Good morning, everyone. Thanks for joining us today for Flight Centre's half year results presentation. Today, I'm joined by Spru, our Global MD or CEO Adam Campbell, our CFO and the man of the match in the Flight Centre touch game last week Chris Galanti, our Global Corporate CEO and Melanie Waters, our Leisure CEO. Screw will start and finish things off, and in between, there'll be a sandwich of Adam, Chris and then Mel. I'll now hand over
to Screw. Thank you, Heiko. Yes, it's been a tough year. We've obviously had the COVID-nineteen challenge. But I think how we weathered it, we're reasonably happy with so far.
We certainly lowered our cost base substantially down 70% or so. And we're still generating revenue in particularly in the domestic only, but also if you looked at December. It was growing from the previous month up to December. It looks like January was down a little bit on December, but that was because of disruptions we had. And generally, we've achieved month on month reductions in our cash outflow.
I think it was 30 $1,000,000 outflow in December, which we're reasonably happy with. It gives us an extended liquidity runway course of about $1,200,000,000 plus in by December 31. So now for the recovery phase, We're obviously a leaner and a more efficient organization now with a lengthy liquidity runway, as I said. We've tried really hard to maintain and retain our key assets, people and developed our technology during this time. And obviously, we've got a lot of leisure assets and corporate assets.
We're a fairly diversified organization as well as our in destination. So we're pretty confident we can benefit from the travel recovery over the next 12 months. And we're confident also we can grow market share, particularly in leisure, but also in corporate. So some of the positive signs are starting to emerge. First of all, we're pretty sure there's really good pent up demand.
We saw this in December when the borders were lifted in Australia and we had some record or Dave is there, particularly online. So the demand is there once the board is open, we're certain of that. Even some of our smaller businesses are profitable. I think we've made mention the UAE has been profitable for some months. The My Holidays brand in Australia.
He's profitable the last 2 months and obviously 99 Bikes or the Pedal Group who has made significant profits in this last year and flights are owned 48% of that. We think there will be accelerated second half TDP recovery in corporate. Now this will be particularly important in domestic travel where there is a big domestic market such as in North America and Australia as long as the borders generally stay open and we're pretty confident it will. We've seen the vaccination programs working well, particularly in North America again in the UK, and they're starting to look like they're getting some really good results. And as we know, vaccinations just started in Australia, and the vulnerable people will be fully vaccinated by the looks by the end of June, which means that not only domestic travel should be able to start again, But we should see international study international travel starting soon after that.
The next slide, you'll see the vaccination programs, the impact of the vaccination programs. And this is a few days old now, but I think we've heard a fair bit about both United Kingdom and the States in the success right there. So these look good. There's still some challenges, of course, with the South African variant, but it looks like the Pfizer vaccine is very effective against all these variants. So some of the other key drivers on the road to recovery who is obviously domestic borders opening and staying open.
Then some selected or International Roots, which initially will probably be in the South Pacific and Asia during possibly even during this the end of this financial year and then obviously broader border openings early next or Financial Year, somewhere between July September, November, we believe. So the road to recovery, it's obviously about the vaccination programs gaining momentum in our part of the world, and that's particularly North America, EMEA, Australia, New Zealand and obviously parts of Asia. The second one and that should happen pretty much by end of March this financial year. Certainly, the last quarter in this financial year, the end of June, we'll have every vulnerable Australian vaccinated and that will help with mortality and hospitalizations if another infection comes into Australia. And obviously both North America and UK, Europe will be heavily vaccinated by then as well.
And in the second 6 months of this calendar year, We will see a level of herd immunity in most of these major countries that have had this vaccination program or indeed with the UK and Europe and North America where they've had a heavy rate of infection, which will help the herd immunity, which means that generally travel can start of International Travel Can Start returning to normal. So that's basically the story. Adam now will give you some overview of the results. So thank you, Adam.
Yes. Happy to, Spruh. Happy to. So yes, the reported results for the period that we are putting out a pretty much in line with our expectations and consistent with the market disclosures that we put out there in August and then again at our AGM in November. The underlying loss was $247,000,000 after adjusting for the sale of the Melbourne head office and the various one off costs that are incurred in reducing our fixed cost base.
Details of all of those adjustments who will take us throughout the PowerPoint and also in the Appendix 4D. So I won't go too much into them here at the moment. TTV, as Spruh said for the period, continued to grow month on month throughout the period, with total TTV of with around $1,500,000,000 representing around 12% of previous volumes. Our corporate brands on average represented 16% of previous volumes and leisure at 7%. Although TGV was directly impacted by ongoing border promotions, we didn't or the immediate rebound in bookings when those borders reopen.
And our PTP for December was the highest level Since the pandemic lockdown commenced in March 2020, which was a good result for us. Our revenue margin, again, as expected, fell to 10.4% overall, and this reflects both the domestic and corporate travel weighting that we're currently seeing. Overall, corporate revenue margins increased slightly over the period with the majority of the margin declines seen in leisure as a result of the reduction in touring revenue. The traditionally disproportionate domestic volumes that we're seeing and increased online transactions. We do anticipate that leisure margins will stabilize at around 10% over the next 6 months and then increase as international travel returns ensuring revenue
recommences. With a strong focus
at the moment and have had for some time in those items under our control, and that's included the continued discipline over cost control in this low revenue environment. The continued growth in revenue month on month combined with this cost discipline has been our operating cash outflows of $97,000,000 in July 2020, reduced to $40,000,000 in September and then further reduced to $30,000,000 in December. Our liquidity has been strengthened during the period by the sale of our Melbourne head office as well as the issuance of $400,000,000 in convertible notes last November. So with $1,700,000,000 in cash, over $1,200,000,000 in liquidity and cash outflows of around $30,000,000 a month. We feel that we're in a position to weather even the most pessimistic modeling of macro conditions for an extended period.
And if the positive signs that we're now seeing at a macro level eventuate as expected, will be in a good position to use our liquidity to accelerate key investments or capitalize on other opportunities. We've included our normal liquidity position table in the PowerPoint, which most of you should be well familiar with by now. Knows there's been no major changes in either our working capital assets or liabilities since we last reported these at the AGM. We've also continued to invest in our future. In the first half, we invested around $21,000,000 in CapEx, which is pretty much fully incurred on technology enhancements to bring new and differentiated products to market to make travel safer and easier for our customers and to improve productivity.
Mel and Chris will talk to a number of these investments in their sections, including Mellon, Helio and Thor. We've spoken to some elements of the P and L already, so I'll just point out an additional slide that we've Polluted, that highlights the underlying movement in our key cost lines. This just highlights the impact of the cost reduction program that we've implemented over what was a relatively short period
of time.
And you'll see in there as an example that our employee benefits cost line has reduced by around 64% over the period. On the balance sheet, we had strong collection who had strong collections with our receivables, and it's been pleasing to see that we've had no significant write downs of debt of balances. And our bad debt expense for the periods remained at our traditionally low levels. We've now finalized documentation for the new bilateral debt facilities that we agreed late last year, which is 3 year facilities with no none of the normal covenants coming in until 31 December 2022 reporting period. I was really pleased to see ANZ, Westpac, or HSBC and NAB, all providing such strong support to us over the period.
On our cash flow statement, the operating cash outflows represent our normal monthly operating cash flows for the period, the unwind of our working capital balances over the half and the one off costs that we incurred in reducing our fixed cost base. I'll now hand over to Chris to talk through our Corporate Brands in a bit more detail.
So today, I'm just going to talk a bit about our first half and the strategic objectives that we've achieved and why we're very confident about our ability to capitalize on them moving into the second half and beyond. The first thing I want to reiterate, something I've mentioned before is that what we are seeing is a very clear pattern. As soon as our customers can travel for business, they do travel. We originally saw this in our Chinese domestic business. That was the first market.
We've since seen it in other domestic markets such as Australia, for example. I think this board is open domestically, people travel. And talking with our customers extensively over the last year, They have made it very clear to us that will apply as international borders open too. So I'm just going to focus on our key priorities. The first one is to win and retain customers to grow market share.
The second is to successfully launch our new digital product, Melon, in our corporate Traveler brand and deploy the brand's business model shift in all markets globally. The third is the continued progression of our SDM truly global business plan, which includes the deployment of our brand new SDM digital platform. The 4th is to invest in data science capability to enable more customer centric decision making and improve our commercial returns. Who will assist you to increase productivity gains through deployment of robotics and artificial intelligence technology platform. This is really important that as we bring our staff back.
We won't be returning to our previous staff numbers. We are in a position to get significant productivity gains throughout the corporate business. And finally to improve our travel content supply aggregation and pricing to generate customer savings and improve commercial returns. So I've showed this slide before in presentations. This is our customer value proposition.
We have a 2 sided model. We address to market uniquely with 2 brands. In the large market space and enterprise space and government space, we use our FCM brand. And in the start up to medium enterprise space, we use our Corporate Traveler brand. And this approach is unique in the marketplace and we believe it is a winning approach.
And today, I really want to point out how we're winning, where we're winning and why we're winning. And this is a really important part of why we're winning. Each of our brands has a completely tailored solution to their customer segmentation. And for example, in STM, customers really care about global Scale and Consistency, very important to them because they're trading in many markets, but they also really appreciate the flexibility that we bring to market. In Corporate Traveler, we use a term called care uplifted.
And this is really the experience we can give customers through consumer grade, simple to use technology and very personalized experience using our travel experts. And again, this approach of 2 brands is one of the reasons we do will win so much business. Looking at geographic spread, we are in 100 markets, 23 of which are equity. We have We're in 10 of the top 16 global markets with Phil Equity. And where we're not, where we don't have Phil Equity, we have very strong partners.
And we as a business control the design solution design for customers, the implementation, the program service level agreements, the data and our partners, UserRange Technology. So it's a very integrated and consistent experience for our customers across the world. And this presence across the world is what enables us to deliver to enterprise customers. And we're one of the very few TMCs that can actually do that. So with our grow to win strategy, we very much said we wanted to keep investing in the business.
We did make some very tough cuts this year, as Adam highlighted, but we were very keen to keep investing throughout the COVID period. And one of the rationale behind that was we wanted to win more business. Now with our STM sales update, We talk about STM because it's a contracted business. Typically, as we sign a customer, it's for 3 or 5 years. However, we always expect at least 2 cycles.
So a 5 year customer. He's actually normally a 10 year customer. And what we're doing here for the first time is not just talking about our wins, but also looking at our sales pipeline, I'll explain that in a moment. The wins is a very positive story for us. We've won just under US700 $1,000,000 of Cygn's business, that's annual Cygn's business so far this year.
And although we don't expect the customers to trade at full levels this year. We are again signing 3 or 5 year contracts, and we do expect them to get up to those levels during the length of the contract. And there's lots of very well known names here. The Foreign and Commonwealth Development Office, part of the UK Government, the Crown Commercial Services business that we signed, Atmos Electronic Arts, the computer games guys, Spotify, KPMG and a couple of key European markets, Bosch, Tupperware JTI, Marv in some new markets where we didn't have them, CMA, AXA, JLL. So lots of companies that you would have known.
We've also importantly retained lots of customers. I think our retention rate is close to 99% in FDM this year, which again is a new high. And we have secured 3 of our top five customers were out for bid this year. We signed all 3, and that includes the New South Wales Government. Looking to sales pipeline.
The reason we can keep winning businesses, this is not just a one off or exercise. We really work on these leads for many years. It shows the strength of our marketing and our sales capabilities. So at the top of the funnel, we have our lead generation where we work with potential customers years to advance their RFP. And today, we have US25 $1,000,000,000 of contact with customers where we're talking to them about FCM, we're explaining our customer value proposition, why they should consider us the RFP.
P. The RFP proposal stage itself, we have over $1,000,000,000 $800,000,000 shortlisted in final negotiations where we're down to the last 2, sometimes down to the last one awaiting Board approval. We've got over $500,000,000 of sales. So that's why we keep winning. It's a very strong pipeline.
You can see the new wins year to date, evenly spread around the world, but some a big focus on both EMEA and Americas, which is good news for us because they appear to be the regions where the vaccines are progressing fastest. And you can see on the right side on the pie chart, we've actually got a bit of a change in approach here, a real focus on government this year in Manufacturing, which are 2 segments we haven't been that heavily focused on previously. So as they have a high propensity to travel throughout any circumstance, we really refocused on them and actually getting some great wins, not just the UK government, but also a lot of business in the French Government as well. So we've proven that we can win in government, which is going to be a big area of growth for us moving forward. So some of the product we bring to market, we're very excited this year about Mellon.
Mellon is a new digital platform, which brings consumer grade mobile technology, using robotic cartridge intelligence to give the best experience 2 customers. Very simple to implement, can be implemented in hours rather than weeks and is on in use with customers today in the U. S. And he's going to a full market launch in April in the U. S.
And then to rest of the world throughout 'twenty one. So it's something we're very excited about there. And certainly in SCN, and our SQM platform, which is going live globally in 2021 as well across all of our markets. So what we're doing in both of these brands is bringing 2 brand new products to market. And again, that's a testament to the investment we've made throughout this year is working closely with customers to understand their new needs into post COVID world and making sure our products are market ready and in fact ahead of the market in both brands.
So We're very excited about this. Our customers are very excited about this, and you'll hear a lot more about that as this year goes on. So this final slide from my section, I really just want to give a one page summary of our business and our investments and how we're winning. So at the top, you can see our 2 corporate brands. We have only 2 brands globally and they focus on different segments to market, 2 very differentiated brands, both of which are going through a relaunch in the next couple of months.
We each of those brands have their dedicated products, so Mellon for corporate traveler and the FCM platform for FCM. So unique Spoke proprietary technology that gives the best in class experience for those customer types, both very different in terms of user experience, augmentation times, but perfectly suited for those customer types. We then have our sales and marketing machine behind those products. And again dedicated sales and marketing for corporate travel and STM, but very much shared capability with our global marketing team who service both brands from a technical perspective such as digital marketing. And then below that, we where all of our Shared Working Group and often in many cases shared with our leisure business as well.
We work very closely between corporate and leisure to make sure the capability is shared, content is shared and best practice is shared, and Mel will touch on some of that in her section. But our intelligence layer here is where all the magic happens. So this is really the robotics, the data science, artificial intelligence, the pricing and analytics, where we use lots of proprietary skills and technology to make sure we get the right contents and the right price to the right customers. And this is a big change for us. Again, a big investment this year, but it means for the first time, we're moving from just having transactional and financial data to behavioral data as well, which really enhances our ability to give a better experience, better savings and better commercial returns for us.
And this is very common with many modern platforms around the world, the Amazons and Spotifys, etcetera. But it is the first time we're using this level of analytics and data, and we expect it to be a game changer for our business. Below that, we then have content and supply. And again, we've made some significant investments in this area with leisure to make sure we can get the best content and the most appropriate content into our customers' hands, into our consultants' hands when our customers are booking offline. A strategic investment in TP Connect has meant that we can bring all their content.
So all private net content that we've negotiated with carriers, customer private content that we've negotiated for our customers on their behalf, published fares, NDC content, and I think we're leading the world with NDC, certainly called many airlines at the moment in the business world. And this means that we can bring as NDC grows and is growing across the world, we can bring private and public NDC content and low cost carrier content all through the oneAPI into our Mellon and SDM platforms. And this really is a huge advance from where we've been before, but also where we see any of the industry at the moment. And TC Connects will be powering Mellon and the FCM platform this year. And also we mentioned that's exactly the same functionality for hotels.
Again, all the different hotel content available aggregated and brought into our products. And then finally, we remain a people business. Yes, we have the best technology and our customers tell us that. That's one of the reasons we win, but they also tell us and I talk to customers every week that really is our people, our culture, approach to doing business. That's what they love about both Corporate Traveler and SDM.
And that culture remains incredibly important and we've spent a lot of time throughout the pandemic, keeping as many of our people on board as we can, so they're keeping our A team on board and making sure they're empowered, they're motivated and importantly, they're kept up to date with all the investments we're making and they remain in contact with our customers. So that's the summary for me. I'll hand over to Mel and Leisure.
So good morning, everyone. Thanks, Chris. I've just put a recent Instagram post from Flight Centre as the first slide in my section, which I think sums up how a lot of us and our customers are feeling, and that is that we all want to travel. I think everyone I speak who's desperate to get on a plane and go somewhere. So just I'll just spend a few minutes talking from a group leisure perspective and give you a brief take a strategic overview and progress on the key initiatives and investments that we are making that we believe position us to recover and Wynn in leisure travel as we come out of the pandemic regardless of how long and what that path to recovery is.
And I think there is no doubt at Leisure Travel will recover. We know that connecting with family, friends, places, etcetera, is the core expectations of humans, particularly in the markets that we operate in. There is no doubt, however, that there is limited revenue generation as restrictions have been put in place over the last year. And as you I think Adam mentioned in the leisure segment result, we have less than 10% of pre COVID volumes currently for the first half. We have, however, been able to accelerate our transformational plans, which I think you would all remember we've had ongoing for some years.
We now have a greatly reduced and sustainable cost base while maintaining key assets. We still have a very good shop network with reach 95% of our Australian flight center customers, even after our reduction in the network, still live within a 5 kilometer access of a shop. We also very much focused our investment in future growth drivers and global capability to power our key brands in leisure as the same as Chris has outlined with corporate. Early signs also support that we have made the right choices with our plans and strategies and in fact gaining momentum. We are holding or in fact increasing market share whenever the travel did rebound after restrictions were lifted, and we saw that particularly in markets like South Africa and Australia.
A bit hard to tell in New Zealand because it's such a restricted domestic market there. But domestic sales in Australia exceeded of prior year levels within 2 days of the Queensland announcing its borders opening back in November. That was quickly reversed in December when they shut them again, But you can see as soon as Chris mentioned customers can travel, they do travel. Also, some of our newer models that we had made acquisitions for in the last years that we're continuing to invest in, particularly in our online supply and call centers, are also showing more solid growth than our traditional business as the market opens up. In fact, our Ignite call center in Australia, which we only completed that transaction, I think, late 2019, is in fact one of the 1st leisure businesses globally to return to profit in January of this year, driven by domestic and crew sales and looks like February, in fact, will be even better.
On the next slide, I actually think that this is an important it's important to note and now answer the question that I probably get asked the most about in our leisure or business. And that is how will we recover our volumes with half our previous shop network now in place? And the answer is we have maintained our leisure reach and global footprint whilst reducing brands and shops and increasing and in fact rebalancing our channels. As I mentioned, this was a strategy we had commenced pre COVID to address both changing consumer needs and preferences as well as clearly the cost issue that we had in our leisure business pre COVID. However, we are still in 7 markets.
We were in 7 markets pre COVID. We still hold the number one market share position in Australia, New Zealand and South or Fricker, and we intend to grow that. And we still have a targeted specialized offering in the Northern Hemisphere. We believe we have the right footprint to grow from. We've just managed to reduce our overweight shop model over the period of 2020, which was going to take something like 3 to 5 years.
I just thought I'd reiterate quickly our global leisure strategy. This is not a new slide, you've seen it before, and how we are addressing that leisure market. Essentially, we're very much narrowed to 3 major pathways built around some shared core global capabilities. But as I've said, we're taking this downturn period to accelerate the development of and is where we still continue to make prudent investments, I might add, not Earth shattering one, but we're spending wisely. So our 3 core leisure strategies revolve around the mass market with Flight Centre and really rejuvenating that brand to be a multichannel mass traveler retailer with irresistible deals and savvy personal service, and that is very much our number one strategy.
Our second strategy has been in the premium and luxury space. We're using our brands of Travel Associates and L'Oreal Duvalon in Canada. We intend to become the most distinctive premium luxury boutique travel brand in market with superior service and expertise. And then our 3rd core strategy is to become the home of the travel entrepreneur or Hottie as it's known internally. So we want to be the leading network and product proposition for member and mobile travel professionals, essentially the independent contractor and affiliate marketplace.
We also have, I call it a bit on the side, a very small suite of complementary yet independent brands, but again, that has been severely rationalized over the last year. Like Chris, I've got a similar slide here, and I won't go through all the layers, but you can see that a core leisure or is really what's powering those core brands of Flight Centre and Travel Associates and in fact our B2B aspirations as well. And I'll just take a moment. You can see the bottom three layers are very much the same as corporate. And Chris mentioned that we work together globally to ensure that our people and culture, which is now 40 years old for Flight Centre, in fact, this year.
Spruh, I think we turned 40 this month. And with Top Deck obviously goes up to something like 50 years. But really ensuring that we are still a people and cultural brand sorry, business with a distinctive entrepreneurial performance based approach. Our content and suppliers also we have a long history of great supplier relationships, which is now very much enhanced with digital capability across 2 core aggregating platforms. We share the same platform with Air, with corporate, the TP Connects 1 that Chris has gone through, and we have a platform in leisure called Healio, which we've accelerated the rollout of and in fact will complete the global rollout by May of this GEA, supported with an intelligence layer.
And again, Chris mentioned, this is hugely important because no longer are we using the individual, the consultant and their expertise to help work out what products we should put in front of what customers, when and how, but we're using data, robotics, or artificial intelligence and real analytical strength to improve that. Off the top of our kind of platform is our models, which we've now centered on 4 core models: our SHOP model, which most of you are well aware of, which operates with both Flight Centre and Travel Associates our new call center model, our independent contractor and affiliate model and, of course, e commerce. We also, with our product and marketing, have really formed and industrialized our product design and merchandising, ensuring that we leverage that collective travel brain, that data and analytical capability on behalf of our customers and therefore with our key brands, the Flight Centre and Travel Associates deliver a superior customer experience for our Famous and Well Positioned Brands to win in the marketplace. Over the history of leisure, a lot of this kind of work was actually done discreetly within brand and country. Over 2020, as we said, we've taken the opportunity to transform this, industrializing it, digitizing it, automating it and ensuring that it's shared across all of our regions instead of being replicated in many.
I'm just going to spend a few minutes just going through some of our core strategies very quickly. As I mentioned, our first core strategy is Flight Centre. It is our iconic brand and it is where most of our energy is going into in 2 key pathways of rejuvenating the brand, externally from the customer's perspective and internally from our operating models. And again, good progress is well underway. We will win with Flight Centre by combining what Flight Centre has become famous for great value travel deals with great people.
What we've been working along is making it multichannel. And as I said, very pleased with the progress. So we've been working on a rejuvenated and modernized brand, and you'll see us launch a new refreshed brand in about April or May of this year, depending on when Board has made that it's worthwhile to spend the money. It's become very customer driven through those data and analytics with a customer center now ensuring that we really drive the customer metrics through everything we do. We've created the product design house, which with that industrializing of the product we take to market, again, on the Helio platform, which was accelerated and got out over the last year.
And the other thing is really winning in the under 40s where we were in fact doing fairly poorly prior to COVID. Funnily enough, necessity is the mother of invention. And because of our lower marketing spend, we've been very strong in digital social channels over the last year, hence the Instagram post I had earlier, which of course is the domain of the under-40s and is really helping us move along in gaining market in that space as well. In fact, Flight Centre has a TikTok now has a TikTok presence. So there you go, if you're interested in sort of flight centered answers.
On an operating model, we've also gone to those for models. As I said, everyone all knows about our world class shop network, which is now of the right size. We also have a sales center, which was just ticked off on the Gold Coast for Australia, leading in terms of being very deal driven and with specialized consultants on a very strict call center operating model, really focused on new customer acquisition. Our independent contractors is also available in the marketplace of all Slats in a Brand jurisdictions apart from the U. K.
And of course, our self-service or e commerce model. So again, much progress in the last few months. I've got a slide there specifically on our online strategy. I won't go through it, but suffice to say we are really expanding and investing in our free saw parts platform, which I think Adam mentioned, and really bringing together the deals, our people and that technology across connected channels. One thing that will be a first is our new Helio platform allows open source access.
So our customer will be able to book online and our consultants will be able to also work within that booking for the packages when they become available to book at a few months' time. There's some examples there of our new online website, our mobile app and our searches. We actually upgraded our DIY hotel capability, We've been very soft in the marketplace. Next is our premium, including moving to a more luxury strategy. And again, that's well underway with our brands of Travel Associates and Laure or And again, these brands were delivering good metrics prior to COVID.
It's just the growth was somewhat suppressed. We've now moved to differentiate them more away from the mass brand of Flight Centre throughout most of the world and Liberty in the Americas. Although we're leveraging group technology and travel content as well as people, we're really working to give them product and customer distinctiveness with leading customer value proposition. Again, I won't go through it, but one of the first things we've done with differentiating the product in our premium space is we partnered up with Virtuoso, and we're as we speak launching that partnership across our entire travel associates network in Australia and New Zealand, which gives our premium and luxury customers access to unique products that they would and amenities that they would not get elsewhere. Again, we're moving forward with different models and we've launched the At Home with Travel Associates, which is the independent contractor in our premium space.
Our next major strategy was the B2B, which again I mentioned were already gaining much traction, somewhat in part to the lack of confidence in some markets with their current Household Consortia. In some instances, we've seen some collapse. There was a collapse in South Africa from a major competitor, but also due to our leading content, technology and brand or strengths that we're able to offer independents and affiliates. And what's nice is our entrepreneurial culture really dovetails into being That we can become the home of the travel entrepreneur. Our intent is to become a leading independent operator in Australia, New Zealand and South Africa, again with some very targeted offerings in the Northern Hemisphere.
