Flight Centre Travel Group Limited (FLT) Earnings Call Transcript

Thank you for standing by, and welcome to the Flight Centre Travel Group full year results presentation. [Operator Instructions] I would now like to hand the conference call over to Mr. Haydn Long, Investor Relations. Please go ahead.

Good morning, everyone. Thanks for dialing in today for our full year results announcement. Shortly, you'll hear from Adam Campbell, our CFO and the CEO of our GBS area; Chris Galanty, our Corporate CEO James Kavanagh, our Leisure CEO; and of course, our MD Skroo. Greg Parker will also join us for the Q&A that follows this call. Firstly, Adam will kick things off with an overview of the results. Adam.

Thank you, Haydn. Look, as I think you know, we've highlighted previously and pretty consistent across the industry more broadly. It's been a fairly challenging ironmen over the course of the last year, including increased geopolitical tensions, volatility following the U.S. elections earlier in the year and the macroeconomic conditions experienced in most of our core markets. We do consider these conditions are fairly cyclical and short term in nature, and we've responded to them with targeted strategies to mitigate cost growth, increase productivity and boost margins while they do play out. Importantly, we are continuing to invest in the future and see a positive outlook over the medium and longer term due to the scale and diversity of our successful leisure and corporate brands, our robust balance sheet, the general resilience of the sectors are all and also some promising signs starting to emerge in our key markets. Whilst our overall TTV grew by 3%, that growth wasn't consistent across all of our brands and all of our regions. And underlying PBT last year fell to just under $290 million. Quarter 1 and quarter 4 in particular saw TTV impacted by macro conditions, which then led to lower overriding income for those quarters. In addition, we've seen underperformance in some specific regions and businesses. Both ANZ and the Americas saw solid profit growth, but this was offset by a reduction in both EMEA and Asia. But in Europe and the U.K., the downturn in travel on key Trans-Atlantic routes, Middle East tensions and [indiscernible] in a typically strong U.K. corporate travel variant all had an impact. Our Asian issues are all now well documented and include additional provisions taken up following the implementation of a regional mid-office platform, costs for additional resources directive by the h issues in place, down trading and broader operational underperformance in the region and also us investing to ensure the technology infrastructure, resource and processes we have are appropriate for a region of Asia size and complexity moving forward. We do believe that both EMEA and Asia will see results return to more appropriate levels in 2026. As a result of the cyclical challenges we've been facing, we've implemented a number of targeted measures to offset the short-term volatility. These include a group-wide focus on productivity gains and cost reduction with the recruitment freeze generally in place for noncustomer-facing roles and a focus on reducing discretionary spend globally. Overall, our aim is to hold our underlying costs as flat as possible compared to FY '25 compared to a 3% or around $70 million increase in those costs in the last 12 months. We acknowledge that this won't be easy, given inflationary pressures on wages and services, particularly including technology service costs, but we are confident that we can make a meaningful difference in that space. We're also targeting a 15% to 20% reduction in CapEx during the current year by prioritizing our key projects and products and have actively closed or repositioned underperforming assets, such as StudentUniverse, wholesale of The Travel Junction and our loss-making Liberty leisure business in the U.S. The introduction of the Global Business Services division to better support our frontline team is also seeing early success in areas such as non-travel procurement and a more strategic approach to our BPO models. Further changes to standardize, simplify and modernize the operating model for our enterprise technology, people and culture and finance options are now underway, and we should start to see the benefits of these changes in the second half. As I mentioned earlier, we're continuing to prioritize investment in those areas that will be important to us over the medium to longer term. And these included diversified channels that we service our customers through, system and technology innovation and embedding AI as an enabler of our business strategies. James and Chris will talk further to some of these investments. Turning briefly to each of our divisional results for the last year. And once again, James and Chris can discuss some of these, some of the drivers in these results in more detail. The corporate once again a top line growth to $12.3 billion. But obviously, given the flat global market, this was reasonably modest growth year-on-year. As mentioned earlier, Asia has a significant impact on the profitability for the division. And excluding that region, the division PBT grew by 6% of like-for-like TTV growth of 3%, which does highlight that some of the productivity benefits are starting to be seen from the productive operations initiatives and the broader cost discipline in corporate. Our Leisure division also saw TTV growth year-on-year although this pretty came from our lower margin brands in independents and Travel Money, but as well as the Ignite business. Flight Centre TTV only grew modestly for the year, as it was more heavily impacted by the macroeconomic conditions that we experienced. Although I will highlight that the lower volumes were somewhat offset by an increased average basket size and components per booking. Profit for the Leisure segment fell year-on-year, largely due to soft trading conditions in both the first and fourth quarters, which, in turn, impacted override revenue. The other divisional segment finished flat year-on-year with unallocated head office costs not increasing, our investment in TPConnects increasing by $7 million for us to fast-track airline content for our internal businesses as well as implement new revenue streams from airline direct connections. We also saw increased profit contributions from our operating businesses. And in particular, Avmin, Touring and Pedal all saw profit increase, with Discova, again, also being profitable this year. Finally, I'm pleased to say that the balance sheet continues to be in a strong position and in line with our capital management policy and underpinned by healthy cash generation. We've undertaken around $450 million in capital management initiatives over the last 12 months. including reducing convertible notes by $200 million, buying back issued capital of just under $60 million, repaying bank's debt of $100 million and the payment of $90 million in fully franked dividends. We intend to continue to proactively undertake capital management initiatives throughout the next 12 months and beyond. I will now hand over to Chris.

