposure 118.01% 391,006
between 2014 & 2016
Appendix 23: FLT Foundation

Bush Heritage Australia is a non-profit organisation and is based in Melbourne, Australia. It does purchase
land to manage wildlife reserves in perpetuity. In this way they do protect native plants and endangered
species to ensure Australia’s biodiversity.
The Cambodian Children’s Trust works to empower vulnerable children to escape the cycle of poverty
through family preservation, education and deinstitutionalisation. It is a local NGO with more than 90%
of the staff are from Cambodia.
Foodbank is the largest non-profit organisation in Australia which distributed food to those who have
difficulty purchasing enough food to avoid hunger. In 2015 they provided enough food for 40 million
meals.
26
The Kokoda Track Foundation is an aid organisation with the objective to improve the education, health
and community services in Papa New Guinea. FLT supports the Education Bilong Olgeta Program
contributing to teacher training and development, salaries and school resources for the Elementary
School in Kokoda and the Kou Kou Pre-school.
Redkite is an Australian cancer charity which provides support to children and young people with cancer.
Furthermore, it supports their families and support networks. FLT assists Redkite’s Diagnosis Support
Pack program which includes vital care and comfort as well as critical information to help along their
journey. Furthermore, it provides information and age-appropriate items for teenagers and young adults
up to the age of 24.
Youngcare assists people between the ages of 18 to 65 with high care needs. Their programs focus on
supporting young people with a disability by providing greater choice in housing and care options. FLT
supports Youngcare Connect which is a free national information and support line which helps families
navigate through the often confusing healthcare system.
Source: Company Data
Appendix 24: SWOT Analysis
Total Strengths
30
25
20
15
Total
Total Threats 10
Weaknesses
Total
Opportunities
The SWOT analysis was created to establish a better understanding of FLT's position within the travel industry. The
analysis is built around a series of categories within each of the four SWOT sections and ranked on a scale to three
according to their likely impact on FLT. Furthermore, this point system was used to determine the overall performance of
FLT in the respective category which can be seen in the chart above.
• Diversification of services: complete and tailored experience • Dependency on Australian Market: 74% of EBIT
across different sectors like flights, hotels, cruises, currency, car derived in AU
rental, visa assistance • Inefficient capital structure
• Multiple segments: leisure, online, wholesale and corporate. • Cost structure: High operating expenses
• Expansive Growth Strategy • Insufficient online presence
• Large Market Share domestically
• Existing distribution and sales networks
• Strategic Acquisitions • Diseases, Terrorism, Economic downturns
• Brand Strength: Allows for easier integration into the • Brandjacking: online diversion of search traffic
online/physical business dynamic • Increasing online travel service competition
• Disintermediation: especially domestically
• Backward integration from Airline suppliers due to
online pricing
• Small board and missing diversity
27
Strengths Rating Weaknesses Rating

Financial Strategy
Resources 3
3 Facilities Profitability
Cost/Price Reputation 2
2
Cost
Management 1
Market Structure
Management 1
Leadership
0
0
Property
Marekting
Service Economies of Development
Development Scale
Internal
Marketing Competitive Brand Image
Operations
Effectiveness Pressure Service Line
Proprietary
Technology
Opportunities Rating Threats Rating
Expansions
3 Pricing
Prospects Target Market 3
Substitute
2 Technology
Products
2
Regulatory Service
1 Market
Overhead Enhancement Entry Barriers 1
Stagnation
0
0
International Vertical
Expansion Integration Regulatory
Demographics
Overhead
Expansion of
Market Growth Market
Facilities Business Cycle
Requirements
Rival
Buyer/Supplier
complacency
Power
Appendix 25: Thomson Reuters Asset4

To investigate Flight Centre’s environmental, social and corporate governance performance, the Asset4 Database by
Thomson Reuters was used. Moreover, local and international peers have been selected to evaluate FLT’s current
performance.
Social Score
60
Flight Centre
50 Travel Group
Axis Title
Ltd. 60
40
30
Local Peers 50
20 40
10 30
0
International
Peers 20
2013 2014 2015
10
Axis Title 0
2013 2014 2015
30 Environmental Score
25
20
15
10
5
0
2013 2014 2015
Appendix 26: Gender diversity

Studies from Desvaux & Devillard (2008), Campbell & Mínguez-Vera (2008), Smith, Smith, &Verner (2006) and TCAM
(2009) showed, that gender diversity on company boards improve company performance. A study conducted by Joy,
Carter, Wagner, & Narayanan, S. (2007) found out that companies with more women on board outperformed their rivals
with 42% higher returns in sales, 66% higher returns on invested capital and 53% higher returns on equity. A gender-
balanced board is furthermore more likely to pay attention to managing and controlling risk. (TCAM, 2009)
28
Other findings of relevant studies include:

