History About The Corporate Travel Management Limited Accounting Essay

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The full time adult average weekly earnings are a measure of income available for discretionary spending by a typical consumer. As shown in the above table, this figure has increased from 2011 to 2012 by almost 5%.This indicates that the average full time working adult has had more to spend in the 2012 than the previous year. As there would be more to spend, there is bound to be an increase in travel and holidays as consumers have more disposable income. This could well see an increase in income for FLT.

The CPI is a measure of inflation on consumer goods. The CPI index decreased from 2011 to 2012, which then indicates that travel and holiday packages were more affordable to customers as compared to 2012.

The interest rates have gone down from 2011 to those in 2012.The consumers are likely to purchase tickets and holiday deals from FLT with credit cards or with personal loans. The decrease in interest rates resulted in it being slightly cheaper for consumers to indulge in travel and leisure activities as compared to the previous year. In light of this, The government can be viewed as undertaking an expansionary monetary policy by lowering the nominal rates resulting in more money to spend hence an increase in income for FLT as consumers spend and travel.

The stability of the political situation in the world has seen more people willing to travel for holidays as compared to 2011 were there were safety scares of the terrorist attacks as those upon America. However as the world situation stabilised, more consumers were keen on travelling again which would thus increase revenue for FLT for the 2012 financial year.

The foreign exchange rates might not have been very favourable for FLT as the strength of the Australian dollar kept on increasing over the year and so the stronger the Australian dollar got, the more adverse effects were felt by FLT in terms of translation of FLT's overseas results.

The figures in the above table and the explanations above portrays a favourable macroeconomic climate for the operations of FLT.The services provided by FLT are becoming more affordable in 2012 as consumers have more to spend due to increase in disposable income, a reduction in CPI,and a decrease in interest rates.


The global financial crisis had decreased spending on travel and leisure services dramatically and depressed international travels. In this challenging environment, revenue was seen to be contracting. The industry is very sensitive to factors that affect the macroeconomic environment such as level of disposable income, interest rates, political situation, inflation and so forth.However, as the economy has gotten better in Australia and because of the expansionary monetary policy the travel agency industry has seen an increase in revenue and a boom in business. The travel agency industry is however marked by internal price competition and growing external competition for its share of tourism spending.

The industry can be defined as comprising of Flight Centre Limited (FLT), Jetset Travelworld Limited (JET), Webjet Ltd (WEB), WOTIF.com Holdings Limited (WTF).In this industry, Flight centre can arguably be positioned as the largest travel agency in the industry due to its size, performance and diversity

Porter's framework can be used to analyse the industry in which Flight Centre operates. Below are explanations of the five forces in relation to FLT.

FORCE 1-Rivalry among existing firms.

It seems that there is rivalry in the industry but Flight Centre Limited is handling it well as it is one of the largest customer service providers of travel and leisure. There is fierce competition within the industry as there are many travel agencies in the industry as compared to the size of the markets, however it can be arguably be said that rivalry is in the medium range as key players in the industry depend on their brand images to do the talking for them and as such, FLT has well known brands.

FORCE 2-Threat of new entrants.

This threat is high due to the fact that some consumers are finding it convenient to do it themselves online, rather than use intermediaries such as travel agencies. The travel industry has increasingly been subjected to e-commerce and consumers and companies are increasingly purchasing directly from suppliers and producers without going through the an intermediary such as FLT.The boundaries between suppliers of services and consumers are getting weaker and so is the role of intermediaries as the threat of new entrants for FLT comes from its own suppliers. In this case, Flight centre is surviving mainly on the basis of loyalty especially from the older generation who do not want the hustle of arranging holidays by themselves and major companies which it has formed business arrangements with to provide their services.Flt has been managing this threat by restructuring it's company from being ticket bookers to offering consultancy services, developing customer and supplier relationships, performing information management and being involved in technology development

FORCE 3-Threat of substitute products or services.

This threat is high for flight centre as the switching costs for consumers are low and thus consumers could just go to any travel agency which is offering a better deal. Also the emergence of online companies such as Webjet does not make it easier for FLT as they offer the convenience of arranging everything online without having to travel to go to the shop of the travel agency. Flight Centre Limited is however trying to subdue this threat by merging its online and offline services, a process in the making.

FORCE 4-Bargaining power of buyers.

The fact that there are low switching costs from one travel agent to another and that there is low level of differentiation of services provided by other competitors in the industry provides ammunition for Flight centre's customers to have a higher degree of bargaining power. The consumers also have strong bargaining power as travellers and buyers are today more experienced and demanding than ever when it comes to their expectation of the service to be provided. Flight Centre tries to make up for this so that it does not adversely affect them by differentiating itself from other travel agencies through striving for a more personalised and efficient service which might arguably increase switching costs hence lowering the consumer's bargaining power.

