FLIGHT CENTRE TRAVEL GROUP LIMITED — M&A Activity 2007

Jul 30, 2007

==> picture [74 x 52] intentionally omitted <==

==> picture [74 x 30] intentionally omitted <==

ÍÌßÌÛÓÛÒÌ ÌÑ ßËÍÌÎßÔ×ßÒ ÍÌÑÝÕ ÛÈÝØßÒÙÛ Ö«´§ íïô îððé

Û®²-¬ ú DZ«²¹ λ°±®¬ λ´»¿-»¼

Ú´·¹¸¬ Ý»²¬®» Ô·³·¬»¼ - Ü·®»½¬±®- ·²-¬®«½¬»¼ Û®²-¬ ú DZ«²¹ ¬± °®»°¿®» ¿ ®»°±®¬ º±® ¬¸» Ü·®»½¬±®- »ª¿´«¿¬·²¹ ¬¸» °®±°±-»¼ ¬®¿²-¿½¬·±² ±² ¿ ¾¿-·- ½±²-·-¬»²¬ ©·¬¸ ¿² ·²¼»°»²¼»²¬ »¨°»®¬ - ®»°±®¬ò

É» ¿¬¬¿½¸ ¿ ½±°§ ±º ¬¸·- ®»°±®¬ò

ÛÒÜÍ ×--«»¼ ¾§ Ø¿§¼² Ô±²¹ ðìïè éëðìëì

VALUATION ADVISORY SERVICES

TRANSACTION ADVISORY SERVICES

FLIGHT CENTRE LIMITED

EVALUATION REPORT 31 July 2007

==> picture [595 x 50] intentionally omitted <==

Valuation Advisory Services is a part of Ernst & Young Transaction Advisory Services Limited ABN 87 003 599 844 Australian Financial Services Licence No. 240585

==> picture [587 x 57] intentionally omitted <==

==> picture [587 x 58] intentionally omitted <==

31 July 2007

The Directors Flight Centre Limited 316 Adelaide Street BRISBANE QLD 4000

Attention: Mr Bruce Brown

Dear Directors

Evaluation of the Proposed Joint Venture Transaction

Introduction and Purpose of Report

The Directors of Flight Centre Limited (and associated entities) (“Flight Centre”) have requested Ernst & Young Transaction Advisory Services Limited (“Ernst & Young Transaction Advisory Services”) to prepare an evaluation of a proposed transaction under which Flight Centre will dispose of its entire business to a leveraged joint venture (“the Proposed Transaction”) with funds advised by Pacific Equity Partners (“PEP”).

We have been instructed to prepare the evaluation report consistent with an IER that would be prepared for provision to shareholders.

The Proposed Transaction

An overview of the Proposed Transaction is outlined below. The overview is only that and should not be regarded as a complete description of the Proposed Transaction.

On 21 June 2007, Flight Centre announced that it had entered into binding exclusivity arrangements with PEP in relation to the Proposed Transaction. Under the proposal, PEP will effectively purchase a 30% economic interest in a leveraged joint venture (“the Joint Venture”) that is to be formed to acquire Flight Centre’s operational and business assets. Flight Centre shareholders will hold a 70% economic interest in the Joint Venture’s business via their existing Flight Centre shares.

In addition, Flight Centre will declare and pay a fully franked dividend of $0.40 for each Flight Centre share in respect of the financial year ended 30 June 2007.

Liability limited by a scheme approved under Professional Standards Legislation.

Valuation Advisory Services is a part of Ernst & Young Transaction Advisory Services Limited ABN 87 003 599 844 Australian Financial Services Licence No. 240585

2

==> picture [169 x 64] intentionally omitted <==

Joint Venture

Under the proposal put forward by PEP, Flight Centre will hive down its operations into whollyowned subsidiaries as follows:

• AssetCo - The transferee of all the Australian assets and associated liabilities of the Flight Centre business, and the shares in all the Australian operating subsidiaries of Flight Centre under the new arrangement;

• Australian OpCo - The new holder of the Travel Agency licence required to operate the Flight Centre business in Australia under the Joint Venture, and such other assets as are required or desirable for regulatory reasons to be owned by the entity; and

• Foreign OpCo - The foreign operating subsidiary companies of Flight Centre.

Some of Flight Centre’s foreign operating subsidiaries in certain countries will be acquired by JV BidCo (“Rest of World”)

PEP will procure the establishment of a wholly-owned subsidiary to be the purchaser (“JV BidCo”) of all equity securities of AssetCo, Australian OpCo, and Foreign OpCo from Flight Centre. PEP will also procure the establishment of the holding company (“JV HoldCo”) which it intends to hold 100% of the equity in JV BidCo. JV HoldCo will issue the voting and non-voting securities to Flight Centre and PEP in accordance with the Proposed Transaction.

PEP will initially invest $195 million for voting and non-voting shares representing a 30% economic interest in JV Holdco. PEP will hold 50% of the voting and non-voting shares of the Joint Venture.

Debt funding of $960 million will be drawn down by JV Bidco under the facility agreements to part fund the Proposed Transaction.

Flight Centre will receive cash consideration of $195 million, representing the cash consideration from PEP, and $960 million from external debt funders less transaction costs, stamp duty and debt funding costs from JV HoldCo.

Flight Centre will hold a 70% economic interest in JV HoldCo. This will comprise holding 50% of the voting and non-voting shares and all convertible notes. We note that the convertible notes held by Flight Centre are convertible into either:

• The number of non-voting shares necessary to ensure Flight Centre holds 70% and PEP holds 30% of the aggregate economic interests in JV HoldCo to the extent that PEP does not achieve the performance hurdle on an exit event; or

• The number of non-voting shares necessary to ensure Flight Centre holds two-thirds and PEP holds one-third of the aggregate economic interest in JV HoldCo to the extent that PEP achieves the performance hurdle on an exit event.

We have not assessed the impact on the underlying value to shareholders should PEP achieve or exceed the performance hurdles. This is due to the uncertainty of PEP actually achieving the performance hurdles as well as the uncertainty surrounding the timing of a potential exit event.

E VALUATION ADVISORY SERVICES

3

==> picture [169 x 64] intentionally omitted <==

Summary and Opinion

In our opinion, an Independent Expert retained to prepare an Independent Expert’s Report in respect of the Proposed Transaction would conclude that:

• The proposed Transaction is not fair and reasonable; and

• In the absence of a better offer, Shareholders should not vote in favour of the Proposed Transaction.

This opinion should be read in conjunction with our detailed report which sets out our detailed evaluation.

Other matters

The report has been prepared specifically for Directors of Flight Centre and should not be provided to shareholders, without our prior consent.

The decision whether to vote in favour or against the Proposed Transaction is a matter for individual Shareholders to consider having regard to factors such as value expected, future market conditions, investment objectives, risk profile, liquidity preferences, portfolio strategy and tax position.

Yours faithfully

Ernst & Young Transaction Advisory Services Limited

==> picture [110 x 39] intentionally omitted <==

==> picture [83 x 45] intentionally omitted <==

==> picture [107 x 30] intentionally omitted <==

Grant Murdoch Director and Representative

John Hope Cathy Montesin Director and Representative Representative

E VALUATION ADVISORY SERVICES

GLOSSARY

EVALUATION REPORT

Contents

Glossary.................................................................................................................................................................1 1. Key terms of the Proposed Transaction.........................................................................................3 2. Scope and Approach..............................................................................................................................6 3. Industry Overview.....................................................................................................................................8 4. Profile of Flight Centre........................................................................................................................10 5. Valuation Methodologies...................................................................................................................23 6. Valuation of Flight Centre Shares..................................................................................................26 7. Evaluation of the Proposed Transaction as a whole..............................................................34 8. Assessment of the Proposed Transaction for shareholders who wish to exit from Flight Centre (buy-back alternative)..................................................................................41 9. Assessment of the Proposed Transaction for shareholders who wish to participate in the Joint Venture (stay-in alternative)...........................................................44 10. Conclusion summary............................................................................................................................51 Appendix 1: Sources of Information......................................................................................................52 Appendix 2: Statement of Qualifications and Declarations.......................................................53 Appendix 3: Comparable Companies.....................................................................................................55 Appendix 4: Travel Industry Transactions...........................................................................................56 Appendix 5: Alternative Transactions Considered..........................................................................58 Appendix 6: History of Flight Centre’s Share Price and Trading Volumes............................60

© 2007 Ernst & Young Transaction Advisory Services Limited. All Rights Reserved. Ernst & Young is a registered trademark. Liability limited by a scheme approved under Professional Standards Legislation.