• Women control about 70% of global consumer spending. Consequently, women can provide a broader insight in
economic behaviour which leads to market share gains through the creation of services and products that are
more respondent to costumer’s needs (Bloomberg, 2009).
• The quality of the corporate governance and ethical behaviour is high in companies with high shares of women
on boards (Brown & Brown, 2002).
• The quality of decision making increases with diversity on boards as adding complementary knowledge, skills
and experience means a gain of innovation and creativity (European Commission, 2012).
• The number of women as independent directors is positively associated with a firm’s CSR ratings (Hyun, Yang,
& Jung, Hong, 2016).
Furthermore, the European commission made a legislative proposal in 2012 with the focus of improving the gender
balance among non-executive directors of companies listed on stock exchanges and related measures (European
Commission, 2012). The proposal targets companies to increase the number of board members of the under-represented
st
sex to 40% by the 1 of January 2020. However, there will be no sanctions for not reaching this goal.
Sources:
Bloomberg. (2009). Women Controlling Consumer Spending Sparse Among Central Bankers. Derived from http://www.bloomberg.com/news/2011-
07-24/women-controlling-70-of-consumer-spending-sparse-in-central-bankers-club.html
Brown, D. A., Brown, D. L., & Anastasopoulos, V. (2002). Women on boards: Not just the right thing... but the" bright" thing. Conference Board of
Canada.
Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of business ethics, 83(3), 435-
451.
Desvaux, G., & Devillard, S. (2008). Women Matter 2: Female leadership, a competitive edge for the future. Study, McKinsey & Company, Paris.
European Commission. (2012). Women in economic decision-making in the EU: Progress report Luxembourg.
Hyun, E., Yang, D., Jung, H., & Hong, K. (2016). Women on boards and corporate social responsibility. Sustainability, 8(4), 300-300
Joy, L., Carter, N. M., Wagner, H. M., & Narayanan, S. (2007). The bottom line: Corporate performance and women’s representation on boards.
Catalyst, 3, 619-625.
Smith, N., Smith, V., & Verner, M. (2006). Do women in top management affect firm performance? A panel study of 2,500 Danish firms. International
Journal of productivity and Performance management, 55(7), 569-593.
TCAM. (2009). Diversity and Gender Balance in Britain plc: a study by TCAM in conjunction with The Observer and as part of the Good Companies
Guide, London
Appendix 27: Corporate Governance

The ASX corporate governance principles have been used to evaluate FLT’s corporate governance. The only principle
FLT does not fulfil completely is principle 2 (a): structure the board to add value. The reason for this is that they have not
a separated their nomination committee from their remuneration committee. By calculating corporate governance scores,
different weightings were given to the ASX principles. Higher weightings were given for the composition of the board and
a fair and responsible remuneration. To have a benchmark, FLT’s competitor Corporate Travel Management implements
all eight ASX corporate governance principles and has therefore a higher score than FLT based on our estimations.
ASX Principles Score Weightings
FLT Corp. Travel
1. Lay solid foundations for management and
5 5 12%
oversight
2. Structure the board to add value 2 5 17%
3. Act ethically and responsibly 5 5 12%
4. Safeguard integrity in corporate reporting 5 5 9%
5. Make timely and balanced disclosure 5 5 11%

6. Respect the rights of security holders 5 5 11%
7. Recognise and manage risk 5 5 13%
8. Remunerate fairly and responsibly 5 5 15%
Weighted final Score (out of five) 4.49 5
Board of Directors Career Background Independent

Graham Turner Graham Turner is one of the Co-Founders of Flight Centre and was appointed No
Managing as a member of the board at the IPO in 1995. He is the head of the company
Director/CEO and in the role of the CEO for more than 20 years (with a pause in 2005).
Additionally, he is the Director of the Australian Federation of Travel Agents
Limited.
Gary Smith Mr. Smith has been a Director of Flight Centre since 2007. He is the the founder Yes
Non-Executive and managing director of Tourism Leisure Corporation and in addition he
Director manages the Kingfisher Bay Resort Group. From 2003 to 2007, Gary was an
Chairman independent Director of the then publicly listed Tourism Company S8 Limited.
In November 2012, he was appointed as a Non-Executive Director to the Board
29
of Michael Hill International Limited (MHI). He has an active role in the tourism
and travel industry Australia’s for 20 years.
John Eales Mr. Eales has been appointed to the board of Flight Centre in 2012. Yes
Non- Furthermore, he currently sits on the board of GRM International, International
Executive Quarterback, Fuji Xerox – DMS and the Australian Rugby Union. He was the
Director Co-founder of the Mettle Group in 2003, which was acquired by Chandler
MacLeod in 2007.
Robert Baker Robert Baker has been a non-executive Director of Flight Centre since 2013. Yes
Non-Executive He has had a successful career at PricewaterhouseCoopers (PwC) in leading
Director their Office in Brisbane, providing professional services to clients and in being
a member of PwC’s Board from 2008 to 2013. Mr. Baker is also in the function
of the chairman in four other companies (John Goodman & Co Ltd since 2014,
International Justice Fund Limited since 2015, Employment Office Australia Pty
Ltd since 2015, Audit and Risk Committee of the Australian Catholic University
Limited since 2015). Furthermore, Robert is an advisory board member and
Audit and Risk Committee member for the Catholic Development Fund,
Archdiocese of Sydney since 2011.
Cassandra Kelly* Cassandra Kelly has been appointed to the board of Flight Centre in 2014. She Yes
Non-Executive is the Co-founder and chair of corporate advisory Pottinger, deputy
Director chairwoman of Treasury Corporation of Victoria, chairwoman of Allpress
nd
*resigned on the 2 of International and director of UNSW Foundation Limited. However, she
August 2016
resigned her role on the board of FLT effective with the 2 August 2016 due to
her current living situation in the USA and because she wants to spend more
time with her family.
Appendix 28: Insitutional Investors

