It’s a cruel irony that the biggest asset of major traditional travel companies – great staff – has rapidly emerged as possibly their biggest issue. The numbers don’t lie.

Global travel retailer Flight Centre, with 19,500 employees, is a classic example with staff numbers (and wages) steadily increasing even though profits are in decline.

The company’s first half net profit after tax of A$74.4 million was the worst for several years, despite record turnover driven by consumer demand for cheap airfares flooding the market.

As a result, profit per staff member has collapsed and is now in the region of $3815 over the past six months.

Triple Whammy

High demand, cheap fares and low margins are a triple whammy highlighting a structural weaknesses in the staff-heavy model.

The issue is that it takes consultants just as long to sell a cheap airfare as it does an expensive one and also pulls them away from high-margin products such as cruise and hotels.

Of course Flight Centre is acutely aware of this and has taken steps – including the acquisition of a couple of digital companies – to increase hands-free online sales.

However by the end of this year they will still comprise 5% or less of total turnover.


Online sales would be even less at Helloworld, another traditional Australian retailer that’s had some major issues, losing a whopping -$262 million between July 1, 2013, and June 30, 2016.

Helloworld is now in the midst of a turnaround anchored by and a merger with AOT Group, by far and away Australia’s major inbound operator.

Unlike Flight Centre, its outlets are franchised and not owned, serviced by a core group of some 2000 full-time staff.

Helloworld has just recorded a half-year net profit of A$12.9 million, a result that appears to be largely driven by cost-cutting and AOT.

Margins were certainly up but turnover was down with the average price of international fares falling by -12%, domestic -4%.

This recent six-month result equates to a profit per employee of A$6450, which looks reasonable in isolation.

But factor in the last three and a half years and Helloworld has recorded a loss per employee of -A$124,500. Unsustainable.

Online is different

Contrast this with the online players, who are able to scale without adding nearly as many staff as their traditional rivals.

In Australia, for example, Webjet is believed to have around 530 staff (it didn’t respond to an email requesting confirmation).

Webjet recorded a profit of A$39.4 million on turnover of A$1.1 billion for the first half of FY17, up 28% over the previous year.

This meant Webjet’s profit per staff member was $74,339 for that six month period.

It’s been able to scale with revenue from new acquisitions flowing strongly to the bottom line, while there was some money coming from the sale of Zuji.

The fact Webjet also charges hefty service and transaction fees means its base business – the sale of airfares – has not been impacted anywhere near the same degree as its traditional rivals, which primarily rely on commissions.

An increase in volume always means growth in revenue.

Looking overseas, the comparisons are equally if not more emphatic – and worrying.

Priceline the King

Global online market leader Priceline ( etc) has 15,500 staff and posted annual net profit (income) of US$2.135 billion for 2016.

Divide that by 15,500 and you get a profit per staff member of more than US$137,741 for the entire year (remember the other figures are over six months).

Its the reason Priceline’s shares have more than trebled in the past 4.5 years and now cost more than US$1730.

Low cost, High Profit

Crucially, Priceline and Webjet have very few consumer-facing staff, unlike traditional retailers, so the cost per sale is dramatically lower.

Most of their employees work behind the scenes, fine-tuning website businesses that are all about online visibility and low-touch transactions.

The money they save on staff can be used on saturation marketing.

They are cash machines where profits grow much faster than staff numbers, which makes economic sense.

Future of Traditional

For traditional retailers, the reverse is true.

The model may not be completely broken but surely something has to give. No prize for guessing what.

Share and Enjoy: