Flight Centre Travel Group 1

Flight Centre Travel Group

1.0 Macroeconomic Analysis
The Flight Centre travel group has emerged as one of the world’s largest travel agency group. It
is a company-owned operations in 23 countries and a corporate travel management network
which operates in more than 90 countries across the globe and it is headquartered in Australia.
for the past few years, the company has been growing significantly due to the expansion of its
market base. The company employs more than 20,000 people across the world and it has a total
of 2800 business (Flight Centre, 2020). The company has been however affected by the
occurrence of various economic factors that has impacted the operations of the company.
Perhaps, it is important for the company to understand the economic factors that influence its
operations such foreign exchange and interest rates, labor market conditions, inflation and saving
rates among others. These factors are likely to determine the overall economic environment for
the country which in turn has affected the operations of the Flight Centre.
One of the economic factors that has impacted the operation of the company is changes in
inflation rates as well as interest and exchange rates in Australia and other countries of its
operation. Notably, Australia has been facing a changing inflation rates for the past few years
with the recent statistics showing that the company has been recording a decreasing inflation
rates. This has lowered the purchasing power among the consumers and which in turn has seen
the Flight Center recording a reduced number of customers. The following table shows the
changes in inflation rate in Australia

Figure 1: Australia Inflation Rate (Trading Economy, 2020)

Exchange rates in Australia and across the world has affected greatly the travel patterns which in
turn has impacted the operations of the Flight Center. It is prudent to note that changes in
exchange rates is likely to affect the flow of the passengers. In this case, if the exchange rates for
the country rises, it is likely to attract few inbound visitors while also increasing the outbound
travel. The financial crisis that took place in 2008 affected greatly the exchange rates which
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made many companies to increase their exchange rates and hence impacting the travel patterns.
Flight Centre has been affected by the occurrence of financial crisis of 2008 and 2015 in which
the company has been experienced decreased inbound visitors in many companies and hence
reduction of revenue among the company.
The occurrence of covid19 pandemic has also affected the operation of the company
significantly. Due to the regulations passed by the Australian government to restrict air travels
has had a great economic and financial impact to the company. Due to this, the company
recorded a decreased sales revenue while also laid off some of its employees in all its countries
of operation due to the financial constraints. The company lost $662 million due to the pandemic.
Due to the occurrence of 2015 financial crisis and COVID19, it is projected that the Gross
Domestic Product is likely to decreases significant among the countries as well as increase of
increase of interest rates and reduction of inflation rates due to the poor economic growth. This is
likely to impact the travel patterns for the Flight Centre in two ways. Firstly, it reduces the
purchasing power of the consumers and hence reducing the number of flights administered by
the company. Secondly, these economic aspects are likely to trigger the company to decrease the
price of its services in order to attract more travelers and customers. This however is likely lower
the profit margin of the company in the near future and hence impacting the sustainability of the
company.
2.0 Industry Analysis
2.1 Porter’s Five Forces framework

Figure 2: Porter’s five forces of competitive position analysis [ CITATION CGM13 \l 1033 ]
2.1.1 Threats of new entrants
it is prudent to note that new entrants in the consumer services and travel agencies is likely to
bring new was of operation while also putting more pressure on the existing companies such as
Flight Centre to reduce their cost and provide new value propositions to the customers. However,
the travel agency industry requires a substantial capital investment which in turn makes it
possible for the new entrants to enter into the market. The Flight Center is likely to face low
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threat of entrants if the existing regulatory standards impose certain challenges to the new
companies which are interested to enter into the market.
2.1.2 Bargaining power of buyers
The buyers are often demanding a lot in this market and most of them want to purchase the best
offerings which are available by paying the little prices as possible [ CITATION Ana20 \l 1033 ].
This puts pressure to the Flight Centre’s profit margin in the long run. Perhaps, a strong
bargaining power among the customer can lower the profit margin of the company and hence
making it less competitive. However, Flight Centre can manage this challenge by creating large
customer base, enhancing rapid innovation of new products as well as maximizing its marketing
techniques to attract more customers.
2.1.3 Bargaining power of suppliers
The power of the suppliers in the air travel industry is demonstrated by the pressure exerted by
the suppliers such as reducing the availability of the products in the market, reducing the quality
of the materials as well as increasing the prices of the products. This has impacted greatly the
productivity of the company. The company can solve this by decreasing the dependency of one
of few suppliers and hence increasing the price sensitivity.
2.1.4 Rivalry among the existing firms
The Flight Centre operates in a very competitive consumer service industry due to huger number
of companies offering the same industry. This competition is perceived to take toll on the long
term profitability of the company (Fern Fort University, 2019). However, the company can solve
this by creating a sustainable differentiation, building a scale that can help it to compete
favorably as well as collaborating with its competitors to improve the market size instead of
competing with each other in a small market.
2.1.5 Threats of the substitutes
It is prudent to note that the availability of the substitutes makes the competitive environment to
be challenging for the Flight Centre to operate effectively. The air travel and consumer industry
is characterized by the large number of substitutes such as online services, airports among others.
The company can deal with this by being service oriented instead of being product oriented,
understanding the ultimate need of the customers instead of focusing on what customers are
buying as well as increasing the switching cost for the consumers which in turn helps to attract
more customers while retaining the existing ones[ CITATION Zan18 \l 1033 ].
In conclusion, it can be noted that the air travel and consumer service industry is a competitive
industry that has high number of industries offering the same services. This implies that the
Flight Centre has an obligation to tailor its operations such as adoption innovations, research and
development (R&D), production of high quality products and services as well as offering
affordable services to maintain its competitive advantage. The company can also collaborate and
work with its competitors in order to reduce competition while also expanding its market margin
and hence enhancing its sustainability.
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Bibliography
Anastasiu, L., Gavriş, O. & Maier, D., 2020. Is Human Capital Ready for Change? A Strategic
Approach Adapting Porter’s Five Forces to Human Resources. Sustainability, 12(6), p. 2300.
CGMA, 2013. Porter’s Five Forces of Competitive Position Analysis. [Online]
Available at: https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html
Fern Fort University, 2019. Flight Centre Travel Group Limited Porter Five Forces Analysis.
[Online]
Available at: http://fernfortuniversity.com/term-papers/porter5/asx/242-flight-centre-travel-
group-limited.php
[Accessed 13 Dec 2020].
Flight Centre, 2020. FLIGHT CENTRE TRAVEL GROUP. [Online]
Available at: https://www.fctgl.com/
[Accessed 13 Dec 2020].
Henry, Z., 2018. Flight Centre Travel Group Limited Porter Five Forces Analysis. [Online]
Available at: https://www.case48.com/porter-analysis/242-Flight-Centre-Travel-Group-Limited
[Accessed 13 December 2020].
Trading Economy, 2020. Australia Inflation Rate. [Online]
Available at: https://tradingeconomics.com/australia/inflation-cpi
[Accessed 13 Dec 2020].