Top 20 Institutional Shareholders %
1. Gainsdale PTY LTD 15.06%
2. GeharPTY LTD 14.53%
3. James Management Services 12.87%
4. Bennelong Fund Management 6.11%
5. Airlie Fund Management Pty Ltd 4.78%
6. Vanguard Group 3.33%
7. Blackrock 3.19%
8. Friday Investments Pty Ltd 2.79%
9. Lazard Ltd 2.32%
10. Perennial Value Management 1.67%
11. Norges Bank 1.62%
12. Schroders Plc 1.52%
13. Investment Mutual Ltd 1.36%
14. FMR LLC 1.00%
15. Commonwealth Bank of Australia 0.96%
16. AQR Capital Management LLc 0.94%
17. State Street Corp 0.93%
18. Trinity Holding Ltd 0.74%
19. Morgan Stanlet 0.73%
20. Perpetual Ltd 0.62%
* Turner Graham 15.10%
30
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias
the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject
company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report
should not be considered to be a recommendation by any individual affiliated with CFA Society Sydney, CFA Institute or the CFA
Institute Research Challenge with regard to this company’s stock.
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Figure 2: Corporate Structure Business Description

Source: Bloomberg &FLT annual

Revenue and Expenses

Figure 6: Terrorism Incidents Industry Overview and Competitive Positioning

Emerging Budget Airlines and Increased Aeroplane Capacity Reduce

The Need for Travel Agency Intermediation is Greatly Lowered Due To 4

Figure 11: Passenger Growth

4. Increased Technological Competition Challenge Agency Revenue At All Stages of Travel:

FLT’s Online Expansion Lags Behind the Industry

Fierce International Competition Limits Organic Revenue Growth

Online Expansion Will Cannibalise Sales and Increase Competition

Source: Cowen &Company; Team

Figure 17: Industry Market Share Investment Drivers

Source: Bloomberg & Team Estimates

Figure 22: P/E Ratio forecast for

High Operating Expenses Limit Equity Returns

Erratic Capital Expenditure and High Lease Commitments Further

Dividend Discount Model (20%)

FLT has maintained relatively stable dividend payments over the

Discount Cash Flow Model

Additional Sensitivity Analysis

Foreign Exchange Risk

Figure 41: Changes in Fair Value Operational Risk

Figure 43: Board of Directors Corporate Governance

Corporate Social and Environmental Responsibility

Source: Thomson Reuters Database

Force 5: Competition in the Industry

Appendix 2: Current Issues affecting Travel

Most Popular Travel Destinations for

The Insurance Industry

Appendix 3: The Sharing Economy

AirBnB Number of Nights Booked

0% 15% 30% 45% 60% 75%

Ride Hailing Car Rental Taxi

Major Car Rental Companies: Stock

Appendix 4: Travel Disintermediation

Appendix 5: Big Data Analytics

globalised mass marketing strategy. A once competitive advantage of 80.0

consumers. Facebook is a key tool in the inspiration

TripAdvisor is the world’s largest online TripAdvisor Revenue Growth

restaurants, attractions and destinations.

Appendix 6: TTV and EBIT Breakdown

Appendix 7: Segment Margin Break-downs by country

Appendix 8: Financial Statement Forecasts

Appendix 9: Du-Pont Breakdown

Appendix 10: ROA Comparison

Appendix 11: Significant Valuation Variables Explanation

10Y Australia Government Bond Historical Average Yield

Source: KPMG Source Social Science Research Network

2. Terminal Growth Rate

4. Capital Expenditure Growth Rate (CapEx)

Capital Expenditure Growth Rate

Appendix 12: DDM Valuation

Terminal Value 30.08

Appendix 13: DCF Valuation

Free Cash Flow to Firm

Source: Team Estimates & Bloomberg