E VALUATION ADVISORY SERVICES

GLOSSARY

EVALUATION REPORT

Glossary

Term

Meaning

$ All monetary values stated in Australian Dollars, unless otherwise stated AIFRS Australian International Financial Reporting Standards ASIC Australian Securities and Investments Commission AssetCo The transferee of all the Australian assets and associated liabilities of the Flight Centre business, and the shares in all the Australian operating subsidiaries of Flight Centre under the new arrangement ASX Australian Stock Exchange AUD Currency quoted in Australian Dollars Australian OpCo The new holder of the Travel Agency licence required to operate the Flight Centre business in Australia under the Joint Venture, and such other assets as are required or desirable for regulatory reasons to be owned by the entity BOS Business Ownership Scheme Buy-back An off-market buy-back, to be effected under a scheme of arrangement, to return a substantial part of the cash proceeds to Flight Centre shareholders who do not wish to continue to hold an interest in the Joint Venture. The directors expect to offer existing shareholders a minimum of $16 per share under the Buy-Back Scheme, with the potential to increase the price to a maximum of $16.50. CBD Central Business District CGT Capital Gains Tax Corporate Flight Centre’s Corporate business which operates under the FCm, CiEvents, KistendCampus Travel and Stage & Screen brands Corporations Act the_Corporations Act 2001_ DCF Discounted Cash Flow Directors Members of the Board of Directors of Flight Centre Limited. Namely, Bruce Brown, Graham Turner, Peter Barrow, Howard Stack and Geoff Harris (alternate only) DTA Deferred tax asset EBIT Earnings before interest and tax EBITDA Earnings before interest, tax, depreciation and amortisation Ernst & Young Transaction Advisory Services Ernst & Young Transaction Advisory Services Limited ABN 87 003 599 844 Executives Key Management Personnel as identified by Flight Centre Limited Failed privatisation scheme Initial privatisation under a Scheme of Arrangement announced on 25 October 2006. An announcement on 28 February 2007 stated that approval for the Scheme had not been granted FCm FCm Travel Solutions Flight Centre, the company or the entity Flight Centre Limited ABN 25 003 377 188

E VALUATION ADVISORY SERVICES

1

GLOSSARY

EVALUATION REPORT

Term

Meaning

Foreign OpCo The foreign operating subsidiary companies of Flight Centre Limited Founders Flight Centre Limited’s business Founders. Namely, Chris Grieve, Jim Goldberg, Geoff Harris, Graham Turner and Bill James FY07F FY07YTD and forecast for June 2007 FY07A Financial Year Ended 30 June 2007 FY0X Financial Year Ended 30 June 200X FY07YTD Financial Year To Date to 31 May 2007 GBP Currency quoted in British Pounds H10XA Actual results for the half year ended December 200X H20XA Actual results for the half year ended June 200X Implementation Deed Implementation Deed signed and dated 21 June 2007 Incl Including IPO Initial Public Offering JV or Joint Venture Joint Venture to be formed to acquire Flight Centre’s operational and business assets JV BidCo The purchaser of all the equity securities in AssetCo, Australian OpCo and Foreign OpCo, noting that the foreign operating subsidiary companies of Flight Centre in certain countries may be purchased by a wholly-owned subsidiary of JV BidCo under the new arrangement JV HoldCo The joint venture holding company that holds all the shares in JV BidCo Leisure Flight Centre’s Leisure business which operates under the Flight Centre, Escape Travel, Student Flights, Overseas Working Holidays, Travel Associates and Cruiseabout brands Management Flight Centre’s Management team NCS Nationwide Currency Services NPAT Net profit after tax NZD Currency quoted in New Zealand Dollars PEP Pacific Equity Partners Pty Ltd ABN 60 082 283 949 Proposed Transaction The proposed leveraged joint venture transaction Report This report to the Flight Centre Limited’s Shareholders Sunset Date Means 30 September 2007 or such date as Flight Centre and PEP agree TTV Total Transaction Value. TTV represents the price at which products and services have been sold, plus revenue from other sources. As such TTV does not represent revenue in accordance with AIFRS. USD Currency quoted in United States Dollars Wholesale Flight Centre’s Wholesale business, an internal revenue centre, operating under the Infinity Holidays and Ticket Centre brands

E VALUATION ADVISORY SERVICES

2

EVALUATION REPORT

KEY TERMS OF THE PROPOSED TRANSACTION

1. Key terms of the Proposed Transaction

1.1 Overview

An overview of the Proposed Transaction is outlined below. The overview is only that and should not be regarded as a complete description of the Proposed Transaction.

On 21 June 2007, Flight Centre announced that it had entered into binding exclusivity arrangements (“the Implementation Deed”) with Pacific Equity Partners (“PEP”) in relation to the Proposed Transaction. The Implementation Deed documents key aspects of the Proposed Transaction and formalises Flight Centre and PEP’s in-principle agreement reached on 14 May 2007. Under the proposal, PEP will effectively purchase a 30% economic interest in a leveraged joint venture (“the Joint Venture”) that is to be formed to acquire Flight Centre’s operational and business assets. Flight Centre shareholders will hold a 70% economic interest in the Joint Venture’s business via their existing Flight Centre shares.

In addition, Flight Centre will declare and pay a fully franked dividend of $0.40 for each Flight Centre share in respect of the financial year ended 30 June 2007.

Under the Implementation Deed, the cut off date for implementation of the transaction to establish the Joint Venture is 30 September 2007 or such other date as Flight Centre and PEP agree in writing.

If Flight Centre shareholder approval is obtained and the Proposed Transaction is effected, Flight Centre’s directors intend to offer an off-market buy-back, to be effected under a scheme of arrangement (“the Buy-Back Scheme”), to return a substantial part of the cash proceeds to Flight Centre shareholders who do not wish to continue to remain shareholders of Flight Centre. The directors expect to offer existing shareholders a minimum of $16 per share under the Buy-Back Scheme, with the potential to increase the price to a maximum of $16.50.

Key steps of the Proposed Transaction

This legal structure following the Proposed Transaction is illustrated in the diagram below:

==> picture [350 x 212] intentionally omitted <==

----- Start of picture text -----

Flight Centre PEP
70% economic interest 30% economic interest
50% voting and non-voting shares 50% voting and non-voting shares
JV HoldCo
100%
JV BidCo
100%
Australian OpCo AssetCo
(travel license and other (Australian assets and Foreign OpCo Rest of World
assets) liabilities)
----- End of picture text -----

E VALUATION ADVISORY SERVICES

3

EVALUATION REPORT

KEY TERMS OF THE PROPOSED TRANSACTION

The Implementation Deed between Flight Centre and PEP sets out the framework for the parties to implement the transactions necessary to establish the Joint Venture. The key steps are set out below.

Step 1: Restructure of Flight Centre

Under the proposal put forward by PEP, Flight Centre will hive down its operations into three wholly-owned subsidiaries as follows:

• AssetCo - The transferee of all the Australian assets and associated liabilities of the Flight Centre business, and the shares in all the Australian operating subsidiaries of Flight Centre under the new arrangement;

• Australian OpCo - The new holder of the Travel Agency licence required to operate the Flight Centre business in Australia under the Joint Venture, and such other assets as are required or desirable for regulatory reasons to be owned by the entity; and

• Foreign OpCo - The foreign operating subsidiary companies of Flight Centre.

Some of Flight Centre’s foreign operating subsidiaries in certain countries will be acquired by JV BidCo (“Rest of World”)

We note that intragroup agreements to affect the above were entered into by Flight Centre and relevant subsidiaries on 30 June 2007. Completion of the restructure under the intragroup agreements is conditional on the same conditions as the acquisition of Flight Centre, including approval of Flight Centre shareholders.

Step 2: Acquisition of Flight Centre

Under the proposal put forward by PEP, this step involves the following:

• Flight Centre and PEP will effect the transfer of all the shares in the wholly-owned subsidiary companies described above and shares in all the foreign operating subsidiary companies to the Joint Venture. The purchaser of all equity securities of AssetCo, Australian OpCo, and Foreign OpCo will be JV BidCo;

• A holding company for the Joint Venture (“JV HoldCo”) will be established which will hold 100% of the equity in JV BidCo;

Step 3: Joint Venture funding

Flight Centre and PEP will facilitate the net cash proceeds as follows:

• Borrowings of $960 million in debt funding obtained by JV BidCo under facility agreements to be agreed with financiers;

• PEP will initially invest $195 million for voting and non-voting shares representing a 30% economic interest in JV HoldCo. PEP and Flight Centre will each hold 50% of the voting and non-voting shares of JV HoldCo, while Flight Centre will also hold convertible notes equating to a 20% economic interest in JV HoldCo. We note that the convertible notes held by Flight Centre are convertible into either:

• The number of non-voting shares necessary to ensure Flight Centre holds 70% and PEP holds 30% of the aggregate economic interests in JV HoldCo to the extent that PEP does not achieve the performance hurdle on an exit event; or

E VALUATION ADVISORY SERVICES

4

EVALUATION REPORT

KEY TERMS OF THE PROPOSED TRANSACTION

• The number of non-voting shares necessary to ensure Flight Centre holds two-thirds and PEP holds one-third of the aggregate economic interest in JV HoldCo to the extent that PEP achieves the performance hurdle on an exit event. and

• Transaction fees, stamp duty and debt arranging costs payable by the Joint Venture will reduce the above cash proceeds.

