Flight Centre: Still flying high
It started with two men and a double decker bus taking backpackers on cheap European trips. Against the odds, Flight Centre International has morphed into a global travel empire with an annual turnover of $14 billion. Graham Turner looks back on his successful journey.
Graham Turner and Geoff Lomas were working as vets in London back in 1973 when an uninspiring camping trip to Scandinavia convinced them they could do a better job.
The two 23-year-olds, who had gone to boarding school and then the University of Queensland together, bought a second-hand double decker bus, charging £110 for a six-week trip from London to Morocco. One of their first passengers, schoolteacher Bill James, had such a good time he joined them as the third partner, investing his life-savings of £600 in a second bus.
The tours were an instant hit among backpackers and by 1979 Top Deck – the precursor to Flight Centre – had 80 buses operating budget tours through Europe, North Africa and Asia. Lomas had returned to Australia for family reasons, so Turner and James took 50 percent of the shares each, eventually taking on new partners and splitting the equity.
They’d both returned to Australia, establishing retail outlets to sell Top Deck products, when former Top Deck staffer Dave Tonkin approached Turner with a novel idea. He wanted to start a travel agency based on the bucket-shop airfare discounters flourishing in the UK and Europe. Top Deck invested the $8,000 start-up capital, agreeing to split the profit 50/50.
Bringing discount fares to Australians
The store opened in 1982 under the moniker Sydney Flight Centre and made $100,000 profit in its first year.
Lomas was enticed back into the fold, opening the first Brisbane shop in an old bank with Turner setting up his office in the disused vault out the back. “It was a second opportunity to be in a business that’s turned out to be wildly successful – much more successful than we ever thought and certainly a lot bigger than Top Deck,” Lomas has since said.
They tasked Geoff Harris, a young sales and advertising executive, with opening the first Flight Centres in Melbourne and within a few years he was offered a partnership in the overall business.
In 1986, Top Deck was sold to the senior management team in London so they could focus on the fledgling airfare business, with the parent company renamed Flight Centre International. (Top Deck is still running and Turner, James and Harris bought back into the company in 2004 as part of a consortium that rescued it from receivership.)
Building an empire
Everyone from the top down addresses Turner as Skroo, the nickname he acquired as a schoolboy, which derives from the Turner brand of screwdrivers.
Turner, now 64, has headed the company for much of the past 33 years. He stepped aside from the day-to-day operations in 2002 but was back in the CEO seat by 2005. “Starting out in travel and setting up Top Deck in 1973 with some friends seems a long time ago – it is. But some things never change. Having fun, great friends, empire building and finding interesting ways of giving customers what they want and need – and still being able to make some money out of it – is still the challenge,” he wrote in the foreword to Family Village Tribe, a book detailing the company’s origins.
And there have been challenges. The aftermath of September 11, airlines in financial trouble, wars in Iraq and Afghanistan, SARS and the growth in online travel bookings have created turbulent times for the travel industry with many operators falling by the wayside.
Flight Centre Limited, however, has experienced growth in sales and profit for 18 of the past 20 years. In the year to June 2013, turnover was $14.3 billion and profit before tax surpassed $300 million for the first time.
It now has 2,500 shops and 16,000 staff globally. Of this, 8,000 staff are based in Australia and 8,000 across New Zealand, the USA, Canada, UK, South Africa, Dubai, Singapore, India, Hong Kong and China. The holding company sits behind more than 30 brands including Escape Travel, Student Flights, Cruiseabout, and quickbeds.com.
While this continued growth has confounded the company’s critics, Turner says those familiar with the business aren’t surprised. “We’ve been very consistent with our message,” he says. “With the Flight Centre brand we’ve had pretty much the same look and feel for the last 30 years – using the airline captain to promote cheap fares and our ‘lowest airfares guarantee’ promise. Obviously we’ve brought in other brands and gone to other countries to expand our business footprint, but we’ve been consistent in delivering customers what they want, and making sure our brand is recognised and understood over a long period of time.”
Rewarding and incentivising staff
A pivotal early lesson was that making employees feel like they owned a share of the business was a prime motivator for success. Store managers get a profit share in their shop’s turnover and can buy an additional 20 percent through the Business Ownership Scheme, which replaced the initial equity deals. The back-end operations have also been commercialised to run as separate profit centres with finance, marketing, HR and IT charging a competitive market rate to the shops for their services. “We have 2,600 or so small businesses that make up our company,” says Turner. “Each of them is accountable for their own results and their own customer service.”
High performers are feted at monthly dinners and annual conferences in exotic locations. It sounds a little cult like – but if people make it through their three-month probation, they tend to stay. Priority is given to promoting from within and many of the executive leadership team started as travel consultants with no prior experience in the travel industry and have worked their way up from the shop floor.
“These people know the businesses backwards,” says Turner. “Nearly all of my team and the people who run Flight Centre in the various countries have worked there for 15 to 30 years, and that’s a really important part of any businesses’ success. If people stay, they like to think they’re working in an environment where they can have fun and get a lot of satisfaction out of it. That’s something you can’t invent – you try to encourage it, but at the end of the day it’s up to the culture of the business and people that work in the business.”
Part of the motivation for floating the company in 1995 – the first time a travel agency had listed on the Australian Stock Exchange – was to give staff a share in the spoils. Listed at 95 cents a share for the general public and a discounted rate of 85 cents for staff, about half took up the offer, buying 25 percent of the company. More than 100 staffers became millionaires within the next five years as the share price continued to rise.
Using a Stone Age structure
Despite the success of the float, Flight Centre’s aggressive growth strategy meant plenty of growing pains as it went from the underdog in the travel industry to a major player. It was clear a formal structure was needed.