I think you can see there are also some offers that we've got in marketplace where against different brands. One of the things we are doing that's different in this space is allowing our Flight Centre and Travel Associates brands to also offer a referral model, which means we'll be able to generate and give leads to our independent agents as well as allow us the flexibility in peak periods of having an overflow to those guys. And finally, in leisure, we have, as I said, a very small suite of complementary and independent brands, which are getting very little investment, Because of the accelerated nature of how they were going pre COVID and are showing early signs of recovery, particularly with Student Universe and the My Brands portfolio within Ignite are proving to offer some good opportunities for recovery. Student Universe is doing solid levels of pre COVID TTV and with the exit of XTA in this space, we have strong aspirations to become the number one student and youth business in travel in the world.
As I
said, My Brand is also doing very well because they were able or domestic and cruise offering and in fact are already profitable in the early part of 2021. BYO and Travel Money are essentially in hibernation, but again, we'll be looking to bring those businesses back as the market recovers. In summary, we believe our reduced physical portfolio, diversifying our models, our investments in technology and product powered by our great culture and more importantly or most importantly, our famous brands strongly position us to recover and win in leisure travel. So thanks. Back to Spruh.
Thanks, Phil. I'm actually feeling a bit exhausted after that. I can't believe everything is going on. Look, I just mentioned some of our other businesses that haven't been talked about the in destination, we call it the Travel Group. The first one is Discover Destination Management.
It's a DMC. It's going great guns, our hotels, mainly in Southeast Asia and obviously our tour operations, which is top deck and back roads, which currently in hibernation. We're planning to run a small program late 2021, mainly with customers from the UK, Europe, but hopefully also some from Australia and New Zealand. 1 of the businesses that most of you know Flight Centre has a I think it's a 48% share of is 90 is the Pedal Group, which is 99 bikes and mainly because of the pandemic, it's gone pretty well. For example, I think it made under $18,500,000 in the financial year ending June of 2020, but it's expecting probably a $45,000,000 profit before tax this year, which is pretty good.
We're looking at ongoing expansion. There's more shops. I think we've got about 55 shops in Australia and 5 in New Zealand, but We are looking at London at the moment to grow that. And so that's a really good story and it is very it's quite closely associated or Flight Centre. A lot of the use of the Flight Centre systems and the way we do things here.
So that's one of the positive stories out of the pandemic. Admin as well. It's our charter operation. We have a 50% is it 50% or 50% of ownership of that and it's been going very well. It's quite profitable.
A lot of it's because of the movies being done out here in Australia and we're getting charters out mainly from the States. And Travel Junction is our B2B hotel operation, which we're selling our contracts Into other people who buy this sort of thing. So that's it's a small operation, but being quite successful during this pandemic period. Just moving on to guidance and expectations. Look, we've got a stable cost base now.
We're reasonably happy. We don't have to grow that until we get more revenue coming back. So but we still have retained most of our IP, most of our people that are very important ongoing as things come back. We can't provide guidance for 2021, But you will see from the first half, it's going to take a little bit of time to get back to where We'd like to be breakeven and in profit. We're expecting domestic recovery in places like Australia and the U.
S, Canada a little bit later and the same with Europe and UK a little bit later in this half of the year. But that will be domestic and I think you've heard those of you in Australia that The premiers and the health officers are basically saying they don't want to shut down the borders anymore. We'll see if that's true or not. And we're reasonably confident that there will be international travel. You heard Boris this morning or Tuesday morning it was saying that he expects international travel to return out of the UK in May.
And we're looking at probably a similar timetable in North America. Asia is a bit harder to predict, But certainly in Australia, we would expect it after all the vulnerable people have been vaccinated by the end of June or some international travel will start to resume. So we're certainly looking for it in the second half of this calendar year. Some of the trends in the second half of FY twenty twenty one, January ended up in line with expectations, giving the fact that there was a lot of lockdowns and not only in Australia, of course, but in places like the UK, although vaccinations had started in earnest, There was still a fair bit of uncertainty in a lot of place. So it wasn't a great month.
People are tending to book closer to Parcha now for obvious reasons. I think one of the things that we're very good at is our relations with suppliers. We put a lot of effort, not only in Australia, but around the world in our relationships with our suppliers to make sure that as things come out of this or Pandemic, where we've got a long term secure relationships with the people, the airlines, the tour operators, or the hotels, the hotel chains that we can really work well with. There's no doubt there's going to be some market consolidation, Not that we wish this on anyone, but inevitably there's going to be a lot of small businesses not going to survive this, almost regardless of what governments do. There will be some M and A opportunities.
There will be business Pozos and we're obviously in a good position to take any advantage of this. Obviously, the vaccination is a big thing, of widespread rollouts in our markets, particularly in North America, in UK and to a lesser extent in Europe and now starting in Australia and New Zealand and obviously parts of Asia. So that's quite important and this is going to be someone said it's not a silver bullet, but assuming the vaccinations work, it should be a silver bullet. There's still some issues, of course, with variance and that that we don't know the exact answers of this. So post pandemic travel will be anything but normal, but do you want to say any more about this,
I might hand over to
Chris as the expert on some of this stuff.
So look, as Mel and I both said, in leisure and corporate, when people can travel, or Travel. That's the evidence we're seeing. However, it seems pretty clear to us that travel will be different in a post COVID World. And we used this, we saw this after September 11, where the whole industry had to adapt globally. And we've been working very closely with both governments and industry bodies such as IATA to make sure that we are getting protocols in place to enable international travel to start again.
And what's been very common in the pandemic across all sectors is that technology is going to play a very important Roland is. So some of the trends we've been seeing is the duty of care, which really say travel safety as we in leisure, but duty of care, as we call it, corporate, is a major factor now in determining travel. In fact, 42% of our customers now say that it's their top priority, which is massively up from pre COVID and is more important than things like price than user experience, etcetera. So this is this really means that travelers get the right the appropriate information at the right moments in their throughout their travel journey. And again, technology is very used to enhance testing.
Some governments are really looking at enhance testing as part of the getting international travel happening again pre and post travel. And then Health Passports, which we're hearing a lot about at the moment, which is really about digitizing information so or Customers Can Travel. So these trends are developing around the world or different protocols, but there is slowly now emerging 2 major protocols here. And I think we're very confident as governments move from dealing with the health crisis, they're now focusing much more on opening up economies and critically how they get travel happening again. This next slide really shows what some of the stuff we're doing, both in corporate and leisure.
I think these are corporate examples in this case. On the top here, you can see and our app. So this is a Singapore example. But really what it's showing is that digital health wallet in FCM, which has been developed in Singapore with Temasek, a Singaporean Sovereign Wealth Fund, also a customer of ours. And here, really, what it's showing is a Technology Solutions.
So Singapore Airlines require a negative test to travel. The app the traveler has will direct the traveler to a clinic. They get a negative test from that clinic and that stores the QR code as part of their boarding pass. So it's a really seamless experience using technology to make sure that international travel can happen. And then below, where there are different protocols in different countries and different airlines, We can actually upload whatever the protocol, whatever the health certificate is into our SAM app, so customers can use it.
So This is really a good example of Healthparcels of using technology to make sure that vaccinated and tested travelers can get on board and travel simply and easily. And we see significant progress being made here. And in both leisure and corporate, we're bringing these technologies to interplay with our customers. You can see Yes, we've recently agreed with Helios in Australia, some testing solutions for both leisure and corporate customers. And lots of progress here.
We're at the forefront of it. And we're front Ovid, and we're very optimistic that these protocols will become standard and will enable international travel to happen again.
As you can see, we probably may have seen earlier this week, we've also made a similar announcement that we're working with a company called Helius in Australia, which will deliver very similar sort of services to one Chris is talking about. So keep an eye out for that and some other developments in this space because it's certainly evolving pretty quickly. That's the end of the presentation. So we're now ready to go to Q and A.
Thank you. MD The first question we have is from Grant Salisbury from Credit Suisse. Please go ahead.
Good morning and thank you. My first question is in regard to the impact of government subsidies as they wind down. You received $178,000,000 of gross government subsidies during the half. Most of those went to employees that are stood down or furloughed. So what I'm wondering is, can you run us through the timing Of the different subsidies as they cease.
And then what will actually happen either to your employee retention or your cash as those subsidies would cease. Could you run us through that, please?