FORCE 5-Bargaining power of suppliers.

Suppliers in the travel agency industry have a great bargaining power over travel agencies such as FLT as they determine the selling price and commissions in this industry.


Flight Centre describes itself as a global discount flight specialist. Its principal strategy is cost leadership. The products and services provided in the travel agency industry are not differentiated across the industry. In the 2012 annual report, empahasis was however put on the continued benefit from the company's scale and diversity, with its retail and corporate travel business being among the largest businesses of their kind in the world, implying that the company does not rely solely on one travel sector. It however appears that FLT has also been successful in differencing itself in some form by developing a unique product for its suppliers and customers by manufacturing or bundling offers to create interesting new travel options. Examples include, Student Flight's Black Market Flight, Flight centre's Double Dip Flights, Escape Travel's Mystery Escapes and myTime.They have also tried to focus on the customer with the project 'Year of the Customer" being developed. This is all done whilst at the same time trying to provide these services at a profitably low cost. This might actually have led to its immense success in its industry.



Flight centre holds a dominant position in the travel agency industry resulting in consumers relating more to it when it comes to its type of business. The majority of the Board of directors in FLT are independent with four non-executive directors (including the chairman) and one executive director, who are the managing director and not the board chairman. The board has a complimentary mix of skills that provides the desired depth and experience resulting in the company being an efficient business entity.FLT endorses and complies with ASX's Corporate Governance Principles and recommendations other than amalgamating the Remuneration Committee and Nomination Committee. This compliance serves to prove that they have a strong Corporate Governace structure which also enhances shareholder wealth.

The fact that it has a vast range of brands under its name also aids in the company's success and the diversity structure of the company ensures that FLT does not depend on just one avenue for income resulting in the overall company success.


Some of FLT's brands are not well represented or advertised. A good example is that of Students Flight. Most consumer are of the notion that this brand only caters for students even though it cater for anyone interested in buying cheap deals.


The growth of the international students population in Australia opens up an opportunity for an increase in market share for FLT.One of the brands of FLT is Student Flights. There is an opportunity for Student Flights to introduce a service for students who frequently travel abroad because the whole student travel market is growing very strong, but they also demand high levels of service and great prices. As the Orient Express CEO Tom Manwaring (2005) said "Asian students are in particular take as many as two to three trips home a year to visit relatives and friends." It will provide a good opportunity for Student Flights in terms of profititability hence increasing their contribution of profits to FLT.


The main threat for FLT comes from online sales by companies such as WOTIF.com and many others. The increase in technology has seen many consumers turn to the use of the internet due to ease of use and convenience. New technologies, such as the Internet, allow direct sales without the intermediation of travel agencies. These technologies have also allowed new distributors and distribution channels to emerge. The threat of a gradual reduction in the importance of travel agencies, or even their disappearance, has been a cause for concern within the industry. The other threat is coming from suppliers themselves as they seek to do away with intermediaries such as travel agencies like FLT to provide a service whereby consumers can purchase holiday deals directly from them.FLT has sought to manage this threat by trying to integrate both online and offline facilities trough "Blended Travel" whereby rather than being a specialist on or offline travel agency, FLT plans to marry the two and create a new business category-a blended travel agency.


Critical success factors (CSF) are factors that determine whether the company is able to continue operations profitably. Flight centre's critical success factors are:

1. Customer Service

The travel agency business can arguably be deemed to be a slowly dying industry due to the increase of internet based competition and suppliers opting to bypass intermediaries such as travel agencies to sell directly to the consumers.However, in light of all these challenges, FLT has not only survived but has been seen to be thriving. One of FLT's philosophies is that a customer always has a choice and so they aim to provide a superior customer service experience, provided with honesty, integrity and a great attitude. FLT strives to enhance customer service as a satisfied customer is the backbone to their continued success. The company has embarked on projects which focus on customer service which include Year of the Customer and Blended Travel and also to enhance in-store productivity resulting in a satisfied customer. This together with the travel experience they provide is the key to their success.

2. Diversity through different stable brands

Flight Centre Limited has a vast range of brands under their belt. It is one of the world's largest travel agency groups and consists of more than thirty brands. These brands are categorised into groups of Leisure, Corporate, Wholesale and Other Brands. The diverse stable brands and businesses that the company has, shields it from the impacts of a downturn in any one travel sector as diversification reduces risk in any one business activity.FLT emphasises the importance of their brands and one of the most recent initiative to be launched was the Brand Warrior which is a program which highlights what each FLT brand stands for, who its customers are and what they expect. The strategy of having different brands and the projects to improve them has seen FLT being successful despite some unfavourable odds.

