Investors

Chairman's Letter

Dear Shareholder

Entitlement Offer Supplementary Prospectus
Enclosed is a supplementary prospectus which explains an accounting standards disclosure issue that we have recently been discussing with the Australian Securities and Investments Commission. The issue is whether we should disclose our gross sales as "revenue" in our accounts or the commission, rebates and other amounts that we earn from those sales.

We considered explaining this issue in the prospectus issued earlier this month, but took the view that because it was not (and is still not) resolved, it would be of little assistance to shareholders. The key thing that shareholders need to be clear about is that the question does not affect our profit, cashflow or financial strength in any way whatsoever. It is solely an accounting standards disclosure issue.

We are working with ASIC on this matter and expect to have it resolved before the 30 June 2003 results are released. Whatever the outcome, Flight Centre will continue to inform shareholders, and the market generally, of the value of our total gross sales.

The global airline industry
You will all have read and heard about the various difficulties affecting the global airline industry, particularly in the United States. The problems include easing demand, reduced capacity and increasing jet fuel prices. Just in the last few days, American Airlines has signalled an urgent need for extra funding and industry experts have suggested that all major US airlines are headed for chapter 11 protection.

Closer to home, Qantas signalled on 28 March 2003 that it would reduce planned international flying by a total of 20% between 1 April and mid-July 2003.

In our prospectus, we flagged the risk that war and terrorist attack posed on demand for air travel and that this could impact our financial condition, at least in the short term. We also re-iterated what we said in our half yearly profit release that we could not predict our ability to maintain our traditional trading patterns in the 6 months to 30 June 2003.

Since the beginning of January this year, there has been no sign of a significant deterioration in our trading conditions and we remain of the view that our diversification and track record should see us through these difficulties.

Accepting the Entitlement Offer
By now, you should have received a copy of the prospectus, together with your personalised Entitlement and Acceptance Form. The Offer closes at 5.00pm on Tuesday, 8 April 2003. The new shares offered will qualify for the fully franked interim dividend of 18.5 cents per share payable on 29 April. To take up your Entitlement or apply for Additional Shares, please complete your Entitlement and Acceptance Form and return it in accordance with the instructions on the form.

Yours sincerely

Norman C Fussell
Chairman
Flight Centre Limited

Supplementary Prospectus

FLIGHT CENTRE LIMITED
ABN 25 003 377 188
SUPPLEMENTARY PROSPECTUS

THIS IS A SUPPLEMENTARY PROSPECTUS TO BE READ IN CONJUNCTION WITH THE ORIGINAL PROSPECTUS DATED 7 MARCH 2003 ISSUED BY FLIGHT CENTRE LIMITED RELATING TO A NON-RENOUNCEABLE ENTITLEMENT OFFER.

15927595

1. INTRODUCTION

This supplementary prospectus is dated 31 March 2003 and is supplementary to the original prospectus issued by the Company and lodged with ASIC on 7 March 2003 (the Prospectus). This supplementary prospectus was lodged with ASIC on 31 March 2003. Neither ASIC nor ASX take any responsibility for the contents of this supplementary prospectus.

Terms and abbreviations defined in the Prospectus have the same meaning in this document. Expressions like we, us and our mean Flight Centre Limited. If there is a conflict between the Prospectus and this document, this document prevails.

2. REASONS FOR ISSUE OF SUPPLEMENTARY PROSPECTUS

This Supplementary Prospectus has been prepared to explain discussions currently taking place between Flight Centre and the Australian Securities and Investments Commission relating to the manner in which Flight Centre recognises revenue, principally from airline ticket sales, in its accounts.

The issue does not affect our profitability, cash flow or financial strength in any way. It is solely an accounting standards disclosure issue.

ASIC has questioned whether Flight Centre's recognition of revenue complies with Australian accounting standard AASB 1004 "Revenue". Flight Centre reports the gross value of the sale of each ticket as revenue, whereas ASIC believes that only the commission we receive (plus other rebates and bonuses and so on) should be recognised as revenue. The matter has not been resolved, but ASIC has required Flight Centre to issue this supplementary prospectus explaining the matter.

3. REVENUE RECOGNITION ISSUE

3.1 Flight Centre's view

Flight Centre believes that reporting gross revenue from ticket sales is more appropriate because:

1. This approach provides an unambiguous and transparent measure of our sales. Gross revenue is what we receive from our customers for selling products and services;
2. We receive the full price of a ticket from each of our customers, we can decide the price charged and, as between us and the airline, we carry the credit risk if the customer does not pay;
   
   As far as we are aware, many other participants in the travel industry, worldwide, report their receipts from sales in the same way as we do. For example, Britannic Travel Limited reports its ticket sales revenue the same way as Flight Centre. Flight Centre is aware, however, that as recently as 18 March 2003, Harvey World Travel Limited, after discussions with ASIC, changed the disclosure of its revenue from a gross ticketing value to a net commission value;
3. Ticket sales volume is the best measure of the real activity base of a company like Flight Centre even if we have arrangements for passing on a large proportion of the money from those sales to the airlines and our other suppliers;
4. Industry margins are also another key performance indicator. Flight Centre focuses on gross turnover and margins (ticket margins as a portion of ticket and other sales). Investors also require this information in order to assess comparable performance with other travel companies in our sector, and retail companies generally; and
5. Flight Centre believes that not disclosing ticket sales on a gross basis would lead to a lack of transparency that would disadvantage shareholders, investors and their advisers.

3.2 ASIC's views

ASIC's view is that in the vast majority of cases, the Company does not "own" the ticket, but merely provides the service of arranging travel or sells the ticket as the agent of the airline. As such, ASIC says that AASB 1004 requires the Company to recognise only the commission it receives for selling the ticket as revenue (plus volume bonuses etc) and not the gross amount received from the customer.

3.3 Financial effect on Flight Centre

It is accepted by ASIC that the different ways of recognising revenue do not affect profit. Flight Centre's cash flow statement, balance sheet and earnings before interest and tax figures are also unaffected. Even if Flight Centre adopted ASIC's view, the new net revenue figure would not impact any other numbers in the prospectus (other than Retail expenses in section 4.3 because those expenses include the costs of tickets and other costs of sales).

There is no real financial impact, but Flight Centre would recognise much lower revenue if we adopted the treatment preferred by ASIC. Flight Centre estimates that the reported revenue for the year to 30 June 2002 would have been below $500 million had ASIC's approach been adopted in that year. However, we stress that the data supporting this estimate has not been audited.

The fact remains, however, that our actual sales are unaffected as is our profit. This is purely an issue about how receipts from our customers are characterised from an accounting standards perspective.

4. WAIVER OF TERMINATION RIGHTS BY UNDERWRITERS

The Underwriters have waived any rights they might otherwise have had to terminate their obligations under the Underwriting Agreement based on the lodgment of this supplementary prospectus and the circumstances that have given rise to it.

5. DIRECTORS' CONSENTS

Each director of the Company has consented in writing to the lodgment of this prospectus with ASIC in accordance with section 720 of the Corporations Act 2001 (Cth).

Signed by the chairman of Flight Centre for the purposes of section 351 of the Corporations Act 2001 (Cth).

Norman C Fussell
Chairman