Yes. Grant, it's Adam here. The majority of the subsidies obviously in Australia with JobKeeper and from January to March, The net impact here to us as it currently stands is about $5,000,000 a month retained within the company with obviously the stood down employees having a flow through directly to them. And as you know, currently that's slated to end at the end of March. In Canada, the other 2 bigger areas that we're These sort of subsidies are in Canada and the UK, and they've pretty much been pushed out until the end of June.
So we've got an extended period there for those to flow through, which we think will give us a bit more visibility in those markets. By the time we get to the middle of the year in terms of the impact of macro conditions coming through. So Big One really is JobKeeper here in Australia. And Spruh, I don't know if you want to talk to the impact of that when that starts to wind down towards the end of March.
Yes. Look, obviously, we've been and the rest of the industry has been in touch with various government ministers in terms of ongoing support. Certainly, the job keeper is going to finish, but there's a general indication that these badly affected industries in travel and tourism, Airlines and Airports, who will get some ongoing support from the government, probably not in form of wage support, In other areas, which we just don't know, we'll know that in the next couple of weeks. But I think we're reasonably comfortable that we have the liquidity Regardless of what happens, unfortunately, there's going to be a lot of small operators, particularly in the tourism and Tour Operating Business that are going to really struggle when JobKeeper finishes. So I guess we're just waiting to see Grant in the next couple of weeks.
So
can you keep your employees stood down for a more extended period? Or at some point, would you need to offer redundancies or sort of make it formal. Just trying to understand how the business sort of goes through the next 6 months.
That's a good point and that's unclear at the moment. We're reasonably confident that we can keep people stood down. The main problem is that a lot of People are starting to go and get other jobs, obviously. And also, there may well if JobKeeper does finish like that, there may well be some Almost certainly will be some redundancies. But the actual position on stood down people is not clear, although Obviously, we are quite a few people are leaving on their own accord to get other jobs.
So obviously, because of It's a yes, for a lot of them, this is going to last another number of months.
If I could ask a second question just on the Slide 15, which you very helpfully provided the underlying cost base. If I look at the employee benefits expense line, which is running at an underlying excluding sort of the subsidies that flowing through to People Stood Down, it's running at $294,000,000 compared with $8.22 in first half twenty twenty. If your TTV gets back to somewhere in the vicinity of the first half twenty twenty level, so the $12,000,000,000 you did in first half twenty twenty, Can you give us some indication as to what that $294,000,000 would need to go to? So we're trying to understand the sustainable cost saves in the business. Would it go to $700,000,000 would it go to $600,000,000 just some broad indication of the sort of savings that are embedded in the business, I think would help us understand the leverage as you come out of this.
Yes, Brian, it's unfortunately, I'm not going to give you a be able to give you a specific answer to that one I'm sure you can probably imagine, but there's a lot of factors there. But what I will say is that the we will be overall cost base, including our employee cost base including our employee cost base will be lower than it has historically been. And the efficiencies that we're bringing and the streamlined Changes that we've made to the business will mean that the cost base across most categories, but employee cost being our biggest cost, certainly The driver behind it will be lower than they previously been. As I said, there's a lot of different factors to that. There's the changes that we've made.
There will be stronger discipline to really make sure that we're only bringing back those costs as we truly need it and there'll be a bit of tension there, Positive tension there in terms of how we bring those costs back. But also, as you heard from both Mel and Chris, there's a lot of focus on productivity And the investments we're making at the moment to make productivity gains within both the corporate and leisure business. So that will also have an impact As well the mix. So if you look in the leisure business, there's likely to be a higher percentage of transactions going online than they were in the first half of last year, which obviously will mean that the employee costs will be a little bit less as well. So there's a number of factors there.
I think the overarching principle I can give you is that we'll certainly be leaner than we were previously.
Thank you very much.
Thank you. The next question we have is from Michael Simotos from Jefferies. Please go ahead.
Good morning, everyone. Can I follow on from Grant's question, Please? I know you guys tend to think about your business in a very long term way, which is great. Do you think When the world does recover, allowing for the productivity benefits that you have extracted, the potential for industry consolidation, somewhat offset by mix and maybe there's a comment needed on likely support from agents. But do you think you can make more money than you made Pre COVID, so in calendar 2019, the business earned, I think it was about $305,000,000 PVT.
Should we be thinking about that as a base that you should eventually be able to surpass?
Look, I'll start with that. I'm sure Spruh has got a view on it as well. Certainly, I think, as Michael, as I said to Grant, I think the reality is that our cost base will be lower, will be leaner than it was previously. As you say, there's a bit of movement in terms of mix of channels, etcetera, that will no doubt have a bit of an impact as well. But broadly speaking, We'll certainly be looking to improve the PBT margins that we previously operated under.
And you'll recall that we had set a target of a 2% of return to a 2% PBT margin or a number about 3 years ago that we were working towards. My view and we haven't certainly shouldn't be taking this as guidance by any stretch and we haven't really turned the numbers. But when we restate those sort of targets, My expectation certainly would be that we would be and should be looking for a higher PBT target, margin target than we had previously. But
Screw, any thoughts on that?
Yes, Michael. Look, the main thing is and it covers off on Grant's question a bit, who is that we're very focused as we bring revenue back that a significant part of that revenue doesn't go in costs. So For every $10,000,000 for example, our revenue comes back, we want a substantial lesser amount in costs And that's achieved by several ways that Adam did detail before. As to the 300 plus 1,000,000, We certainly would hope that we will back there within the next few years. We've obviously got This year or next year to get through, I'm talking about financial years, before it's going to come back or anything like pre COVID levels, but we expect in both leisure and corporate to have greater market share.
And we're quite comfortable the margins will be quite good. So but other than that, it's pretty hard to predict, but if we weren't back within less than 18 months to 2 years to Something similar to what we were before, we'd be disappointed. But as you know, there's a lot of water to flow under the bridge. Or just domestically keeping the borders open. But it is both in the UK, USA and probably Canada, places like India.
The domestic market starting to come back, it's really now up to when due to vaccinations, the international market comes back. But I think you said and we saw what Sydney Airport said, I think what Paunas said, everyone's expecting international travel to come back in the second half of this calendar year. Just exactly which month is not clear yet. That will depend on the vaccination rollout and the effectiveness against some of the variance, which generally looks positive. So we certainly would expect it to exceed it over the longer term Significantly, because we've still got the basis of our pre well, our operation, our IP, All our major businesses are intact.
And so we certainly would expect it to come back quite strongly over the next 2 or 3 years.
Yes. Okay. That's helpful. And look, the timing is clearly very difficult and I wouldn't expect you to have a strong view on that. But I guess what you've got much better visibility over than what we've got is or things like mix and commission rates and support from suppliers, etcetera.
And you had some pressures on revenue margin In the lead up to COVID. So just to make sure I'm understanding things correctly, it sounds like you think that they'll be more than offset by The productivity benefits when we ultimately do recover and whether that's 3 years' time or 4 years' time, that remains to be seen, but that's okay. But I just want to understand what the end state is.
Yes. Look, and I think I said it in the presentation. We do make a lot of effort to have a good relationship with our suppliers. And obviously, some of the smaller ones will struggle, particularly if government support finishes. So far, we've been very active both in keeping in touch with them, keeping up to date with both them and us where we see things going.
And we've signed up a lot of our suppliers, not just in Australia, but globally. And most of them have been very flexible and we're quite happy with the arrangements going forward on a margin point of view. Now some of the airlines, some of the major airlines will be pushing back a bit on margin, but a lot of others Yes. And you know what the Middle Eastern carriers and some of the Asian carriers, it's probably the opposite. So we're pretty confident That at worst, the airlines will come out at least the same as before.
And a lot of the other operators, land operators and cruise operators, Obviously, that's one of the areas that we think will be will come out quite well, Michael. So we're not of all the things we need to be worried about, that's one thing that we're not.
Actually, Michael, I'll comment too. You mentioned yes. The answer is yes. Even if there is, we've built plenty of scenarios with or what could happen with margin versus the cost margin. But just so you know, particularly Chris and I have been doing sessions with all the top suppliers for months now going through our strategies going through theirs.
And if anything, I think I've been in this space for many years. They like the diversity and reach we bring with both corporate and leisure in the one group, the on and off or even things like our premium strategy and leisure. So we've been we've gone through, I think, Spru about top 10, of 20 Airlines, and we're doing others as well, both with hoteliers, etcetera. So we're hearing a very positive message. I mean, I think there's a bit of a camaraderie in some instances that we're all in We're all in this together and we need to get the industry back on its feet.