Thanks, Adam. I'll now give a brief update on our Corporate business performance and strategy. We continue to operate a portfolio of global winning brands, FCM in the global category, one of now only 3 TMCs in the world that can truly serve the travel program of an enterprise customer. Corporate [indiscernible] in that sweet spot SME space. Stage and Screen in the performance travel area focusing on music, entertainment and sports and FCM in the meetings and events. And the meeting and events category for our FCM customers are moving into 2026 or Corporate Traveller traveler customers as well. And this means that we have a broad portfolio of brands, each of which focuses on their specific customer category, which means the global TMC, we're able to be more customer-centric than our competitors, which gives us, we believe, a strong competitive advantage. And we are a global TMC with FCM operating in almost 100 countries, Corporate Traveller in 6, Stage and Screen now in 5 and FCM meetings and events in 11 countries though able to serve customers in more markets than that. This means we're a very diversified business from our customer segment perspective, a leadership perspective and also a global capability perspective. I'm actually going to focus a bit more on Corporate Traveller now because normally, I talk a lot about FCM and our enterprise customers, but Corporate Traveller is a bit of a hidden gem within our group. This year, it's on track to become a $5 billion TTV business for the first time. It's a highly productive and possible model, which now has enhanced digital capability of its Melon platform. And as I said before, it incorporates its dedicated Stage and Screen specialization in 5 most markets. It operates in an ideal customer profile companies that spend between $200,000 and $2 million per year, which means they really benefit to the expertise and capabilities that Corporate Traveller brings, but they're not large enough to have their own dedicated supplier relationships, which means they really benefit from the savings that we can deliver them. So it's a real win-win, better savings for them and better margins for us. We're growing in all markets, but we have a specific focus on our Northern Hemisphere markets with a particular focus on the U.S.A. market, which, as everyone knows, is the largest SME market in the world. And you can see year-on-year, we're outperforming the overall U.S. market year-to-year. We've invested heavily in our proprietary digital platform, Melon, which is now, by far, the largest platform that we operate in Northern Hemisphere and Corporate Traveler. And virtually all of our new customers go straight on to Melon as Melon customers. It's a modern cloud-based micro services platform, which means we can deliver new features faster than many of the legacy platforms out there. And that can be new content, it can be better user experience or it can be completely new features this year due to customer demand, we'll be launching Melon payment expense which will really give more of an all-in-one platform beyond travel management for our customers. Put of a strategic update, I spoke about three things earlier this year, 3 priorities: continued organic sales growth productivity gains and margin improvement. We keep focusing on growing. We are a growth business, and we focus on organic growth by retaining and winning new customers. We're focusing now on expanding our specialist businesses, meeting events and Stage and Screen. And this won't just be through organic growth, also really keen to approach M&A to expand and expedite the growth of these specialist businesses. We continue to grow our addressable markets by focusing on new products and services, such as consulting, which has done really well this year in SDN, but also such as travel light meetings and events. And we continue to invest heavily in our sales and marketing machines, make sure our brands are out there in front of our customers, and we have enough salespeople on the ground reaching those customers. We have seen TTV and revenue growth this year delivered with fewer staff than we had last year. And those scale benefits haven't fully hit the bottom line yet. There's a few reasons for that I haven't touched on. We have seen some down trading from customers in a what has been a tougher market conditions, led to some reduction in super override and we've also had some businesses as we called out Asia and Europe who have underperformed this year, but I'm pleased to say Asia is back into profit. And we really feel it's going to have a much stronger year this year, and we're addressing some of the challenges we have in our European businesses. I'm pleased to say that in a tough competitive environment, our margin actually improved. Our revenue margin improved slightly this year. And that's not just about price is up. It's about making sure that we generate more revenue through new services such as consulting and software and expense. And you can see that we are seeing some benefits already flow from our productive operations initiatives. We've seen productivity, which we measure as TTV either by full time empyee, grew by 13% over the last 2 years. And we expect to see further productivity gains both this year and into the future every year. And it's focusing of 3 main areas, the digitization of our operations, moving to a single global operating system, enabling customers to self-serve more, so they can solve more problems themselves without the help of our people and improve the streamlined access to content. But it's not just about us making more profit through productivity, it's also about customer benefits faster service, a more seamless experience, frictionless booking and payment, reduced issues, improved travel satisfaction, greater customer launch, and I'm really proud and pleased to say we've seen improving metrics across the board in all of those areas, our FCM business this year. And Corporate Traveller will be experiencing the benefits of that as well going into this year. We spoke a lot about AI, and we really see AI as an ecosystem. We have invested heavily over the last 2 years to make sure that we've built AI to touch all of our software and platforms. So it's not just about having chatbots. It's about having sophisticated AI intelligence there that really impacts our entire software and platform ecosystem. So that it means we can drive growth by few new product launches. And I'm pleased and proud to say we relaunched Sam as being far more AI-enabled at GPK this year. It means we have a more competitive differentiated offering with Sam that has a much richer and deeper capability than just the normal chatbots that many of our competitors have released but it also enables to grow productivity to our entire consultant software ecosystem is fully AI-enabled so productive operations means that all of our consultants are using AI-enabled software, which means we can grow their productivity, remove some of the drudgery from their work and make sure that they can deliver to our customers better. So the outlook, really, we're very confident about the future. We have a very diversified customer offering. We have a very diversified geographic offering and segment offering. We keep expanding our addressable markets by focusing on new investments in data quality approval, consultancy, content access and specialist travel. We will be introducing new payment and expense solutions into Corporate Traveller this year, and we're really going to make sure we double down and fast track Corporate Traveller's growth in our key U.S.A. market. Mostly tightened all from a performance perspective, we are very confident to see material productivity benefits starting to flow through our productive operation strategy. We're also ready for a market rebound. We have a very strong pipeline. We can see some good opportunities for us, particularly in FCM through some of the industry consolidation that we're seeing. We're actually already seeing a very strong level of RFPs coming through. And feedback from our customers is that they're expecting to spend more on business travel next year as conditions improve. So overall, a good year in many areas across the business and very confident as we move into a new financial year. On that note, I'll hand over to JK to give you an update on Leisure.