3. International Presence

Flight Centre Limited has company owned operations in eleven countries and a corporate travel management network that spans more than seventy-five countries.FLT is different to other companies in the industry in that it has an extensive global footprint of stores, creating an impressive distribution network for travel suppliers(airlines,hotels,car rentals).It's brand name is well regarded internationally and is easily recognised.FLT also participates on the online market and is among one of the largest online travel services in the world. The overseas businesses have been making a valuable contribution to group results. FLT's strategy has been to super size its international market share and become a leader in the corporate and retail travel market. This strategy enables the group to enhance its global purchasing power and so negotiate better deals with travel providers. The fact that FLT is a multinational company means they are able to recognise income from different countries and so if one market fails, another is always there to cushion the downfall hence minimising risk, inherently increasing success of the company.

An analysis of the company's key accounting policies that are likely to affect interpretation of its financial reports.

Some of the key accounting policies for FLT are accounting for revenue, Accounting for intangibles and Accounting for foreign currency.

Accounting for revenue - AASB 118

The objective of AASB 118 is to prescribe the accounting treatment of revenue from different types of transactions. The standard became applicable for annual reporting periods after 1 January 2005. The standard applies to revenue arising from the sale of goods and services, royalties and dividends.

There are different ways of recognising revenues, change of revenue recognition accounting, these different ways can alter the integrity or validity of the income statement, over or understating profit and revenue. For example using the percentage-of-completion method for revenue recognition instead of the completed contract method will result in higher assets, higher stockholder equity, lower liabilities, and a lower debt-to-equity ratio. Flight centre uses the revenue recognition method of recognising revenue when it can be reliably measured; this avoids the issue of overstating earnings estimation. By recognising revenue at fair value more accurate projections can be achieved. By adjusting to recognising revenue differently to different countries it ensures that Flight Centre performs accordingly in the different markets.

Interest is also recognised on a time proportion basis using effective interest rates, as compared to the standard which does not state that interest should be recognised on a time proportion basis rather it only state that an effective interest be used. The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability. 

Dividends are recognised as revenue the standard also states the treatment of dividends as revenue but it also states that dividends can be recognised under AASB 128 as equity, this raise the question why dividends are recognised as revenue but flight. A good reason for this might be increase the revenue reported by the company so that profits are overstates and giving the impression that the business is performing better than it actually is.

Royalties are recognised on an accrual basis as per the standard AASB 118. When recognising revenue Flight Centre chose to stick closely to the standard with the exception of recognition of dividends which is purely a strategic move on the part of management to increase revenue reported hence increasing profits for the year.

Accounting for intangibles - AASB 138

An intangible asset is defined in AASB 138 as an identifiable non-monetary asset without physical substance. To meet the above definition of an intangible asset, there must be all of the following elements which include future economic benefits and there must be control over the resource by the company and it should arise from legal rights.

The flight centre brand is a prestigious one in the travel industry and since it has few physical assets it has to account for in the balance sheet. The balance sheet shows that intangibles are valued at twice the value of plant and equipment which shows that Flight Centre heavily rely on its goodwill to keep on generating good business. Through the exception customer service Flight Centre has been able to build a strong respectable brand with high levels of professionalism. In most cases companies usually overstate the value of their intangibles to give a better positive financial position which is favourable to both its shareholders and outside stakeholders.

Following the AASB 130 Flight Centre acquires different brands across the world and they recognise them on fair value and are amortised over their useful period. It does not recognise any internally generated brands as this is not mentioned in the annual report and also prohibited by the standard. The treatment of in house software has been consistent over the years with research costs are expensed when they are incurred and development costs are put in equity when there is reasonable technical and commercial feasibility.

Goodwill is not amortised but regularly impaired tested by allocating it to the group's cash-generating units (CGU) for the purpose of impairment testing. Impairment testing is used to see if there has been a decrease in the capital off the company, impairment is usually bad for the company as it shows a reduction in capital.

Accounting for foreign currency - IAS 21

The objective of this Standard is to prescribe how to include foreign currency transactions and foreign operations in the reporting company's financial statements and how to translate financial statements into a presentation currency which is the currency of the parent company.

Flight centre is an international company with international partners hence the need to deal in foreign currency. Changes in foreign currency affect the profitability of the parent company. In some cases profitability might increase in the foreign currency but it might decrease in the local currency. A good example in an increase in profitability in South African business but when it was converted to Australian dollars it was a decrease.