There will be the odd individual Grapes and challenges, but those dances haven't been happening for decades. So now we're fairly comfortable, as Spruh mentioned, on that space. Plus also a lot of our cost control has been in delayering. So our efficiency is not just when you look at the front end, In delayering throughout the business and doing a lot of automation. So I'm very comfortable, particularly in leisure that we can, to your point, get back Preprofit levels because we've really attacked where we had a lot of the inefficiency.
All right. That's really helpful. Thank you, guys.
Thanks, Michael. Thanks, Michael.
Thank you. The next question we have is from Mark Waid from CLSA.
Good morning, guys. Just a follow-up on Michael too. I mean, just to be clear, your arrangements you had with Qantas was due for renewal and only been extended 12 months. Can you confirm that that's been rolled out on a longer term basis?
Look, what I can confirm is that we have reached a range of with Qantas. So over the longer term, so which we're not unhappy about. We'd always like to do better, but Mark, we're reasonably comfortable with where we are with Qualys.
Okay. That's great. And just turning to The culture of the organization, I mean, it's been through a massive upheaval and it is really a service people business. And what gives you the confidence that You can bring that back with any no long lasting damage.
Mark, I'll say something and maybe Spruh can as well. We've done, I think, a really good job of socially still engaging and caring for our people, whether they're with us or to be honest, stood down or even exited. We have all sorts of contacts through our social platforms with our passed up. And in fact, we've got a lot of our people going, I know it's tough, but in a year or 2, I'll come back. So we feel very confident.
We've also tried to This will sound a little bizarre, maintain some of our rituals in terms of recognition and communication. We didn't have our global door last year, but we did it digitally and it went really well, sort of remembering from the past. If anything, I think it's our culture that managed to get the change so quickly in terms of getting our cost Everyone was just on board. So I think our culture is actually going to emerge even stronger coming out of this. It doesn't mean there hasn't been a lot of Some of the worst days in terms of potentially having to ask people to go, etcetera.
But, Spru, I don't know what you feel, but I talk to a lot of people at the moment, and I think Culture is stronger than ever.
Yes. Look, it's not easy. And in the end, it's the frontline people mainly, not only frontline, but A lot of the support people that suffer through this, but we've generally had very good feeling that people will come back when they can. Obviously, our overall industry will be small. There'll be a lot of well qualified people looking for roles in this.
And Travel is one of those games that when people are in travel, they love it and they want to come back into it even, But a lot of people will have gone out of the jobs. And I know just with the Pedal Group, for example, 99 Bikes, they've taken on quite a few of our people because Our cultures are fairly similar and it is a sales culture, but even those people eventually would most of them seem to want to get back into travel. And I think We had a survey that said 75% of people, even when they've been stood down or made redundant, said that they would come back at a later date. But It's a matter of priority getting things back to some level of normality is our first priority, and that's one of the things I think we're reasonably confident of.
And Mark, just even I know in the leisure space where we offer the independent model fairly quickly, we had good take up and a lot of our people were actually thankful that we were trying to do things flexibly so that they could still remain part of the group, put it that way. So I think, again, that's a real positive for us. But we have certainly has done everything possible. You saw from both Chris and I on those slides, our people and culture underpins everything we do. So yes, I mean, it's been certainly Challenging, but yes, I think our culture will be, as I said, stronger as a result.
Okay. I appreciate those reflections. Thanks, guys.
Thank you. The next question we have is from Brian Raymond from Citi.
Good morning, guys. My first one is just on the composition of the TTV that you guys expect once we do head back towards normal. So you've closed more than half the store base in Australia and a large portion overseas as well. Prior to COVID, you had about 9% of leisure online in FY 2019. So just wanted to understand sort of how you see that channel mix evolving as you get back towards normal from an industry perspective.
I assume that online fortunately higher, but also some of the trucker stores that are still open will trade well relative to where they were before given the consolidation. And then if you could just comment on how you see the margin structure of that online channel? So obviously, it's been a bit lower or historically. Thanks.
Okay, Brian. Yes, as I said and I addressed that with my slide, we certainly do have a much reduced shop network, which We knew we had a bloated one previously, put it that way, but we've been very, very pointed about keeping the reach. So We've removed density high density. We haven't removed geographical spread, if that makes sense, particularly in Australia, New Zealand and South Africa. So where we had 5 or 6 shops within a 2 or 3 kilometer location is where we certainly who made the cuts.
So we still feel our reach is there. The other thing is the shops that are there often are bigger, more productive shops previously. So even though, let's say, it might be 40% or 50% of them, they were probably doing 60% or 70% of the TTV previously. So we're very comfortable. The other thing is using that independent model where we can have more hub and spoke mentality with our shops because it wasn't remember necessarily just going into a shop, it's having access to people.
So our access to people via the independent and also the call center will also be just as available to our customers. But back to your point on the online as well, yes, I think we're already getting somewhere and I think it's in the slide somewhere over 20 odd percent now is our volume coming through online, which by the way we're quite happy with because that was certainly where we wanted it to head. And a lot of that is high margin commoditized product, a lot of point to point domestic low cost carriers, etcetera, which is much more efficient for both the customer and for us, to be honest, to go through online. You did comment though on the margin spread. There is no doubt online because it's a largely domestic and it's online, it's a lower margin.
We know that. That's built into our scenarios. But again, that margin will be improved once I think I even saw it with WebJets. He wants to get some international point to point where the margins are a lot better, But also our diversification into our packages and hotel. And again, it won't be it will still be mainly flights sold online, but even a small shift into that fundamentally helps to improve the margin.
And the other one is ancillaries, starting to be able to sell meals, seats, bags, blah, blah, blah, where the airlines are much or more favorable in terms of the margins they'll offer. So yes, we're comfortable that you will see definitely a high proportion online. You will see a lower margin offset online proportion, but we know we can grow that back to something reasonable. But again, the cost base is much lower. So it should wash out.
And if you look to corporate, that's been happening over 10 years as there's been more OBT penetration where their gross margin has certainly been impacted, or If you look at the Australian market, but their profit margin has, in fact, improved because of the better cost base.
Right. So just to confirm then, if industry TTV gets back to FY 2019 levels, Do you think you guys will given your store closure program, we'll get back to FY 2019 levels of TTV or a bit lower Because of the closures are a bit better because of consolidation in the industry, how do you view your relative positioning?
Okay. I think it will be at least the same, if not better, for a couple of reasons. 1, you mentioned the consolidation. Also, our multichannel capability will be vastly or Standard. And we already knew we had customers who wanted to book online that were kind of almost forced into a shop in some instances.
So some consolidation. But the other thing is The fame of the brand, and I can't reiterate that enough. We have done some further brand consolidation during 2020, and we literally, in the last day or 2, got the latest brand sort of reviews and 1 in 5 Australians are rating Flight Centre as their first choice to book travel. So we can already see we're gaining awareness and more importantly consideration. I mean, pretty hard in Australia, people don't know Flight Centre, but more are now actively saying they will choose flight center for their travel and the same in South Africa.
New Zealand is a bit harder to tell with this whole place being relatively shut down. But yes, I think the fame of The brand will also and the security that it is a trusted and brand that got through, I think will really help us. So consolidation, or multichannel and the brand, I believe, will actually end up with more of the market.
Okay.
And Brian, from a corporate perspective, if the industry gets back to 2019 levels, we'd expect serious growth because we're adding customers every week. So we're not anticipating it gets back to 2019 levels, certainly in the next year or so. But if it did, we'd expect Significant growth on 2019 numbers. Okay.
That's interesting. Just one of the things you guys pulled out that I found really helpful at the FY 2020 results was when you talked about your breakeven levels of TPV as a percentage of pre COVID. And from memory, it was about of 30% to 35% in corporate and 45% in leisure. Have those numbers changed at all over the past 6 months with any other cost programs you guys done? Or should we take that as the same sort of guideline?
Yes. Brian, there's been overall, there's been really no change. So for the group, we think around that 40% mark still is where we need to get to for prior volumes to Just start getting back to profit. There has been a shift with leisure and corporate though. You might recall at the AGM, we spoke about who will further cost out program we're undertaking within the leisure business.
And that identified approximately $9,000,000 a month of additional cost out from the leisure business. We then reinvested back into the leisure business of further $4,000,000 So the leisure business cost base on a net basis has actually come down by around $4,000,000 or $5,000,000 And that means that the leisure breakeven comes back to just under 40%, between 35% 40% now is what we need in terms of those sort of volumes because of those cost outs that we saw. Conversely, we have taken $3,000,000 of the costs We identified in leisure and we've reinvested them back into the corporate brands, particularly as we're starting to See some of the momentum that we expect to see coming forward. So that means that the corporate brands now would be around about 45% and they should be looking to get back into profit. And again, the relative size of that, the corporate cost base It was around $23,000,000 a month.