Thank you, Chris, and hi, everybody. So today, I'll cover all on the Leisure division and speak to will drive value across 3 strategic moves, which is growing our core Flight Centre brand, scaling high-growth winners and launching our loyalty broadcast platform. So starting off with where we play. Well, we operate in an addressable market of approximately $1.1 trillion sales across 7 countries, which you can see on the slide. And these markets are growing at about 4% to 5% depending on which geography you look at. Our share sits at about 1.2% of these countries travel share, which to me demonstrate that gives us a significant run rate for growth. Australia, as Adam touched on, is performing well for us. And New Zealand is back to growth even though post-pandemic capacity is not really fully recovered with airline seats and more. The U.K. is a focus market for us. It's really accelerating, and the U.S. has been in fixed mode, which Adam also touched on, which is now turning around to growing share. On the next slide, you'll see our brand portfolio. And we operate this diverse portfolio because it allows us to serve multiple needs of different customer groups, from mass market travelers through to luxury and so on, and it also allows us to provide our supply partners to access to the most valuable customers. So while FY '25 was challenging, particularly in the last quarter, it also shows signs that our customer value proposition continues to have broad appeal as TTV grew 7% despite headwinds. A number of KPIs are trending positively, process customer NPS, which is lifted to 54 in the Flight Centre brand, our luxury brands continue to achieve north of 80% in that KPI. Productivity is also trending off positively as a basket size growing and components for bookings has lifted from 3 to over 3.3 in the Flight Centre brand. The big issue for us in the year that was really is linked to revenue margins which have contracted largely due to a shift in destinations, product choices and volume, which has been impacted on key contracts. All customers are faring some of their choices around canceling travel, which ultimately has had a negative result on PBT growth. And the brands that have been most affected here has been the Flight Centre brand and travel associates. So looking forward, we're focused on 3 big moves and the capability enablers that will drive growth. Move one is about growing our core Flight Centre brand, which represents about half of the Leisure portfolio. So here, we want to really grow our competitive advantage, which comes down to choice and service channel. And the areas of focus here, including investing and lifting our capability in our digital assets, linked to our media screens and having media screens and digital screens across all stores. So this gives us the ability to have real-time advertising and great deals across our store network, which really increases engagement, attracting customers and [indiscernible] with conversion. We've also launched and are in the process of developing a single booking card on flightcentre.com, and our online sales are now growing over 10% over the past year-on-year. We've seen a real spike recently with new features of NDC, and this new distribution capability allows us to deliver better pricing to our customers backed by a trusted brand. As we look to the future of Flight Centre, we're adding more stores, which are still our most profitable channel with 50% of customers walking in, and you'll see us add more sales consultants to be able to support growth while we hold on support and staff as well to save costs. We're doubling down on our top 10 destinations to ensure that we remain [indiscernible] for air travel as we package value with these flights to be able to actually showcase Flight Centre's own product range. And if you look at the appendix, you'll see a range of different travel products is that actually demonstrates why we're not just a travel agent, and we're showcasing packaged products, exclusive products and so on. The move to is all about betting on future winner, and we call these our Horizon 2 brands, which really are fast-growing brands and business models in defensible markets. I want to take you through some of these -- just to give you some insight as to what's going on here, starting with loss re travel. First