Summary of the consideration received by flight Centre Shareholders

As set-out above, Flight Centre shareholders will receive the following consideration:

• Gross cash consideration of $1.155 billion;

• 50% of the voting and non-voting shares in JV HoldCo; and

• Convertible notes, equating to a 20% economic interest in JV HoldCo.

1.2 Conditions

Implementation of the Proposed Transaction is subject to a number of additional conditions being satisfied or waived. In summary, the Proposed Transaction may not take place if:

• Flight Centre shareholders do not approve the Proposed Transaction;

• Foreign investment regulatory approvals in Australia and New Zealand are not obtained or the travel agency licences required to operate the Flight Centre travel business in Australia are not granted;

• The courts or the Takeovers Panel or other legal restraint or prohibition is in effect between the date of the Implementation Deed and the Sunset Date which prevents any aspect of the transaction steps from being completed;

• Flight Centre is subject to any action prohibited in the Implementation Deed relating to matters such as capital reorganisations, winding up, appointing a liquidator, administrator or receiver, acquiring or disposing of assets with an aggregate value above $2.5 million or entering into or varying material contracts;

• A material adverse change occurs in respect of Flight Centre;

• Representations and warranties made by Flight Centre or PEP in the Implementation Deed are breached;

• JVHoldCo has not executed the Facility Agreement to access the debt funding amounts on terms that are acceptable to Flight Centre and PEP (or does so less than five Business Days prior to the Sunset Date);

• not all conditions to drawdown under the Facility Agreements are satisfied or waived in accordance with the Facility Agreements (or satisfaction occurs less than two Business Days prior to the Sunset Date); and

• Flight Centre has not obtained a waiver of all relevant ASX Listing Rules or not all Flight Centre shareholder approvals required under any ASX Listing Rules are obtained.

E VALUATION ADVISORY SERVICES

5

SCOPE AND APPROACH

EVALUATION REPORT

2. Scope and Approach

2.1 Purpose of report

Flight Centre directors have requested EYTAS to prepare an evaluation of the Proposed Transaction stating whether the transaction is fair and reasonable to holders of the entity’s ordinary securities.

We have been instructed to prepare the evaluation report consistent with an IER that would be prepared for provision to shareholders.

2.2 Basis of Evaluation

Policy Statements issued by the Australian Securities and Investments Commission (“ASIC”) provide guidance as to how the term “fair and reasonable” should be interpreted.

In our determination as to whether the proposed Transaction is fair and reasonable, we have had regard to ASIC Policy Statements and Practice notes, particularly Policy Statement 74 Acquisitions Agreed to by Shareholders and Policy Statement 75 Independent Expert’s Reports to Shareholders

ASIC Policy Statement 74 primarily relates to reports prepared for the purposes of Section 611(7) of the Corporations Act which allows the non-associated shareholders to waive the prohibition preventing a person from acquiring a relevant interest in excess of 20% of the voting shares in a listed company by passing a resolution at a general meeting.

Section 611(7) of the Corporations Act requires that the non-associated shareholders be provided with a comprehensive analysis of the Proposed Transaction, including whether or not the Proposed Transaction is “fair and reasonable” to the non-associated shareholders.

Policy Statement 74 Acquisitions Agreed to by Shareholders states that to determine whether a proposal is fair and reasonable, the likely advantages and disadvantages to shareholders if the proposal is implemented must be considered.

Policy Statement 74 Acquisitions Agreed to by Shareholders states that fairness and reasonableness should be judged in all the circumstances of the proposal. In essence, the Proposed Transaction will be fair and reasonable if Flight Centre Shareholders are better off if the Proposed Transaction is implemented, that is, the expected advantages to the Flight Centre Shareholders outweigh the disadvantages.

Although the term “fair and reasonable” has no legal definition, over time a commonly accepted meaning has evolved. “Fairness” relates to price whereas “reasonableness” involves consideration of factors other than price.

Fairness is said to involve a comparison of the value of the consideration with the value that may be attributed to the securities, which are the subject of the transaction, based on the valuation of the underlying business and assets.

The concept of reasonableness involves an analysis of factors other than fairness that Shareholders might consider prior to voting on the Proposed Transaction.

In Policy Statement 75, ASIC draws a distinction between the terms “fair” and “reasonable”. Policy Statement 75 is primarily directed towards reports prepared for Section 640 of the Corporations Act,

E VALUATION ADVISORY SERVICES

6

SCOPE AND APPROACH

EVALUATION REPORT

for schemes of arrangement and for related party transactions and refers to the meaning of “fair” and “reasonable” as separate concepts.

According to Policy Statement 75, an offer is “fair” if the value of the offer price or consideration is equal to or greater than the securities the subject of the offer. A comparison must be made assuming 100% ownership of the target company.

Policy Statement 75 considers an offer is “reasonable” if it is fair. An offer may also be reasonable if, despite not being “fair” but after considering other significant factors, shareholders should accept the offer in the absence of any higher bid before the close of the offer.

ASIC Policy Statement 74 Acquisitions Agreed to by Shareholders and ASIC Policy Statement 75 Independent Expert Reports to Shareholders also require the Independent Expert to provide an opinion as to whether there is any premium for control being received as consideration as a result of the Proposed Transaction. In giving an opinion as to whether any control premium is being received, the Independent Expert needs to quantify the control premium.

If a premium is received, the higher the premium, the greater the benefit for all Shareholders, however, any such benefit may be offset against a change in control.

Having regard to ASIC Policy Statements 74 and 75, in Ernst & Young Transaction Advisory Services’ opinion, the most appropriate basis upon which to evaluate the Proposed Transaction is to consider whether the transaction is “fair and reasonable” as set out in Policy Statement 74.

The following facts, inter alia, have been considered when determining whether the Proposed Transaction is fair and reasonable to the shareholders of Flight Centre:

• The relevant position of Flight Centre shareholders before and after the implementation of the Proposed Transaction; and

• Other qualitative and strategic issues associated with the Proposed Transaction and the extent to which they may advantage or disadvantage the shareholders of Flight Centre.

2.3 Reliance on Information

In reaching its conclusions, Ernst & Young Transaction Advisory Services has considered and relied upon information provided by Flight Centre and information that has been placed on the public record. We note that certain information relied on constitutes internal management information that is not on the public record. In the preparation of this report Ernst & Young Transaction Advisory Services has relied upon and considered information believed after due inquiry to be reliable and accurate. We consider reliance on this information reasonable in the circumstances. Our sources of information are set out in Appendix 1 to this Report.

We have no reason to believe that any material facts have been withheld from us. Ernst & Young Transaction Advisory Services notes, however, that it has not audited the information provided to it and it does not warrant that its enquiries have disclosed all the matters that an audit or a more extensive examination might have disclosed.

E VALUATION ADVISORY SERVICES

7

INDUSTRY OVERVIEW

EVALUATION REPORT

3. Industry Overview[1]

Travel agents act as intermediaries between the buying public and suppliers of transport, accommodation and leisure services through retail and corporate outlets. Despite the development and use of computerised booking systems, the industry continues to be labour-intensive with a high level of personal service and advice in recommending travel products, issuing tickets, checking alternative prices, routes and schedules.

3.1 Australian travel agency services industry

In FY06 the estimated total revenue from the travel agency services industry was $2.5 billion. Real industry revenue growth is set out below.

Real industry revenue growth

	FY02	FY03	FY04	FY05	FY06	FY07
Growth	(9.2%)	(3.1%)	1.7%	1.0%	1.0%	1.1%

Source: IBISWorld - Travel Agency Services in Australia I6641, 25 May 2007

The demand for travel services has fluctuated over the past five years due to:

• The stability of global economic markets, affecting exchange rates, which makes travel to certain destinations more or less attractive;

• Changes in real household disposable income and available leisure time;

• The relative price of domestic and international travel;

• Changes in fuel prices;

• Competition amongst airlines for the leisure market, which has seen a decrease in domestic airfares;

• The introduction of internet-based booking services;

• The introduction of new airline technology, making airfares and travel relatively cheaper;

• Changes in business profitability and their aptitude to undertake conference / seminar related travel;

• Increased consumer demand for convenience packaged tours; and

• Geopolitical tensions including terrorist attacks and the war in Iraq.

The technological developments have brought key changes to the way in which the industry operates. Consumers are now able to make enquiries and reservations directly with airlines and accommodation operators and as such, bypass the agency network.