So adding another $3,000,000 increase who is not a lot in dollar terms, but does increase the cost base by 15%, which is why that breakeven number inches up a little bit. So overall, it's still the number there.
So Australian corporate at 43% in January should have been broadly breakeven then?
So Australian Corporate is an interesting one. We've got a lot of some key essential services clients there that operate at a low margin, particularly with a lot of the work that a lot of the bookings there in hotels at the moment, which are very low margin. If you take them out, they represent about half of that volume. So if you take them out and look at the core, if you like, of the normal of Corporate volumes in Australia. We're at about 20% of typical volumes.
So that means that we still got a little way to go in terms of getting to breakeven in Australia.
Right. Okay. And then my final part of this my final question, just around the override. So you talked about supplier relationship is going really well. I just find it hard to believe, given airlines are pretty capital intensive and have been under a lot of pressure globally through this, The overachieving come back pretty quickly or even if they come back linearly with TTB.
I would expect that at best it would be a bit of a lag if they rebuild their cash flows and balance sheet. So can you just help us understand how or Important override part of that breakeven analysis and whether they should be back in line with TTV or whether that's going to take a while.
Look, it's Sru here. Every airline is a bit different. And we've as Mel said, we've had a good chat to most of the CEOs of our major trading partners in airlines. And it does vary a lot. But the one thing All of them really want, particularly the international players, particularly Middle Eastern, Asian and also the American guys.
They desperately need volume. And they accept that we've got to be a viable business just as I have to be. So, it's really about the overall package now until volumes return. So And that generally will include an allowance for what we would have earned in overrides as well in one margin. In the end, they need the volume and if we can give it to them and that's a key thing for us that we can give These airlines volume, it's really important for them.
Yes, someone like Kwanis is not quite as important because they're a very big domestic carrier. And so the international is will come later for them. But most of the Asian And Middle East in particular, they're all international. So they're desperate to get volume and we're one of the players that can provide them volume, not just out of Australia, New Zealand, but also Europe and North America and Asia.
Brian, I'll add to that too. One of the things that we did with suppliers and again particularly airlines is we give them a higher yielding revenue passenger than sell a lot of the mass OTOs, which is the one thing they'll be desperate for coming out of this. So again, we've really when we've done these strategic sessions looked at that, but we were doing it previously because of the way and this is both corporate and leisure, in particular with corporate with our SME focus and our leisure businesses. So Again, I think you might see them making some rationalization for distribution to your point because they're trying to also reduce their cost base. But why would they're certainly very keen to keep as much reach as they can and spread to attract that higher revenue and or Customer and again, we give them everything under one roof.
So I think that will benefit us and certainly is what they're keen to talk to us about.
Brian, just to paraphrase what Spruh said in pretty simple terms. What the airlines are doing at the moment and what we're sort of seeking from the airlines It's more of a guaranteed margin, a bit like sort of coming out of that GFC period. So there's not really override discussions at the moment or super override or discussion. It's more about, okay, this is what the previous contract you were earning. This is the level that we're going to be paying out at for the or And then we'll revisit volume based incentives at a later point when things get back to more normal.
Okay. Excellent. That's really helpful. Thanks,
Mark.
Thank you. The next question we have is or Marana Magarigal from Macquarie.
Good morning, everyone. Two questions from me. The first Is the ambition still that TTV recovers to pre COVID levels in FY 2024 for leisure and with corporate ahead of where it was? And on that, I've noticed there's a slight change in the commentary on outlook versus what it was at the AGM. So I can see that the expectation is now for both leisure and corporate to breakeven in calendar year 2021.
And previously, I think it was corporate returning to Put in late FY 2021 and leisure in late FY 2022. So I guess the question is, is the read through that corporate will take an extra 6 or so months to return to profitability, whereas leisure appears to have been brought forward by that 6 months?
Yes, good question. I can't remember exactly what our predictions were then, but probably I'm more interested in the overall breakeven. And Yes, look, it does depend a lot on borders reopening, domestic borders staying open, not just in Australia and also the international travel. And we're looking at overall as a company or either late this calendar year or early next calendar year without being too specific. And I think Adam just explained it a bit with the last business.
We have quite a lot of very low margin hotel business, as you look after some of the quarantine hotels in some of the states. And that's really affected our corporate margin. So that's probably been the main impact on Corporate going somewhat lighter than we originally thought. Also, we thought borders, particularly in Australia, would stay open. They didn't.
They opened and shut every 5 minutes. So that did have a that pushed corporate back as well. But yes, There's still a fair bit of water to flow under the bridge. But with the vaccination program every month, it would appear to become a little bit more or predictable about when we move into profit.
Thanks. And then just going back to that first one, I guess, The broader ambition for TTV recovery is still FY 2024 with corporate a little bit higher.
Or That's a fair while wise, but we've had a good look at this and we're reasonably happy with that, that We'll get back to that in about that 2024 year, 2020
4 year.
That's fair.
That's fair.
That period. And we expect to let our corporate get back a bit earlier and will be a bit higher by then than pre COVID, Not because the market is going to be bigger, it will probably be smaller, but because we are winning market share in particularly in the Northern Hemisphere.
Thanks. And just one more question for me. There was a comment earlier on smaller players not being able to survive. Could you please just provide some more color on what you're Seeing in that competitive landscape, have they started to exit the market and these opportunities for consolidation doesn't differ between corporate and leisure?
Look, the people with the big problems, if government doesn't support the of Travel and Tourism Industry. We'll be the small players, particularly in the tourist field, the tourism field And certainly some in the travel agency. That will be the people that will struggle if without some government support. And I think the government is very much aware of that. We hope that the government does continue to support because I think just as an industry, it's important That we have a good structure that survives rather than or us having a competitive advantage in that area.
And also, obviously, the people who are operating of Tourism Facilities, whether it's in Australian overseas and tourism. It's really important we have the product or So we certainly hope they survive. There will be a fair element. You will know a lot of the small tour operators Our Global Operators are headquartered in Australia. So the Australian approach to this is going to be quite important as well as some of the overseas areas like the UK and Europe in particular.
And obviously, the cruise lines that are based, a lot of them are based in or This is like Miami and that. So there's a number of they're obviously big players, so probably less likely to be affected
I was just going to say, Chris, did you want to give any flavor specifically from a corporate landscape?
Yes, sure. I mean, in terms of consolidation, I think consolidation is happening pre COVID in the industry anyway. So it's certainly going to continue and probably CDAB. I think the way to look at the market is that companies, as they start traveling, are going to need new requirements in the post COVID world, particularly around duty of care, but also around access to content. And what we are seeing in the market is even those companies who are managing to survive in different parts of the world, often through government subsidies, don't appear to be investing in new products.
And that's what we're hearing from customers, and that's why we're winning business is we are very much committed to not just surviving in corporate, bringing new products to market and products relevant. So we're not seeing much of that happening. The other interesting thing we are seeing a bit of an exit is a lot of disruptors and VC money was going into business travel up to 2019 in the preceding years. And we're seeing a bit of that money exit and some people pivoting out of business travel into other sectors. So that's quite an interesting trend we've seen in the last few months.
And obviously, that bodes well for players like us who are bringing new technologies to market as an incumbent.
Thank you. That's very helpful.
Thank you. The next question we have is from Wei Weng Chen from JPMorgan.
Hi, guys. Thanks for the call and taking the questions. First one, maybe we'll stick with Chris on corporate. Just based on what you're seeing and hearing from What's your view on how much the corporate market shrinks as a result of the pandemic and Zoom, etcetera?
Yes. It's a good question. We spent a lot of time talking to him about this. I think there definitely will be some shrinkage. And what we're hearing is things like internal business meetings, which may have been done face to face.
Some customers have got used to doing those over Zoom, over Teams, and some of that won't come back. However, what we are seeing as well as markets which are opening up, we've actually been quite PRIISED, in some cases, how much has come back. So China, which I've referenced before, Yes, we're seeing the domestic China is back to over 80%. Some months, we got back to 100% at pre COVID levels. That's partly because we put a new business in, but it's also partly because people who can travel are traveling again.
I also think we're seeing an interesting trend now. The longer this Pandemic has gone on. We are hearing from customers that there is huge pent up demand to get traveling again. So I anticipate in the next couple of years, we don't have exact percentages, but I think what I'm confident to say is that we can win new customers, enough new customers and get them trading to replace the down trading in our existing customer base up to 2019. So we're very confident we can get back to growth sooner rather than later once the world opens up simply by winning enough new customers to make up for the customers who won't go back to 100%, certainly for the next couple of years.
Yes. All right. Thanks. Understood. And then next couple of questions just on leisure.
So just the first one was on the reduced bricks and mortar network. Sort of historically, that's been justified in part through advertising benefits associated with the network. So that network is now 60% smaller. Does marketing spend sort of post pandemic need to increase as a percentage of sales?
Hi, Weng Wang. Well, yes, in summary, we would our expectations and scenarios have built in an escalating marketing spend. However, during the pandemic, we've got very creative about using owned channels as opposed to paid channels. So one would expect we can get greater advantage out of SDR, etcetera, etcetera and social platforms, as I mentioned, are proving very or Fertile Ground. But yes, we do intend to spend more on marketing as an overall percentage.
That's in the Flight Centre brand. If you move to, say, the TA brand, or the advisers themselves to other marketers. So you won't see it as much there. But yes, that would be part of our of Forward Plans. Remember one thing I did say though is what we've reduced is high density, not necessarily geographical reach.
So we certainly make sure making sure the brand billboard impact is still there in terms of traffic flows, etcetera.
Yes, great. Thanks. And then just the next one on the leisure business. So in first half twenty twenty pre pandemic, The leisure business was loss making at a PBT level. Appreciate there's sort of seasonality in the business, but just wanted to see if that was normal or just 1st half twenty twenty was just a tough period.
There's a couple of things in there, Weiwei. There's yes, you're right, seasonality is there. So if you look at the U. S. In They operate in a loss making position for the first half of the year.
What we also had in that first half of the Year here in Australia, as we were going through some of the heavy lifting in terms of transformation project and program that Mel was undertaking. So typically, we would expect to see that we would be in overall in a profit position, Albeit that the North American leisure business would typically trade at a loss and drag that profit down.
Weiwei, most of the other leisure businesses also are seasonal. The ones Adam is talking about are massively seasonal, but also Australia and New Zealand has a second half SKU as well.
Yes. Thanks. And then just last one on just M and A. So vaccines are here or real world experience is showing their effectiveness. It feels like this is probably the last chance when they can move from an M and A perspective.
Just wondering If you guys have any thoughts on that, are you guys looking at anything?
What do you got, mate?
Of both leisure and corporate businesses. I think the reality is that like anyone else, we'd certainly be having one eye open to what we believe is the best outcome for us. I will say, historically, and certainly in the leisure business And definitely in the corporate business, our growth has come from organic growth and we've never relied on acquisition to materially change that growth profile for us. So we wouldn't do it just for growth. But certainly, if there was an opportunity that fit is really snuggly within our strategic objectives in both the leisure and the corporate and or the corporate business, Then we certainly be looking at it.
Okay. Thanks. That's all for me. Thank you.
Thank you. The next question we have is from Ariane Noosi from UBS.
Hi, guys. Hope you're well. Just the first one for me. To what extent does the leisure business subsidize of your profits in the corporate business, mainly in terms of when I say subsidized, I don't in terms of buying power.
Yes, Ari, I think the word subsidized is probably there's no doubt we leveraged the combined volume of both businesses, not just from a supply chain perspective. Remember, I did mention the diversity that we give the supply chain by coming into the group through One Doorway. But if you go back to those how we win sort of layered diagrams that both Chris and I had, the investments in terms of and I'll give one in terms of TP Connects We've been investing in over the last year to improve our NDC capability. We're jointly doing that together, so the cost is shared and it makes it a lot more palatablegives us more options in that space. But yes, we're very committed to working together as a group.
The supply chain generally like that. Mind you, we also work with the supply chain as well if they want to approach more regionally. And we certainly have some contracts that are either Corporate or leisure, not necessarily in air. So yes, no, we think it's will benefit and certainly the interactions we've had with the big suppliers. As I said, we've been really proactive in that space over the last 6 months particularly who is resonating with them as well.
Chris, do you want to add any comment on that?
Yes. Well, Mel does buy me dinner occasionally. I'm not sure if that counts to subsidizing, but maybe it's us. No, I agree with no. I don't think there's any subsidies, but there's definitely a benefit in supply chain having the both.
And I think that's what we leverage more than anything else.
Just actually just on the clarity there. In terms of the overall cost base, we allocate our costs to both leisure and corporate, largely on a usage basis. So any costs that we can't specifically allocate to either leisure or corporate who do get end up in that big other bucket in the segment note. So from a pure cost perspective, there's no subsidization of Leisure to Corporate or Corporate to Leisure. And one of the benefits we've seen in the cost out program that we've had to undertake over the last 12 months is the benefit of having both leisure and corporate and starting to work together for a lot of the support businesses to get greater efficiency across all of our brands collectively rather than just specifically on individual ones.
Perfect. And second one, just in terms
of the revenue margin, I think And the start you mentioned around 10% in leisure, but shorter term is the way we should be thinking about it. If the mix Between your leisure business does recover between international and domestic. How do we think about revenue margins then, please?
Yes. Look, certainly, I think the point I was trying to make there is for the next 6 months, We're not expecting a significant shift in those domestic international channels for leisure. So the current revenue margin is probably a good approximation of what we'll see over the second half. As we start to see international come back, certainly we start to see the revenue margin increase. And I think as Mel mentioned earlier, Overall, we'd expect to be able to get the revenue margin up relatively close to where it was in pre COVID times for leisure.
The only thing that would that may bring it down a little bit would be the mix towards the online channel, but that would also have a reduced cost base. That means we wouldn't have to bring back the additional costs there as well. So net net, we'd expect you to get back fairly similar to pre COVID levels Once we get back to international travel and once our touring operations start up again as well.
Remember the international travel, it's not just the nature of the higher TTV, but you get chunkier margin products like coach touring insurance, etcetera. So that's just not available really on a domestic basis where it's largely flight and hotel.
And your comments are assuming override come back because you guys are actually mentioning negotiations
for a week for sure for
the next sort of or you just got a 6 percentage. So what the comments you're making around it returning to free cover level, that's assuming overrides kicking in again. Is that right?
Yes. Margins remain at a steady sort of level.
Yes. Whereas we're just looking at collective margin we earned over an average over the last period. And like Hayden said, we did exactly the same as we came out of GSD, trying to who have that retained average margin. And then once there's some sort of level of numbers, we can get a base for volume tiers as well. So take that sort of half
of half. Yes. It doesn't really matter where
it comes from. It's what you earn
and whether
it's paid at source or whether there's some back end component. Or generally, it's being paid in stores.
And there's no doubt any conversations I've been in with any of the supply chain, they have been totally fine to work on that sort of basis.
That's perfect. Thanks, guys.
Thank you, Ari.
Thank you. The final question we have is from Belinda Moore from Morgan's.
Good morning, everyone. I just want to check, maybe Adam, A question for you, please. I think your cash burn was supposed to reduce by a further $4,000,000 from January, just following Those cost savings. So is that still correct? I know in December it was 30%.
So just how we should think about that? And then secondly, Just thinking about your overall sort of second half twenty twenty one loss, I suppose, versus the first half, Just given you expect sort of TTV to accelerate?
Yes, Belinda. We certainly just pulling out the patient, the AGM you're referring to. But yes, we certainly expected to have net savings come Spruh, by the time we got to January, we are seeing them coming through into the numbers. As I said, we've reinvested some of The overall savings, so the net you'll see in the OpEx should come back into line with what we were talking about at the AGM, which was around about that $71,000,000 a month. And there's also some elements of that, that we were coming off in CapEx, because we've weighted some of our CapEx over the final quarter of last So we are absolutely seeing the benefits that we expected to see in the savings program, Net of the reinvestments that we'd highlighted at the AGM.
Sorry, Belinda, what was the second part of your question?
Just sort of how we should think about the sort of second half Result, I suppose, versus sort of the quantum of the first half loss. In the second half, hopefully, TTV is going to improve.
Look, yes, look, I guess the reason we're not giving guidance that we don't know is probably the short of it. We can control things like our cost base. There were a lot of things out of our control and that's largely at the revenue line, and that largely feeds into things like the stability of domestic borders, whether any channels Internationally, the people of New Zealand can open up over that period, etcetera, etcetera. So unfortunately, I can't really answer that one for you at the moment, It's just not known to us. There's too much ambiguity.
Understandable. Thank you.
Thanks. Guys, we're going to have to run now to other of events. But if anyone has any further emails or any questions, shoot them through me later today, and we'll come back to you
as quickly as we can.
Thank you.
Thanks, everyone.