off, Scott Dunn is now growing top line double-digit growth, although margins have actually been depressed somewhat due to geopolitical challenges, selling more single center holidays as opposed to complex tailor-made experiences Between Scott Dunn and Travel Associates, we're dialing up our focus on high net worth customers and Scott Dunn sizing of expansion at the moment into Asia further beyond Singapore into Hong Kong, where we've hired staff, and we're ready to actually target that market. The next category is cruise, tourist and packaged holidays. And this really has been a standout performer for us growing 20% year-on-year, with cruise and tourists growing across all brands but mainly focused around some of the uplift that we've seen in Cruiseabout with the stores that we've opened in Australia, also our newly acquired Cruise Club business in the U.K. which we've purchased really to scale the highly successful Ignite model, which has had another record year. A lot of these investments are expected to return value in FY '27, largely due to revenue recognition, and this includes the World Cruise charter called Explorations that we announced at the last announcement, which is due to set sail in September '26. So off the back of the big year last year, Travel Money, our foreign exchange business will continue to grow to retail, click and collect services and also our new wholesale channel, which is delivering over $300 million in TTV, which has been a record to plan to launch into BG. And finally, our B2B independent agent segment. This makes us getting closer to about 20% of our TTV. It's been one of the fastest-growing divisions in our group with the Envoyage brand now deployed across 5 different geographies. And this year coming, we'll see a major focus on growing efficiency and profitability after a record year. Big Moves 3 is all about launching and listing customer loyalties. So on top of our strong NPS scores, we've made a bold move to launch a travel retail loyalty program this calendar year. We'll start with Flight Centre, Travel Associates and Cruiseabout in Australia, followed by more brands and then expanding globally. So this program really creates a new engine of growth for Flight Centre Travel Group, and it will reward customers across their entire travel journey and give them access to the most accessible traveler rewards store in the market. It will also unlock great value for our suppliers with new lever to grow sales, and it will actually expand new strategic partnerships beyond travel while strengthening existing supply relationships. So for the Flight Centre Travel Group, this really accelerates our data-driven personalization, with the launch of new loyalty management technology, a new CRM and new customer apps that are designed to expand revenue and grow our customers, all of which I'm confident will drive long-term shareholder return. And finally, in closing, as Chris touched on, we're making a lot of moves with artificial intelligence. We've invested in a strategic partnership with Anthropic, which is enabling a redesign of our operational processes, it's accelerating decision making and enabling us to have more strategic analysis and improving efficiencies and doing so. And you'll see a slide at the back of the pack, which touches on that. You'll also see a slide here which demonstrates about how we're thinking about unlocking value at every stage of the customer journey with AI. And we call this our agentic travel framework, which really touches on a whole range of things from how we can actually see value pools from dreaming through the planning pre-trip right way through to return. And we see that investments here to simplify the trip planning process to support our consultants more to automate a range of different such points and to help us do a number of different initiatives, including upselling and turning data into meaningful action. So together, I'm pretty confident that all of these capabilities will deliver a much smarter, faster and more personalized experience and ultimately unlock greater value into the future. I look forward to answering any of your questions on this. And I want to say a huge thank you to all of our people for investing in the great work, developing a great business into the future. So now I'll hand over to Skroo.