That year, Turner read an article by Nigel Nicholson, Professor of Organisational Behaviour at the London Business School, proposing that for most of history, humankind has been a hunter-gatherer and is therefore hardwired to prefer working in certain ways. He suggested taking organisational cues from our Stone Age ancestors, including working in small groups, sharing and rewarding behaviour that benefits the group. It struck a chord for Turner as it echoed what had intuitively worked best for Flight Centre.
“It’s only very recently that we’ve become farmers and industrialists, so humans have an innate need to be structured in this way,” says Turner. “We first realised this quite early on when we found that businesses that had up to about seven people in them worked. Businesses that became bigger than seven or 10 people really started to struggle.”
The ‘Family Village Tribe’ model now underpins the Flight Centre’s structure, with each of its businesses working in teams of three to seven people within close proximity to each other. They’re congregated into villages of six to eight businesses and then into a tribe of about 25 villages. The ‘family leaders’ take full responsibility for the profit and loss of their teams and compete against rival families from the same village. This is repeated at the tribe level; leaders who do well are rapidly promoted up the ranks.
This helped manage the challenges of exponential growth, but didn’t mitigate the threat of online bookings. Part of Flight Centre’s solution is a blended model based on providing a 24/7 service allowing customers to switch seamlessly between online shopping and bricks and mortar stores with travel experts at the ready to assist.
“We believe that our future lies in moving from being a travel agent or middleman to a world-class retailer of travel,” says Turner. “We have certain mini themes under that and the blended model is one of them – in other words, deal with customers the way they want to be dealt with. That can be online, but generally our differentiation will be in our face-to-face offerings whether that’s over the phone or in person.”
The boom in international travel
Flight Centre has also benefited from the price of international travel becoming more affordable. Turner estimates that in the early 60s the cost of a return flight from Sydney to London cost an average person six months’ salary. Today it equates to about a week and a half’s salary.
According to the Australian Bureau of Statistics, Australian residents made a record 8.4 million short term trips overseas in 2012-13, nearly three times more than 10 years ago. The most popular destinations – New Zealand, Indonesia, the USA, Thailand and the UK – accounted for 49 percent of all short-term resident departures for the year.
Baby boomers are a key part of Flight Centre’s market and Turner expects this segment to become even more important over the next 10-20 years given they’ll have the money and time to travel. Flight Centre’s share of the corporate market has also grown with the expansion of the corporate brand FCm Travel Solutions – corporate travel represents about 40 percent of the profits and 35 percent of sales.
While Australia still represents about half the group’s sales and significantly more of its profit, accounting for turnover of $8.5 billion in the 2012-13 financial year, the overseas arms provide the greatest potential for growth. They now all turn a profit, but the company weathered plenty of false starts along the way. Turner advises patience and caution in any global expansion.
“To have a reasonable chance of success it’ll generally take between 10 and 20 years, so you have to be patient and be prepared to get it right,” he says. “Make sure you have the right people in there.”
The US and the UK represent the biggest overseas markets for the business. After the first attempt to start operations in the US in the 1990s fell over, in February 2008 Flight Centre acquired the USA travel agency group Liberty Travel. By the 2012-13 financial years, the USA accounted for turnover of $1.7 billion.
Asia is another growth market with Flight Centre gaining a foothold in greater China, India and Singapore. “We wouldn’t stay in any country unless we thought it had a long-term potential future for us,” says Turner. “Most of our growth now is organic so it’s just a matter of opening more shops or building more teams and getting more customers.”
Growth is also coming from shares or ownership in a range of diversified businesses. This includes a joint venture with Employment Office Australia, bike distributors Advanced Traders and 99 Bikes, a bike shop set up by Graham’s son, Matt Turner. The Business School, HealthWise and MoneyWise were also set up to provide services to staff and have since been spun into separate companies servicing external clients.
The running of Spicers – seven luxury retreats in Queensland and the Hunter Valley – is overseen by Graham’s wife, Jude Turner, and Managing Director, David Assef. Jude, who was vaguely acquainted with Turner from her student days at the University of Queensland, landed at the Top Deck offices in London and a smitten Turner found her a job in administration. Legend has it that when she went off on a Top Deck tour he recalled the driver and flew in to replace him. They married in Brisbane in 1976. Turner says Jude has been an integral part of the business, particularly in those early years when she worked in marketing and HR.
Travel remains an important part of their lives. The Turners are often in New York and London, where they have a house and their daughter lives. A fitness fanatic, Turner often organises their trips around major marathons and they take an annual cycling trip through Europe with friends.
Turner doesn’t see diversification as a necessity for all businesses chasing growth, but considers it an opportunity to dip a toe into other industries.
“Diversifying adds to the interest and appeal of the companies, and people get excited by some degree of diversification,” he says. “But to buy companies for the sake of diversity may not be such a good idea. It can take your focus off the main game. That’s not the case for us – it has created the interest and what people see as an interesting and dynamic future.”
Asked what he loves about running his own business, Turner says the growth of the company from start-up to global brand has meant that every five to seven years he feels like he’s working in a totally different organisation doing a totally different job.
“Since 1973 I’ve always essentially had my own business or been in partnership with other people,” he says. “I don’t really know anything else. Running your own business has its ups and downs. It means you’re totally responsible and accountable for its success or failure, so that’s the responsibility and accountability side, but you also get the benefits of having that flexibility, that ownership and the privileges that go along with that.”
And those privileges extend way beyond the financial rewards to the friendships that have been formed along the way.
This article was first published in Business View magazine (May 2014). For more articles and interactivity, download the iPad edition of Business View for free via our new app NAB Think.
More from NAB