Industry revenue growth is being eroded by increased competition from direct bookings with the various industry operators. This is consistent with the current perspective that the Travel Agency Services Industry is in the decline stage of its life cycle development. Recent consumer trends

1 IBISWorld – Travel Agency Services in Australia I6641, 25 May 2007

E VALUATION ADVISORY SERVICES

INDUSTRY OVERVIEW

EVALUATION REPORT

indicate that consumers are increasing their reliance on technological developments such as online booking and reservation systems, smart cards and ticketless air travel to make travel arrangements.

The reduction in commissions on sales paid by airlines to travel agents has also contributed to this slowing growth. Jetstar and Virgin Blue have removed domestic travel commissions to agents in favour of incentive based payments and Qantas and Singapore Airlines have lowered commission rates on both domestic and international flights. However, commissions on other services such as travel insurance, car hire and accommodation still remain relatively high and travel agents are still able to derive volume incentives (overrides) on booking in lieu of reduced commission. In addition to reduced commissions from airlines, travel agent revenues are being further eroded by the creation of specialised hotel booking websites such as wotif.com. Travel agents have started to charge a feefor-service in order to minimise the impact of reduced commissions.

Flight Centre is one of the major players within the Australian travel agent industry with an estimated 38.4% of the travel agency services market (including both leisure and corporate). Flight Centre’s nearest competitors within Australia include S8 Limited (with an estimated market share of 10.0%) and Jetset Travelworld Limited (with an estimated market share of 4.3%).

3.2 Global travel agency services industry

The global travel industry is going through a consolidation phase, with a number of travel companies undergoing vertical integration through a series of acquisitions. In particular, we note that there have been a number of significant transactions either completed or announced over the past 12 months, including:

• The acquisition of Sabre Holdings, a US based company, by Texas Pacific Group and Silver Lake Partners, completed in March 2007.

• The acquisition of Thomas Cook AG, the German travel services company by KarstadtQuelle AG, and the subsequent merger of Thomas Cook AG with MyTravel Group PLC, Thomas Cook’s UK-based counterpart, completed in February 2007.

• The merger between TUI Travel (subsidiary of TUI AG) and First Choice Holiday Group PLC, announced in March 2007 and likely to be completed by the third quarter of 2007.

3.3 Industry outlook for the travel agency services industry

The outlook for the travel agency services industry beyond 2006 indicates that the industry will continue to face significant operational challenges resulting from online and direct bookings with industry operators. The industry’s future will lie in providing competitive online booking services, seeking out corporate accounts and expanding business operations overseas. Some agencies have expanded overseas to increase revenue, but it is early stages for most of these businesses. Many countries are also experiencing the same industry trends as Australia. The industry may face a brighter future if fees-for-service instead of commissions become the norm. Significant price-based competition will continue to exist amongst agents and profit margins will continue to be low as a result.

Despite this outlook we note that the industry has produced relatively solid results to FY07, with a number of Australian travel companies releasing profit upgrades and favourable earnings guidance during this period.

E VALUATION ADVISORY SERVICES

9

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

4. Profile of Flight Centre

4.1 Background

Introduction

Flight Centre operates within the global travel industry. Flight Centre sells domestic and international travel to external customers through its Leisure and Corporate businesses spread across the globe, while servicing internal customers through its Wholesale division. Flight Centre has its own website, where clients can make direct purchases as well as having a 24 hour direct telephone sales service. In addition, Flight Centre operates an events management business. Within the last year Flight Centre started to offer franchise opportunities available under its Escape Travel brand and more recently acquired a business which operates a number of foreign exchange shops, therefore expanding its business model.

Flight Centre commenced operations in 1981 through the establishment of its retail outlets in major shopping centres and CBD locations. In 1987 these retail outlets were restructured and re-branded under the “Flight Centre” banner.

In November 1995, Flight Centre undertook a successful Initial Public Offering (“IPO”) of $15.2 million. Flight Centre offered 12.375 million shares at $0.95 to the public and 4.125 million shares at $0.85 to staff. At the time of the IPO, 60 million shares were retained by the business Founders. The funds raised from the IPO were used to increase investment overseas and expand the business operations through a series of acquisitions (discussed below).

Flight Centre had a market capitalisation of $1.3 billion as at 24 October 2006, the day before the announcement of the failed privatisation under a Scheme of Arrangement (“failed privatisation scheme”). Prior to the Scheme meeting, the market capitalisation as at 26 February 2007 was $1.6 billion. Following an announcement on 28 February 2007 stating that approval for the Scheme had not been achieved, the market capitalisation fell to $1.4 billion. The market response to the preliminary offer from PEP on 29 March 2007 was positive and by the time an in-principle agreement was reached with PEP on 14 May 2007, Flight Centre’s market capitalisation had reached $1.7 billion.

The Flight Centre group had 1,240 leisure shops, 219 corporate business units and 69 wholesale operations as at the end of June 2007, covering Australia, New Zealand, South Africa, Canada, the UK, China, Hong Kong, the USA and India.

E VALUATION ADVISORY SERVICES

10

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Acquisitions and other transactions

Recent acquisitions and business developments undertaken by Flight Centre are as follows:

Acquisitions and business developments

Date	Acquisition
April 1999	Acquired SBT Business Travel Solutions, Stage & Screen Travel & Freight Services, and commenced operations in the United
	States.
July 2000	Acquired Overseas Working Holidays.
September 2001	Acquired the business of Shopper Travel.
April 2002	Acquired 100% of the issued capital of ITG.
August 2002	Acquired Hong Kong based corporate travel business American International Travel Limited (“AITL”).
September 2002	Acquired the online hotel booking service quickbeds.com.
December 2002	Entered the cruise market through the acquisition of Cruiseabout (and a retail outlet - Turramurra Travel).
March 2003	Acquired London-based Britannic Travel Limited (“Britannic”).
September 2003	Acquired Kistend Travel.
April 2004	Entered into a 50% joint venture operation with the Chinese-based China Comfort Travel Co Limited.
June 2004	Launched FCm Travel Solutions by consolidating and expanding its international corporate travel operations.
August 2004	Acquired travelthere.com from Contal.
July 2005	Acquired a 51% stake in Indian based Friends Globe Travels Limited (“Friends Globe Travels”).
December 2005	Launched franchise model under the Escape Travel brand.
March 2006	Acquired the Chicago-based corporate business of Bannockburn Travel Management.
October 2006	Acquired Nationwide Currency Services (“NCS”), a Perth-based business with a small number of foreign exchange shops
	across three cities.
February 2007	Acquired Toni Brasch Event Management
February2007	Acquired Travel Spirit Group
Source: Discussions with Flight Centre Management

In August 2006, Flight Centre entered into a sale and lease back transaction for its Brisbane head office incurring a profit of $22.4 million in FY07YTD.

E VALUATION ADVISORY SERVICES

11

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

4.2 Profile of business operations

Flight Centre provides travel related services to external customers through its Leisure and Corporate businesses. Internal customers are serviced through the Wholesale business. The details of these businesses have been outlined below.

Leisure

The Leisure business operates under the following brands as summarised below:

Leisure brands

Leisure brands
Brand	Discussion
Flight Centre	The company’s best known travel business. Flight Centre’s shop network spans Australia, New Zealand, the UK, the
	USA, Canada and South Africa. Stores are in high profile retail locations and typically occupy lease space in major
	shopping malls, CBDs and on high streets. Flight Centre’s branding and design are consistent worldwide to enhance
	brand awareness and recognition. The Flight Centre brand also encompasses the flightcentre.com website, which
	supports the company’s extensive shop network.
Escape Travel	A holiday specialist, catering for travellers who require value-for-money and affordable international and domestic
	holiday packages. Escape Travel operates across Australia in major shopping centres, with high walk-past traffic.
	Originally called Great Holiday Escape, the brand was relaunched to Escape Travel in January 2004. At the end of
	2005 Flight Centre launched a franchise model, with franchises available under the Escape Travel brand. Flight Centre
	plans to have approximately 14 Escape Travel franchises operational by December 2006. This brand is supported by
	the escapetravel.com.au website.
Nationwide Currency	A Perth based business with a small number of foreign exchange shops cross three cities.
Services
Student Flights	Caters for the youth market, specialising in cheap airfares and product for students, backpackers, young professionals
	and those travelling or working overseas. Originally launched in Australia, Student Flights has expanded into South
	Africa and the UK. Shops are located near major universities, TAFE campuses and locations where students typically
	gather. The brand is supported by the studentflights.com.au website.
Overseas Working	A niche brand that specialises in the growing working holiday market, offering programs in more than 80 countries and
Holidays	currently has offices in Australia, New Zealand and the UK.
Travel Associates	A boutique travel agent, designed to cater for discerning customers who travel regularly in search of new experiences
	and the ultimate in luxury holidays.
Cruiseabout	One of Australia’s largest specialist leisure cruise agencies.

