When I think about the advantages FLT derives from scale, I am thinking more of the utility of FLT to its main suppliers, the airlines. I'm not so much referring to critical mass, as I am simply referring to the fact that there are no competitors, in Australia, that come close to challenging FLT here.
I'm thinking, if the airlines want to off load a whole lot of inventory, who is going to be able to that best for them? Who has the scale? On top of that, who has sufficient scale to bargain with those suppliers on the price of that inventory?
FLT can buy perhaps several times as much product, in Australia, as the next competitor for a mark up of maybe 15% (based on FLT's domestic income margin of about 13% to 14%). A low cost operator may be able to sell product at a somewhat lower mark up (lower gross margin) - but then they won't have the volume to compete with FLT. For example, FLT has close to 10x the TTV as Webjet, in Australia.
That's just my simple view of things.
Cheers, Mars
FLT Price at posting:
$35.38 Sentiment: Buy Disclosure: Held
(20min delay)