Flight Centre's major source of income is generated from provision of airline tickets in Australia and the operations are mainly focused on providing airline tickets. Foreign currency transactions are translated into the functional currency at the current exchange rates on the transaction dates. A functional currency is the currency of the primary economy in which the company/ subsidiary operates. Items are measured in the primary currency and then converted to Australian dollars at the prevailing rate at the time of the transaction.

Why they are "key", related to the company's activities

Accounting for revenue

The choice of method used by the company in accounting of revenue determines how much profit it reported for that year and also how much tax the company pays. Since this is a listed company profit reported has influence on the share price. Revenue recognition is important because it influences also what the external stakeholders view the company, it terms of performance. Investors also look at the profitability of the company in making decisions and it also shows the company's long term viability. Accounting for revenue is key in relation to the company's activities as the income statement shows a large amount of revenue from their core business activities. Their Critical success factor of outstanding customer service implies consumers are satisfied and willing to continue doing business with FLT despite the growing competition resulting in an ever increase in revenue due to a sound business strategy.

Accounting for intangibles

This is another key policy for FLT as more than half of their noncurrent assets are intangibles and so they are a dominant factor of the balance sheet.

The company has different intangible assets such as goodwill, brands, research and development to mention but a few. These intangible assets aid in the operation of the business thus contributing to its success story.

Accounting for foreign currency

This is also critical as the company has an international presence and so reporting in the financial statement implies the foreign currencies have to be converted and the financial statements have to be recast.

The primary areas of accounting flexibility for these policies are:

Accounting for intangibles

The different ways of treating goodwill and most identifiable intangible assets can provide incentives for management to manipulate the purchase price allocation. Management maybe concerned with the amortization of acquired intangibles such as brands resulting in them reporting higher expenses and lower earnings after an acquisition. Intangible asset amortization reduces net assets on a regular basis. If managers would like to avoid reporting lower earnings or maintain a strong balance sheet, they may allocate more purchase price to goodwill relative to identifiable intangibles than determined by the underlying economics. If management is trying to avoid reporting losses or if they have net worth debt covenants, they might have a stronger incentive to allocate more purchases price to goodwill relative to identifiable intangible assets.However,this practice may prove to be costly in the long run as it increases the chances of goodwill impairment write-offs in the future.So,managers can manipulate the allocation towards goodwill when they are capable of avoiding goodwill write-offs in the future and they face lower litigation costs.

Accounting for revenues

Reporting for revenues can be done on a cash basis or on accrual basis. The primary role of accruals is to overcome timing and matching problems associated with cash flows-based performances. The judgement by management allowed in accrual accounting creates opportunities for earnings management. In revenue recognition, managers have to have to make judgements regarding whether and when the revenue is earned and realised or realisable, they have the flexibility to decide for which accounting period the revenue should be recognised. This might be done so as to avoid taxes or to inflate profits so that the income statement is appealing to the investors.

Accounting for foreign currency

When dealing with foreign currencies from different countries they need to be converted to domestic currencies, recast financial statements using local accounting principles and also taking inflation into account. Management can choose different hedging strategies using derivatives to minimise the impact of exchange rate changes on their financial statements. We might need a bit more here was not sure what to write.

A comparison to those of a competitor in the same industry - Jetset Travel World Ltd (JET)

Flight Centre

Jetset Travel

Accounting for revenue

recognises revenue when it can be reliably measured

Interest is also recognised on a time proportion basis using effective interest rate

Dividends are recognised as revenue

Royalties are recognised on an accrual basis

recognises revenue when it can be reliably measured

Revenue is recognised and measured at the fair value

Recognises only as revenue the amount of volume incentives/commissions earned under its contractual arrangements

Accounting for intangibles

Acquired brands are recognised at fair value and are amortised over their useful period

Brand names are amortised over their supposed useful life

Goodwill is not amortised but regularly impaired tested

Goodwill is allocated to the group's cash-generating units (CGU) for the purpose of impairment testing

Intangible assets with indefinite useful lives are tested for impairment annually

Brand names amortised over 10 -15 years

Goodwill is allocated to the group's cash-generating units (CGU) for the purpose of impairment testing

Accounting for foreign currency

Foreign currency transactions are translated into the functional currency at the current exchange rates on the transaction dates

Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated at the exchange rates at the date when the fair value is determined.

Gains or losses from foreign exchange transaction are recognised in profit or loss

Foreign currency transactions are translated to Australian dollars at the current exchange rates on the transaction dates except where hedge accounting is used.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate on the transaction day

Main differences

-FLT does not give a guideline on how they amortize their brands but rather they give a vague explanation as to how they go about it whilst JET gives a time frame on amortization of the brand.

-FLT explains how it recognises dividends, whilst JET does not.