Thank you, JK. Very interesting. Look, I'm just going to have a very brief couple of slides here, which we'll explain a bit more on the outlook for this financial year 2026. The first one, we talk about how we're positioned for growth. As you heard through Chris and JK were quite a diversified global travel business. We aim to be quite reasonably dominant in 6 or 7 countries in both leisure and corporate. And that's basically being the top 3 or 4 providers or travel providers in those countries, and we've come a long way. We're obviously incorporate in about 26 countries. And that is mainly in Europe and Asia, the different ones there. So that diversified and dominant global travel business, we've already got a proven organic growth model in quite a resilient sector, as you see in the second column. And although there's been some macroeconomic events over the last 12 months, we're still getting some TTV growth and we expect that to continue in this next financial year. Our balance sheet, as you heard from Adam, is still reasonably strong. And you will have heard some of the initiatives we're doing there. But in the end, we want to become more productive. And you heard about the productive ops project in corporate, which is really gaining some great headway. We're very focused on a cost-out program. And this over the next 12 months is going to be quite important for us. You heard about our Global Business Services division, which will also help us with the efficiency in our overall support areas and the way it supported the main frontline operational businesses. If we go to the next slide, and this is about our current expectations. As you've heard, in the travel industry and the global travel industry for 12 months, has been reasonably volatile, particularly coming out of the states with Donald Trump's tariffs and other things, and it has meant that generally in Corporate, corporates are generally trading down. Particularly out of Canada into the states, there's been a lot of down trading. This seems to be starting to come back, but we expect these first 6 months probably to be reasonably flat, I think, as Adam said, on year. There are some promising signs coming in terms of our -- not only our volume growth, but also some of the arrangements we've got with our suppliers. And we believe in the second 6 months that assuming there's no major macro things happen in the world that things should come back reasonably well. We've obviously got plenty of opportunities for improvement on this last year, particularly in places like Asia, parts of Europe and some other businesses that, as you heard from Adam, we have closed. And we're certainly looking forward to this 12 months. I think it will be probably a challenging first half, but a much better second half, assuming everything comes the way we think it will. We won't be providing profit guidance at the moment, but we will at our AGM, which I think is in November 16 -- November 12. So thank you very much, and we look forward to some questions.

