Ann: Macquarie Australia Conference Presentation, page-20

@rester

You have to be careful about quoting EBIT margins in half year periods, especially for specific regions, as travel tends to be very seasonal.

I am not a big fan of the general market obsession with "growth". FLT is a business that generates healthy free cash flows. To justify an investment at current prices, rather than growth, all that might be required is for the various combination of "moving parts" (per my previous post) to stabilize in a fashion that leads to more favourable margins.

The other "moving part" that i failed to mention, is the sale price of travel (especially air fares, for FLT). These will not be explicitly identified in the accounts, however they are critically important. Because of high capacity, prices have been low. When you combine that with abating outward travel growth, it means each employee delivers less TTV for the same amount of work and almost the same amount of employee expense. So put that together with reduced income margin, and increased employee numbers, and it's no surprise margins are down.

I expect FLT will be less profitable going forward (long term). But my sense is that FLT can survive as a vertically integrated travel retailer. But this will no doubt come with increased capital needs. So higher capital needs and possibly continuing pressure on margins, and you will have lower returns-on-capital.

When I look at "traditional" global vertically integrated travel companies, such as Thomas Cook and Tui, their revenues have not been growing a great deal (unlike those of Expedia and Priceline), but they don't seem to be disappearing either, and their returns-on-capital seem adequate.