Yes, now ready for questions everyone.

[Operator Instructions] Our first question today comes from Michael Simotas from Jefferies.

First question for me is on overrides. Can you give us any color on how much of a drag lower overrides were in FY '25 and maybe some indication of how much you think the upside could be into '26 if demand trends do improve and maybe relating to that, whether you've renegotiated any of your hurdles down so that they're more, they're easier to achieve?

Michael, it's Adam. I'll start with that and then I hand over to Greg to talk about the rings, et cetera. Look, we, obviously, I think we spoke a bit about this after the first quarter as well. Obviously, the overrides have a fairly significant impact, particularly in the Leisure business when TTV gets subdued in the way that it was first quarter and then again in the fourth quarter. So certainly, it was a meaningful impact in that last quarter and the last couple of months of the year that came through, particularly in Leisure, but does also impact in Corporate as well. So we shouldn't underestimate that. So yes, it's a meaningful amount that has impacted us. As you well know, volume and growth is important for us. in terms of being able to achieve those overrides and that was the direct impact that we saw given the conditions. Greg, do you want to talk through just in terms of where we're at with some of the negotiations or any changes flowing through.

Yes. Just a bit of color behind it. When we did our probably most recent update, we're sort of looking back on 2024, and particularly in the air space, there was quite a bit of additional capacity, particularly from Australia to Europe that was thrown into the market, which gave us the ability to aggressively sell into that, which means that you treat sort of high overall tiers in the agreements. As we sort of went through into FY '25, overall capacity only grew 4% globally. And when you look at Australia, combined with domestic and international, it was actually backwards 1%. So the ability to sell high volume into a lot of those air contracts weren't there, which meant that we weren't achieving some of the higher tiers. As we look at the remaining categories, cruise and tour remain very strong and very stable. Same from the insurance perspective, we've onboarded our new insurance partner in Europe Assistance car, which was relatively flat now is retained to a growth element, and we're getting some good attachment in the hotel space, both in Leisure and Corporate. So if we start heading towards looking at outlook for FY '26, there's no major fundamental contract changes that we see on the horizon. Just in terms of capacity in the air space, it's probably going to grow similar to another 4% year-on-year as well. So it's probably a similar scenario to where we're heading in the year just gone. But we are heavily focused on recutting all our agreements, making sure if overlight tiers has not been achieved -- are there opportunities to be able to put those back on the table and do some resets, but then also looking at some very creative ways, as I've mentioned before, about accessing exclusive content which generally comes at a margin differential between sort of ourselves and our competitors and a lot of that's in that air space through adoption. They're probably picking up on Adam's point on where it was in '25 and [indiscernible] in '26.

Greg, correct me if I'm wrong. But I think, Michael, it's fair to say that most of the contracts will be, have been adjusted to reflect where we finished off, but to get the margins that we would want, we need to get growth again this year. So you're still looking for growth this year is ultimately the key to hitting those super override tiers.

Okay. And then just a second one for me. Just whether you'd be able to make any comments on how you're thinking about the potential changes to payment surcharges that are being discussed in Australia. I guess, travels in a particularly difficult position because you're effectively collecting money on behalf of your suppliers from travelers. Has there been any sort of discussion on how you may be able to mitigate that if those changes do come through.

Michael, it's JK here. We have, across all of Australia leisure and corporate. We fully evaluated what the impact could be, but we've also got a range of options subject to what the final outcome looks like, implementation with obviously submission papers were due yesterday. And there's a lot of consultation across the industry. So at has put a representation paper forward representing the entire industry. So I think we've got a few different levers of all subject to what the final outcome is. And we're expecting to find more about that probably around December going into January. I think is one we expect a bit more of a full decision to be handed down. And then we'll know what play as we go into calendar year what moves to play as we go into calendar year '26.

And based on those sort of strategies, do you think you'll be able to mitigate the potential?

Yes. There's plenty of options on the table. We just have to assess which ones we fall, but the aim would be to make sure that a 0 impact to us.

And your next question comes from James Lee from Goldman Sachs.

My question is probably more just to clarify the outlook commentary. For the 1 half '26 profit, we've said that it's going to be fairly flat. The first question is around, is there a number in 1 half '25 that is -- that number is based, too, just because we've had a few things that we've taken out of the underlying?

Yes, James, we're expecting a like-for-like comparison there. So excluding anything that has been taken out in the underlying, we'd expect a like-for-like to be relatively flat year-on-year at this point. So from a fee from an underlying trading perspective.

And then maybe just a follow-up there on Asia. So I think we've talked a $30 million impact at the full year, and it was $8 million in the first half. That $8 million is not immaterial to first half '26 profit and we've said that we won't see an impact in Asia. What's some of the things offsetting that $8 million that we saw in Asia in the first half '25 like I would have thought that would be an $8 million benefit that we potentially see in the first half '26?

Yes. Yes, that's a good point. Certainly, if I look at Asia by itself and Chris a certainly talked to this as well, that Asia in its own right, we should see improvement in the first half. And certainly, over the course of the full year for Asia, we'd expect that to get to a moderate profit. And so we'll be expecting to be up on the first in Asia itself, if we look at that specifically. Look, some of the areas that we're looking at when we look at it collectively, certainly, some of the down trading that we saw through June obviously doesn't stop on the 30th of June. So there's some impact of that coming through into the first couple of months of this year that we've highlighted. And that will have a bit of an impact in there as well. The second quarter of last year, James, was actually a pretty strong quarter. So we're also knowing that we're going to be comping against a pretty strong result in that quarter. So when we've looked at it, our expectation at the moment, as I said, it will be relatively flat, that should see an improvement in Asia, but we do think there'll be a slight offset elsewhere to offset against that.

And your next question comes from Mitchell Sonogan from Macquarie.

Just a quick one on the other segments. So it was about $75 million loss. So Adam, just what should we be expecting for that looking into FY '26?

Yes. Thanks, Mitch. Look, a couple of you break that into its components. First of all, TPConnects will be a similar position as this year. We're not expecting that investment to increase year-on-year as it is in between FY '24 and FY '25. So that should be all relatively flat going into next year. The head office costs that don't get allocated out. At this stage, I would say probably similar levels, although as we look at some of the cost initiatives we should get some benefit coming through there. But probably at this stage, relatively flat from a head office perspective, being held in that segment. Where we do expect upside is the operating businesses to discover during Avmin, our share of the Pedal Group, and we'd expect those to improve. So off a base of those, I would hope to see a small improvement in that combined segment. But you might be looking at moving to around about a $70 million rather than $75 million net position.

Yes. Very clear. And I know you don't have guidance out there, but obviously, just in the corporate segment overall in FY '25, the PBT margin was down 1.5% versus 1.7% in '24. How should we be expecting that to trend over the full year with obviously productive ops benefits starting to come through and Asia not being so much of a headwind or returning to modest growth as you said?

It's Chris here. Yes, look, I think we would expect to see that get back to previous levels this year because Asia itself was a very significant drag on that net margin last year. So if we just normalize Asia alone, we actually saw PBT growth last year ahead of TTV. So our net margin would have improved. So I certainly expect it to be back to at least where it was previous financial year.

Yes. Very clear. And just a final one, sticking on corporate over there in the U.S., like some good detail on the corporate travel business. It seems like it's doing really well. Can you just provide a little bit more information about the broader growth strategy there and expectations for growth over that business in the medium term? And Skroo mentioned, you're starting to see a little bit of improvement from, I think, inbound volumes coming into the U.S. from Canada and Mexico, which were down anywhere from 5% to 15% over the last few months. So just keen to understand how the corporate businesses are seeing that sort of impact there as well.

Sure. Yes. Well, look, the U.S. still remains our #1 growth market globally actually. We have 2 very strong businesses there, both in FCM and CT, but still very low market share. Things have normalized a bit more, particularly between transborder Canada U.S. I think a lot of the vitreal seems to have anticipated in the last few months. And I think is kind of normalized there. I think both brands, we expect good growth. CT particularly, I think, has rebound its feet in the last year. I think it's partly due to the Melon product really being very set for market now. We've done a lot of work on that in the last couple of years, and we're winning a lot of share there the FCM also, I think we have pretty good expectations for this year. And I should also call out what we call our 2 Horizon 2 businesses, both Stage and Screen and meetings events, both have got good growth opportunities in the U.S.A. in particular. So we're actually pretty buoyant about U.S. I think there's always a macro thing. And as we know this year, things have been pretty unstable. But I get the impression talking to our customers. I've kind of just normalized that now. So tariffs on 1 month of the next and back on again. I think that panics gone out of that now, and I think they're just treating is business as usual.

Our next question comes from Tim Plumbe from UBS.

JK, probably a question for you. Just how are you guys thinking about increasing the push into online in the leisure market the next 12 months. I mean if the consumer is feeling a little bit more cost-conscious, is that an opportunity to drive some of those Bali or Fiji flights and hotel packages from the online perspective. And then over the medium term, maybe can you talk about how you're thinking about the leisure split? What's the right mix between kind of traditional online independent and luxury?

So firstly, on the online piece, we have, it's very much an important part of our distribution channels, particularly in Flight Centre and our business, Jetmax, and we included some commentary the price hunter market, as we call them. We've been investing a lot with TPConnects integrating more and more content into that channel, which gives us really good rates to be able to actually win in this segment, so we're starting to see it come true now actually just week-on-week, we're seeing more and more NDC content coming in, which enables us to be able to really position ourselves and compete at that lowest rates and particularly for that single point-to-point top bookings. So very much part of our strategy. We probably see it sitting at about 15% to 20% of our overall volume as it continues to grow. But the capability that we're building is positioning us well to be able to convert more customers through those channels. And what was the second question around the split across the different categories, Tim?

Yes. Just how you're thinking about the right split for the leisure business between independent luxury mass complementary.

Yes. The 4 pillars, we see Flight Centre sitting at about half the portfolio, 50%. Luxury travel sits at about that 10%, but it gives us a lot more margins and profitability out of that category. And then if you look at the specialist division, this is really a high-growth area for us. So we expect to see high growth coming out of there, particularly with cruise and touring and the brands that we've been investing in. We expect to see that hit the bottom line more in FY '27, which is largely due to revenue recognition of a lot of the products that we sell in that space. But we're really seeing accelerated growth growing at about 20%, and then the independent business, it makes up about 18% of our portfolio now, but it has been growing rapidly and key for us now is turning that into profitability.

And your next question comes from Ben Wilson from Wilsons Advisory.

First question on the leisure side for JK. Just as part of the trading update, it was mentioned the thing some stronger TTV and Leisure as well as corporate in July. I presume that's still focused on the independent and specialist brands. But can you just confirm whether you are seeing any sort of indications of a pickup in booking patterns for longer-haul trips, which typically are beneficial for override income?

Yes. So Ben, you're pretty accurate in terms of the flow-through as to understanding where the growth has been coming from. We haven't seen a major uplift in the early weeks just leading into the new year. And largely, if you look at where consumers have shifted their travel patterns, we've seen a bit of a downturn in the last quarter coming out of the year. The U.S. has been impacted. The U.K. has been impacted, and they're more of a higher margin overall driven contracts. And what we've seen is Japan has been incredibly popular as has China, Vietnam, but it's not enough to be able to offset any losses from an overall perspective just yet. However, we are optimistic with some of the tailwinds that will come through as the year goes ahead. So we're not expecting significant change in the first half, but as we go on into the following half, we're expecting things to lift even more largely due to things like interest rate cuts and so on, should actually start to see a lot more competition. We're expecting early birds to perform positively as the year goes on, and we'll see that trend better going into the new year.

Yes. Thanks, JK. Just a couple on corporate for Chris. Firstly, corporate travel, yes, really good to see the strong growth continuing in the U.S. there. Just wondering if you could actually just talk to how it's positioned corporate travel that is in U.K. and Europe and whether you still, whether you're seeing good growth there or whether that's an opportunity.

Sure, Ben. Well, corporate travel only operates in the U.K., so we don't have it in any other European countries. It has, it's still a very profitable and good performing brand, but it has struggled with growth over the last year or so. And I think we've really seen that as internal problems rather than external. We've just changed the management team down there and really refocus that business on getting back to what it's really good at. So I think actually, the U.K. remains a very, very good opportunity for CT. It's a really good market. CT does really well when there's a skew towards international travel in particular. And the U.K. SME market is very much a long-haul international market. So we actually are very confident about that. We've made some really good improvements to the [indiscernible] product. The U.K. was the last of the 3 northern hemisphere markets to release Melon. And it had some unique content challenges around things like rail, which don't exist very much in North America. We've really addressed that this year. So we have a great product. We've got a very, very good addressable market, so we're actually very confident. I think although it's had a challenging year in terms of growth last year, I think we're feeling really good about things in the next couple of years.

Great. And then just lastly on productive ops. Good to see the 13% increase in TTV productivity. And appreciate if you called out, it's a balanced scorecard of benefits there. It's not just all about cost efficiencies. But still a pretty significant underlying adjustment of cost investment into the program in FY '25. So are there any further measurable targets in terms of TTV productivity or cost efficiencies you do have going forward?