Source: Discussions with Flight Centre Management

E VALUATION ADVISORY SERVICES

12

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Corporate

The Corporate business operates under the following brands as summarised below:

Corporate brands

Corporate brands
Brand	Discussion
FCm	Flight Centre created FCm Travel Solutions (“FCm”) by consolidating and expanding its international corporate travel
	operations. FCm encompasses a network of three major regions being Asia-Pacific, Europe-UK-Middle East and Africa
	and the Americas and is growing through strategic acquisitions and licensing agreements with leading local companies
	in key international markets. Flight Centre also operates a 50% joint venture with China Comfort Travel Co, under the
	FCm brand.
CiEvents	Specialises in the organisation of conferences, event management, graphic design and the design and implementation
	of incentive market programs. Currently have offices in Sydney, Melbourne, Brisbane, Auckland and London. We
	understand that the acquisition of Toni Brasch Entertainment Management was absorbed under this brand post
	acquisition.
KistendCampus Travel KistendCampus Travel is the only specialist travel management company in Australia to focus solely on travel solutions
	delivery to the academic sector. Offers leisure, corporate, conference and research grant travel specifically catering to
	university and college staff. It operates in Australia at tertiary institutions and through established off-site offices.
Stage & Screen	Provides a specialist travel service for the entertainment industry and its supporting businesses. Operates in Brisbane,
	Sydney, Melbourne and Auckland.

Source: Discussions with Flight Centre Management

Wholesale

The Wholesale business is an internal revenue centre operating two internal divisions, Infinity Holidays and Ticket Centre. Infinity Holidays provides accommodation, tours, cruises and car hire to Flight Centre’s international shop network and is the company’s largest supplier of land products. Ticket Centre formats, issues and manages all of Flight Centre’s ticketing requirements. Ticket Centre encompasses three important areas - Farepoint (providing airfare and ticketing advice to the company’s sales people), Ticketing (operations associated with physically issuing tickets) and Accounts (overseeing refund and billing issues).

4.3 Board and Management

Flight Centre was founded by Graham Turner, Chris Greive, Bill James, Jim Goldburg and Geoff Harris in 1981. Of the Founders, Graham Turner and Geoff Harris (alternate director only) remain on the Board of Flight Centre. The non-Founder directors on the Board are Bruce Brown (NonExecutive Chairman), Peter Barrow (Non-Executive Director) and Howard Stack (Non-Executive Director).

In 2002 Flight Centre introduced a dual leadership model, whereby the splitting of Graham Turner’s job resulted in Graham Turner remaining Managing Director, responsible for strategy, and Shane Flynn handling the day-to-day operations of the business. This model ultimately proved ineffective with the abandonment of this structure in September 2005 and a return to a more traditional leadership structure, whereby all areas of operation report to an Executive team. This team has clear responsibilities and reporting lines to oversee the company’s growth and performance. Under the new structure, Graham Turner assumed the role of Executive Chairman, as well as Managing Director until December 2005 when Bruce Brown was appointed as Non-Executive Chairman, allowing Graham Turner to focus on his preferred role of Managing Director.

E VALUATION ADVISORY SERVICES

13

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

4.4 Earnings and financial position

Financial performance

Set out below are the audited historical income statements for FY05A and FY06A, FY07YTD (11 months) management accounts and the FY07F results provided by Management.

Consolidated Flight Centre income statement

Currency: $Million	FY05A	FY06A	FY07YTD	FY07F
Total transaction value (TTV)	6,872.6	7,809.2	7,998.1	8,916.3
Sales revenue	871.1	973.8	999.7	1,112.8
Other revenue	2.5	4.9	0.1	0.1
Total revenue	873.6	978.7	999.8	1,112.9
Expenses	(734.4)	(831.3)	(841.5)	(932.4)
EBITDA	139.2	147.4	158.3	180.5
EBITDA margin	15.9%	15.1%	15.8%	16.2%
Less:
Depreciation*	(27.0)	(25.1)	(24.4)	(26.6)
Amortisation	(6.0)	(11.3)	(8.6)	(9.4)
EBIT	106.2	111.0	125.3	144.5
EBIT margin	12.2%	11.3%	12.5%	13.0%
Profit on sale of building	-	-	22.4	22.4
Net interest (expense) / income	9.2	9.0	12.3	13.0
Operating profit before tax	115.4	120.0	160.0	179.9
Income tax expense	(38.6)	(40.1)	(48.2)	(54.1)
Operating profit after tax	76.8	79.9	111.8	125.8

Source: Flight Centre Limited ASX Preliminary final report for the year ended 30 June 2006, Information provided by Flight Centre Management

Set out below are the half year income statements for H106A, H206A, H107A and H207F to 30 June 2007.

2007.
Consolidated Flight Centre income statement
Currency: $Million	H106A	H206A	H107A	H207F
Total transaction value (TTV)	3,700.0	4,109.2	4,100.0	4,816.3
Sales revenue	459.8	514.0	499.4	613.4
Other revenue	3.6	1.3	0.2	(0.1)
Total revenue	463.4	515.3	499.6	613.3
Expenses	(400.3)	(431.0)	(436.3)	(496.1)
EBITDA	63.1	84.3	63.3	117.2
EBITDA margin	13.6%	16.4%	12.7%	19.1%
Less:	-	-	-	-
Depreciation*	(18.1)	(7.0)	(17.9)	(8.7)
Amortisation	-	(11.3)	-	(9.4)
EBIT	45.0	66.0	45.4	99.1
EBIT margin	9.7%	12.8%	9.1%	16.2%
Profit on sale of building	-	-	22.4	-
Net interest (expense) / income	4.8	4.2	7.5	5.5
Operating profit before tax	49.8	70.2	75.3	104.6
Income tax expense	(16.2)	(23.9)	(22.7)	(31.4)
Operating profit after tax	33.6	46.3	52.6	73.2

Source: Flight Centre Limited ASX Preliminary final report for the year ended 30 June 2006, Information provided by Flight Centre Management

*Depreciation for the half year financial information represents both depreciation and amortisation for the period.

Ernst & Young Transaction Advisory Services notes the following in relation to the consolidated income statements:

• Prior to the date of this report, we have also been provided with actual preliminary 12 month results. We note that the FY07F results are not inconsistent with the actual results for the 12 month period ended 30 June 2007 and have therefore not updated our report.

E VALUATION ADVISORY SERVICES

14

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

• Flight Centre released a profit upgrade based upon the preliminary accounts to 31 May 2007. Management indicated that subject to the performance during the final weeks in June, Flight Centre expects to achieve full year pre-tax profit 25-30% above the FY06A results, excluding the abnormal gain from the sale of Flight Centre’s Adelaide Street headquarters, which for the purpose of our analysis has been excluded as an extraordinary item from the income statement presented above.

• The half year analysis outlined above indicates that Flight Centre achieved relatively flat earnings in the half year to H107A, with the uplift in earnings being achieved in the latter half of the year.

• If we compare FY06A to the actual preliminary results achieved for the 12 month period ended 30 June 2007, we note that Flight Centre achieved an increase in TTV of 13.6%, a revenue increase of 14.5% and an overall EBITDA increase of 16.6%.

• Management has indicated that Flight Centre has seen an exceptionally strong increase in earnings in the latter half of FY07 is as a result of the following:

• Overall buoyancy of the travel industry. This is supported by our research which highlights profit upgrades and growth in comparable companies of Flight Centre during the second half of FY07. Our review included that of QANTAS, Flight Centre’s major carrier. We note an overall increase in passenger numbers in FY07YTD compared to FY06YTD of 7.1%;

• Elimination of the Rewardpass loyalty program;

• The ability to achieve greater override income as a result of achieving targets. Volume incentives (overrides) represent income that is earned by the Flight Centre based on its ability to achieve TTV targets. TTV targets are re-negotiated with the relevant airline companies on an annual basis. If Flight Centre achieve the TTV targets then the company is rewarded with further incentive payments (“super overrides”).

• The pending European summer and the propensity for travel during this period. This is traditionally a strong period for Flight Centre;

• The strong economic resource boom in Queensland and Western Australia, which is stimulating the demand for travel due to a higher level of disposable income;

• TTV growth from improved economic growth which includes the resource boom in Queensland and Western Australia; and

• The propensity of the newly retired “baby boomers” to travel.

• Other revenue for the Flight Centre group represents foreign exchange gains on consolidation.

• If we compare FY06A to actual preliminary results achieved for the 12 month period ended 30 June 2007, total expenses have increased approximately 14.2% on a year-on-year basis. We understand that major expense categories include salary and wages, marketing expenses and rent.

• The profit on sale of the building in FY07YTD relates to the profit on settlement of Flight Centre’s sale of its Adelaide Street building in August 2006.

• EBITDA and EBIT margins in FY07YTD and FY07F have increased on prior years and half years.

E VALUATION ADVISORY SERVICES

15

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Segment analysis

The table below sets out a revenue and profit before income tax segment analysis for FY05A and FY06A:

Segment analysis

Segment analysis
					Inter-	Unallocated
					segment	revenue less
			United		eliminations /	unallocated
Currency: $Million	Australia	New Zealand	Kingdom	Other	unallocated	expenses	Total
Revenue
FY06	635.7	84.9	130.6	156.6	(33.1)	28.1	1,002.8
FY06 revenue as a percentage of total	63.4%	8.5%	13.0%	15.6%	(3.3%)	2.8%	100.0%
FY05	563.0	90.7	122.8	107.1	(13.4)	28.2	898.4
FY05 revenue as a percentage of total	62.7%	10.1%	13.7%	11.9%	(1.5%)	3.1%	100.0%
Operating profit before income tax
FY06	85.0	3.3	14.5	5.8	(0.9)	12.3	120.0
FY06 result as a percentage of total	70.8%	2.8%	12.1%	4.8%	(0.8%)	10.3%	100.0%
FY05	107.5	5.7	16.0	(3.2)	(22.2)	11.6	115.4
FY05 result as a percentage of total	93.2%	4.9%	13.9%	(2.8%)	(19.2%)	10.0%	100.0%

Source: Flight Centre Limited ASX Preliminary final report for the year ended 30 June 2006, Management accounts

Note that the difference in total revenue between the consolidated income statement and the above Segment Analysis comprises interest revenue (FY06A - $24.1 million, FY05A - $24.8 million).

• In FY06 Flight Centre recorded total revenue of $1,002.8 million, an 11.6% increase on the prior year. As shown in the table above 63.4% of total revenue was derived from Australia, 13.0% from the UK and 8.5% from New Zealand. The remaining 15.1% represents revenue derived from South Africa, India, China, Hong Kong, Canada and the USA. Inter-segment elimination entries are the result of intercompany charges between divisions and foreign exchange gains. The variance in FY06 operating profit to that of the prior year is a result of different policies adopted by Management in relation to cost allocation. Unallocated revenue less unallocated expenses relates to the difference between interest income, interest expense and debenture interest.

• A comparison of revenue by segment from the prior year indicates that significant growth has occurred in the “Other” segment, being India, South Africa, Hong Kong, Canada and the USA (46.2% increase in revenue). This increase can be attributed to organic growth in these markets, as well as the acquisition of Friends Globe Travels (India) and Bannockburn Travel Management (USA). Australia experienced 12.9% growth, whilst 6.4% growth was achieved in the United Kingdom. New Zealand experienced negative growth of 6.4% due to margin pressure from the monopoly home carrier, Air New Zealand.

• We are advised that the segment analysis as provided is only complete during the year end process. We have not included a segment analysis for FY07 YTD.

E VALUATION ADVISORY SERVICES

16

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Financial position

Set out below is the consolidated audited Balance Sheet at 30 June 2006 and the 31 May 2007 Balance Sheet as provided by Management.

Consolidated Flight Centre Balance Sheet

Consolidated Flight Centre Balance Sheet
	30 June 2006	31 May 2007
Currency: $Million	(audited)	(unaudited)
Current Assets
Cash and cash equivalents	274.2	446.8
Available-for-sale financial assets	204.8	164.8
Total cash and investments	479.0	611.6
Receivables	245.0	297.3
Current tax receivables	5.6	-
Assets of disposal group classified as held for sale	12.2	-
Total current assets	741.8	908.9
Non-current assets
Property, plant and equipment	78.5	86.4
Intangible assets	196.1	207.1
Deferred tax assets	12.2	19.9
Investments accounted for using the equity method	2.2	9.0
Total non-current assets	289.0	322.4
Total assets	1,030.8	1,231.3
Current liabilities
Payables	499.8	617.7
Borrowings	43.7	48.7
Provisions	3.4	3.7
Current tax liabilities	2.5	(13.6)
Total current liabilities	549.4	656.5
Non-current liabilities
Payables	34.7	36.1
Borrowings	27.0	27.0
Deferred tax liabilities	0.4	6.2
Provisions	8.4	9.4
Total non-current liabilities	70.5	78.7
Total liabilities	619.9	735.2
Net assets	410.9	496.1
Equity
Contributed equity	260.7	260.8
Reserves	(7.7)	(10.3)
Retained profits	157.9	245.6
Total equity	410.9	496.1

Source: Information provided by Flight Centre Management

Ernst & Young Transaction Advisory Services notes the following in relation to the above Balance Sheet:

• Cash and Cash Equivalents - represents client and general cash used in business operations. The increase in cash to 31 May 2007 is primarily due to receipts from the sale of a building of $35 million and investments held for sale being converted into cash. Client cash represents cash funds received from customers and held until settlement is made with the travel provider. We note the following split between client and general cash as at 31 May 2007:

E VALUATION ADVISORY SERVICES

17

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Cash and Cash Equivalents

Cash and Cash Equivalents
Currency: $Million	31 May 2007
Client Cash	283.6
General cash	163.2
Total cash and cash equivalents	446.8

Source: Information provided by Flight Centre Management

• Available-for-sale financial assets - represent liquid investments in money market securities and term deposits. The $40 million reduction in Available-for-sale financial assets as at 31 May 2007 compared to the prior year is due to investments held being converted to cash.

Available-for-sale financial assets

Available-for-sale financial assets
Currency: $Million	31 May 2007
Client available-for-sale financial assets	150.1
General available-for-sale financial assets	14.7
Total available-for-sale financial assets	164.8

Source: Information provided by Flight Centre Management

• Current Tax receivable and Deferred Tax Asset (“DTA”) accounts - as at 31 May 2007 are yet to be finalised as their value will be determined by end of year adjustments after the final audited figures are established.

• Trade receivables - have increased due to the strong trading noted above.

• Assets of the disposal group classified as held for sale - represent the land and buildings of 316 Adelaide Street, Brisbane QLD. This asset was held at cost. The 316 Adelaide Street property was sold for $35.5 million subsequent to year end with the sale recognised on 21 August 2006. No accounting impacts from this transaction were recorded in the FY06 Financial Statements. The cash consideration for the sale was received on 1 September 2006.

• Property Plant and Equipment - primarily includes fixed assets used in shop fit-outs.

• Intangible assets – consist predominantly of goodwill and software assets.

• Deferred tax assets – the balance of deferred tax assets comprises temporary differences attributable to amounts recognised in the Income Statement and set-off by deferred tax liabilities of the parent entity. Flight Centre has a number of tax losses, the most significant reported tax losses within the Flight Centre group relate to the USA operations. Ernst & Young Transaction Advisory Services notes total unused tax losses for which no deferred tax assets has been recognised for FY06 equals $17.4 million. This is $1.2 million lower than the losses recorded for FY06A ($18.6 million), due to fluctuations in exchange rate differences between the US and Australian currencies. US tax losses must be offset against US profits. As such the consumption of the US tax losses will commence if and when the profits are realised in the US.

• Investments accounted for using the equity method primarily represents Flight Centre’s investment in Garber. Flight Centre acquired a 26% equity stake in Garber during FY07YTD.

• Current payables – includes trade payables, client payables and annual leave.

• Non-current payables - consists of trade payables of $3.5 million and deferred consideration payable on business acquisitions, the details of which are outlined below:

E VALUATION ADVISORY SERVICES

18

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Non-current payables
Currency: $Million	31 May 2007
Deferred consideration:
Brittanica	19.9
India	10.4
Nationwide Currency Services	0.8
China	0.3
Bannockburn	0.9
TBEM	0.2
Total deferred consideration	32.5
Trade payables	3.6
Total non-current payables	36.1

Source: Information provided by Flight Centre Management

• Borrowings – the table below summaries the total borrowings balance at year end

Borrowings
Currency: $Million	31 May 2007	% of total borrowings
Current borrowings
BOS notes	32.6	43.0%
Bank overdraft	16.1	21.3%
Non-current borrowings	27.0	35.7%
Total borrowings	75.7	100.0%

Source: Information provided by Flight Centre Management

• The bank overdraft was primarily used to finance growth. The Business Ownership Scheme (“BOS”) program enables invited managers to invest directly in Flight Centre unsecured notes. This program entitles the manager to interest payable based on the business’s profitability. The unsecured notes are repayable on demand by the note holder or upon termination of employment of the note holder. The note is also redeemable if the relevant employee leaves the role for which they have been issued the note. Non-current borrowings relate to a $27 million unsecured bank loan.

Taxation position

Flight Centre and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2003. As a consequence, Flight Centre, as the head entity in the tax consolidated group, recognises current and deferred tax amounts related to transactions, events and balances of the controlled entities in this group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. Amounts receivable or payable under the tax sharing agreement with the tax consolidated entities are recognised as receivable or payable.

E VALUATION ADVISORY SERVICES

19

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Dividends

Flight Centre has paid fully franked dividends for FY04A, FY05A, FY06A and FY07YTD. Franking credits available for future financial years at 30 June 2007 are $48.7 million. Dividends paid or provided for the past three financial years are set out in the table below:

Dividends paid

Dividends paid
Currency: cents	Interim dividend	Special dividend	Final dividend
17/10/2003			25.0
26/03/2004	20.5
15/10/2004			40.5
26/11/2004		40.0
24/03/2005	22.5
14/10/2005			28.0
24/03/2006	20.0
13/10/2006			32.0
16/03/2007		20.0

Source: Australian Securities Exchange, DatAnalysis

The special dividend in FY05 represented a return of funds to Shareholders due to excess cash held at that time.

The special dividend in FY07YTD was declared by the directors on 22 December 2006 as part of the failed privatisation scheme.

Management has indicated that Flight Centre will pay a fully franked final dividend of $0.40 for each Flight Centre share in respect of the financial year ended 30 June 2007.

4.5 Capital structure and ownership

Capital structure and dividends

Flight Centre is a public company listed on the ASX with 94,471,035 ordinary shares on issue as at 30 July 2007 and 119,800 employee share options on issue at that date.

As at 23 May 2007, the top 20 registered shareholders in Flight Centre, grouped by beneficial holding, held 81.9% of the issued share capital. The top 20 registered shareholders of Flight Centre as at 23 May 2007, grouped by beneficial holding were as follows:

E VALUATION ADVISORY SERVICES

20

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Top 20 shareholders grouped by beneficial holding as at 23 May 2007

			Ordinary
		No. of ordinary	shareholding
Shareholder	Type	shares held ('000)	percentage
Graham Turner	Founder	17,058	18.1%
Geoffrey Harris	Founder	16,248	17.2%
William James	Founder	13,540	14.3%
Lazard (Institutional Group)		12,022	12.7%
James and Jennifer Goldberg	Founder	6,725	7.1%
Paradise Investment Management		1,959	2.1%
Highbridge Capital Management		1,605	1.7%
GMO Australia		1,249	1.3%
Trinity Holdings Ltd	Founder*	962	1.0%
Vanguard Investment (Institutional Group)		881	0.9%
Goldman Sachs (Institutional Group)		879	0.9%
Credit Suisse Securites (Broker group)		737	0.8%
DFA Australia		648	0.7%
Barclays (Institutional Group)		620	0.7%
Credit Suisse Hong Kong Limited		510	0.5%
Shane Joseph Flynn		400	0.4%
BlackRock Advisors (Institutional Group)		386	0.4%
Legal & General Investment Management		385	0.4%
Perennial Group		333	0.4%
State Street Global Advisors (Institutional Group)		299	0.3%
Total		77,446	81.9%

Source: Information provided by Flight Centre Management

*Trinity Holdings on behalf of Chris Grieve

Ernst & Young Transaction Advisory Services notes that 57.7% of the total share capital as at 23 May 2007 was held by the five Flight Centre founders with Lazard (Institutional Group) holding 12.7%.

As at 31 May 2007, Flight Centre had the following employee share options on issue:

Employee share options on issue

			Opening				Closing
		Exercise price	balance as at			Expired /	balance as at
Grant date	Expiry date	($)	1 July 2006	Granted	Exercised	lapsed	31 May 2007
30/11/2001	30/11/2006	21.98	20,000	-	-	(20,000)	-
6/09/2002	6/09/2007	28.40	12,000	-	-	(3,000)	9,000
31/10/2002	31/10/2007	23.73	20,000	-	-	-	20,000
14/02/2003	14/02/2008	19.69	24,789	-	-	(24,789)	-
14/07/2003	14/07/2008	22.46	19,800	-	-	(9,000)	10,800
30/03/2006	30/03/2011	10.66	360,000	-	(10,000)	(110,000)	240,000
Total			456,589				279,800

Source: Information provided by Flight Centre Management

E VALUATION ADVISORY SERVICES

21

PROFILE OF FLIGHT CENTRE

EVALUATION REPORT

Share price history

A graph of the movement in Flight Centre’s share price and trading volumes since listing in December 1995 has been included in Appendix 6 of this Report. The following graph illustrates the movement in Flight Centre’s share price and trading volumes since 1 July 2005:

Flight Centre daily share price and trading volume (1 July 2005 to 27 July 2007)

==> picture [441 x 150] intentionally omitted <==

----- Start of picture text -----

5,000 25.00
4,500
4,000 7 8 20.00
6
3,5003,000 1 3 5 15.00
2
2,500
2,000 10.00
1,500 4
1,000 5.00
500
- -
Volume Share Price
1-Jul-0527-Jul-0522-Aug-0515-Sep-0511-Oct-054-Nov-0530-Nov-0528-Dec-0524-Jan-0620-Feb-0616-Mar-0611-Apr-0610-May-065-Jun-0630-Jun-0626-Jul-0621-Aug-0614-Sep-0610-Oct-063-Nov-0629-Nov-0627-Dec-0623-Jan-0719-Feb-0715-Mar-0712-Apr-079-May-074-Jun-0729-Jun-0725-Jul-07
Volume ('000) Share Price ($)
----- End of picture text -----

We note the following with regard to share price and share volume movements between 1 July 2005 and 27 July 2007:

1. Flight Centre reports a profit downgrade for the full year ended 30 June 2005.

2. Flight Centre reported less than expected earnings results for the first quarter of FY06. This included a reduction in QANTAS commission revenue.

3. Flight Centre provided earnings guidance for half year ended 31 December 2005.

4. Flight Centre announces FY06 half year results.

5. Flight Centre announces Management changes within the Company.

6. Media speculation in press regarding a takeover of Flight Centre

7. Failed privatisation offer is announced to the market.

8. Announcement of in-principle agreement with PEP.

E VALUATION ADVISORY SERVICES

22

EVALUATION REPORT

VALUATION METHODOLOGIES

5. Valuation Methodologies

5.1 Value definition

Ernst & Young Transaction Advisory Services considers that the appropriate definition of value for the purposes of valuing shares in Flight Centre is market value. Market value is typically defined as:

“The price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length.”

5.2 Common valuation methodologies

There are a number of methodologies available to value a business on this basis. The four primary methodologies used for valuing a business are:

• Discounted cash flow;

• Capitalisation of earnings;

• Net realisable value of assets; and

• Market-based assessments.

Each methodology is appropriate in certain circumstances. The decision as to which methodology to apply generally depends on the nature of the business being valued, the methodology most commonly adopted in valuing such businesses and the availability of appropriate information.

Discounted cash flow

Discounted cash flow (“DCF”) valuations are based on the net present value of cash flows expected to be generated from future activities. The projected cash flows are discounted to a present day value at a discount rate that reflects both the time value of money and the risks inherent in the projected cash flows.

The DCF methodology is appropriate in valuing businesses with a finite life such as mines, businesses that are in a start up phase and are expecting considerable volatility in cash flows, or businesses with a changing cash flow profile over time.

This methodology requires consideration of the following factors:

• Quantification and assessment of the cash flow forecasts of the business;

• Calculation of a terminal value. The terminal value captures the value of cash flows occurring after the forecast period. This value is discounted to a present day value and added to the present value of the cash flows occurring during the forecast period;

• Determination of a discount rate which is used to convert the future cash flows into a present day value. The discount rate reflects both the time value of money and the risks inherent in the projected cash flows; and

E VALUATION ADVISORY SERVICES

23

EVALUATION REPORT

VALUATION METHODOLOGIES

• A deduction for the value of net interest bearing debt of the business (if the discounted cash flows have been determined on a pre financing basis) and an adjustment for the value of any surplus assets and liabilities.

Capitalisation of earnings

Capitalisation of earnings valuations involve capitalising, or multiplying, the earnings of a business using a multiple that reflects both the risks underlying the earnings and the growth prospects of the business. This methodology is most appropriate for mature businesses with a substantial operations history and a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential.

This methodology requires consideration of the following factors:

• Estimation of future maintainable earnings having regard to historical and projected earnings, abnormal or non-recurring items of income and expenditure and other factors including key industry risk factors, growth prospects and the general economic outlook;

• Determination of an appropriate earnings multiple that reflects the risks inherent in the business, its growth prospects and alternative investment opportunities available. Earnings multiples are generally applied to net profit after tax (“NPAT”), earnings before interest and tax (“EBIT”) or earnings before interest, tax, depreciation and amortisation (“EBITDA”). Earnings multiples applied to NPAT are known as price earnings multiples (PE multiples) and are commonly used in relation to listed public companies. Earnings multiples applied to EBIT or EBITDA are commonly used for valuing whole businesses for acquisition purposes where gearing is in the control of the acquirer. The EBIT and EBITDA alternatives are not likely to lead to a valuation conclusion which is materially different to that derived by using a PE multiple;

• Adjustment for the value of net interest bearing debt of the business (if EBIT or EBITDA are being applied); and

• Adjustment for the value of any surplus assets and liabilities.

Net realisable value

Net realisable value of assets valuations involve the determination of the net realisable value of the assets of a business assuming an orderly realisation of those assets. It is not a valuation on the basis of a forced sale where the assets might be sold at values materially different from their fair market value. This approach is appropriate where the business is a going concern, where there are surplus or non-operating assets and where the assets are generally not generating an appropriate level of return. A discount may be included to allow for the time value of money and for reasonable costs of undertaking the realisation.

Market-based assessments

Market based assessment valuations relate to the valuation of businesses, shares or other assets using the prices at which comparable companies, shares or assets have been bought and sold in arms’ length transactions. This is often the most reliable evidence as to value but in the case of companies it is often difficult to find directly comparable transactions.

For companies whose shares are traded on a stock exchange, the relevant share price would, prima facie, constitute the market value of the shares, however, such market prices usually reflect the prices paid for small parcels of shares and as such do not include a control premium relevant to a significant parcel of shares.

E VALUATION ADVISORY SERVICES

24

EVALUATION REPORT

VALUATION METHODOLOGIES

5.3 Selection of an appropriate valuation methodology

Ernst & Young Transaction Advisory Services has selected the capitalisation of earnings methodology to assess the underlying value of Flight Centre. In adopting this methodology we have considered a number of factors including:

• Detailed long term cash flow forecasts have not been prepared for Flight Centre’s operating businesses and therefore the discounted cash flow methodology has not been utilised for the purposes of valuing the operating business;

• Valuations based on an estimate of the aggregate proceeds from an orderly realisation of assets are commonly applied to businesses that are not going concerns and as such this approach has not been deemed appropriate for the valuation of Flight Centre;

• The Flight Centre share price has been reasonably volatile in recent times due to potential takeover activity. Therefore, the market price of Flight Centre securities has been considered as a cross-check valuation methodology rather than our primary methodology; and

• Capitalisation of earnings has been considered the most appropriate method in determining a value for Flight Centre’s operating business due to the nature of Flight Centre’s operations and the availability of information.

E VALUATION ADVISORY SERVICES

25

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

6. Valuation of Flight Centre Shares

6.1 Methodology

As discussed in the previous section of this Report, we have applied the capitalisation of earnings methodology for valuing the shares in Flight Centre. Applying the capitalisation of earnings methodology involves:

• Estimation of future maintainable earnings;

• Determination of an appropriate earnings multiple range;

• Adjustments for the value of debt and surplus cash (if EBIT or EBITDA multiples are applied); and

• Adjustment for the value of any surplus assets and liabilities.

These are discussed in further detail below.

6.2 Future maintainable earnings

When considering the future maintainable earnings of Flight Centre, Ernst & Young Transaction Advisory Services noted that the historical financial performance of Flight Centre has been driven by organic growth, acquisitions and to a lesser extent cost saving initiatives. Discussion with Management has indicated that future growth is to be achieved organically, through existing and recently acquired operations and through acquisitions.

In applying the capitalisation of earnings methodology for the purpose of valuing Flight Centre, Ernst & Young Transaction Advisory Services has adopted EBITDA, as the appropriate measure of earnings:

• Eliminates the effects of gearing and provides a value which is independent of the current funding structure of the company;

• Removes the effects of different taxation regimes and taxation benefits that may be available to the company; and

• Eliminates the distortions that differences in depreciation and amortisation rates may cause.

Ernst & Young Transaction Advisory Services has adopted the normalised forecast EBITDA for FY07F as an appropriate measure of the future maintainable earnings of Flight Centre for the following reasons:

• The forecast EBITDA for FY07 represents 11 months actual plus 1 month forecast;

• Preliminary results for FY07 indicate that Flight Centre achieved forecasts for FY07F;

• Industry contracts require close to 15% TTV growth to ensure override targets are met. This is the budgeted level of growth for the company and was achieved in FY07, despite a flat first half; and

E VALUATION ADVISORY SERVICES

26

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

• While there was upside in the level of overrides achieved in FY07, Flight Centre are focusing more on front-end pricing in FY08 to achieve the same income levels in FY08 albeit in a different manner.

In developing an appropriate estimate of future maintainable EBITDA, Ernst & Young Transaction Advisory Services has had regard to the normalised forecast earnings for the full year ended 30 June 2007, and makes the following comments regarding the adjustments made, as set out in the table below:

Future maintainable earnings

Future maintainable earnings
Currency: $Million	FY07F
EBITDA	180.5
Adjustments
BOS interest expense	(12.7)
RewardPass program	(5.2)
Software write-off	2.2
Interest income on client cash	21.6
Impact of normalised Toni Brasch Entertainment Management acquisition	0.2
Impact of normalised Travel Spirit Group acquisition	1.0
Foreign exchange real gain	(2.2)
Foreign exchange loss on intercompany loans	3.6
Costs incurred in relation to the failed privatisation scheme	3.3
Management accounts adjustment-Overstatement of income in prior year for Flight Centre UK	1.0
Adjusted EBITDA	193.3
Future Maintainable EBITDAsay	190.0

Source: Information provided by Flight Centre Management

• BOS interest expense - interest on the BOS notes has been classified as an operating expense as these payments are considered to be more in the nature of ordinary operating expenses.

• RewardPass program - the Flight Centre RewardPass loyalty program was closed in January 2006. In FY07F $5.2 million was included as an income provision.

• Software write-off - relates to write down of capitalised software which will not be used in Flight Centre’s operations going forward.

• Interest income on client cash - has been included in the adjusted EBITDA. The client cash is not available for distribution or debt repayment and consequently the interest earned on client cash is considered to be part of ordinary activities.

• Impact of normalised acquisitions - Flight Centre acquired the businesses of Toni Brasch Entertainment Management and Travelspirit Group in February 2007. To provide an ongoing EBITDA for Flight Centre, Management has annualised the FY07 EBITDA for these businesses. The EBITDA result has been adjusted to reflect the annualised contribution.

• Foreign exchange gains and losses - are reported based upon exchange rate movements relating to intercompany loans and transactions. We have reviewed the foreign exchange results over the last few years and note that this has fluctuated between foreign exchange gains and foreign exchange losses. Accordingly, we have normalised to zero.

• Costs incurred in relation to the failed privatisation scheme - costs associated with the failed privatisation of Flight Centre have been added back.

E VALUATION ADVISORY SERVICES

27

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

• Management accounts adjustment - the adjustment made to management accounts as a result of a prior year overstatement of income has been added back to EBITDA.

For the purposes of this valuation Ernst & Young Transaction Advisory Services has adopted $190 million as our estimate of future maintainable EBITDA.

6.3 Earnings multiples

In our assessment of an appropriate earnings multiple, Ernst & Young Transaction Advisory Services has had regard to the trading multiples of listed companies within the global travel industry, multiples implied by comparable transactions within the industry and a number of other factors.

Due to the factors noted in the previous section of this report, we have undertaken the valuation using a historical EBITDA multiple and applied this multiple to the future maintainable earnings.

Trading multiples

Ernst & Young Transaction Advisory Services has given consideration to multiples observed in relation to travel companies trading on domestic and international exchanges. A brief description of each of these comparable companies is set out in Appendix 3.

Trading multiples

Trading multiples
			Enterprise market
		Enterprise market	value to Historical
Company	Country	value($Million)*	EBITDA Ratio(times)
Flight Centre Limited	AUS	1,813	10.6
Jetset Travelworld Limited	AUS	178	12.4
Expedia Inc.	US	7,071	13.2

Source: Bloomberg, Factiva, Company Annual Reports

* Enterprise market value determined as market capitalisation, with reference to the closing share price at 26 July 2007, denominated in local currency, plus net interest bearing debt.

In relation to the multiples above, we note the following:

• Flight Centre Limited – the Flight Centre share price has fluctuated in recent months as a result of the failure of the initial privatisation scheme in February 2007 and the subsequent announcements of the preliminary PEP approach and agreement in March 2007 and May 2007 respectively. The Flight Centre closing share price was $19.50 as at 26 July 2007, which is the highest level it has been in recent years. We expect that the market may have factored the Proposed Transaction into the share price.

• Jetset Travelworld Limited - Jetset Travelworld Limited’s share price has increased by approximately 31% since 29 December 2006. Jetset Travelworld Limited acquired the assets of Orient Pacific Holidays Pty Limited (in administration), a niche Pacific Islands travel wholesaler in April 2007 and announced a 40% profit upgrade on 2006/07 in May 2007.

• Expedia Inc. - Expedia Inc entered into new relationships with American Airlines and Jetblue during May and June, 2007 and the share price has gradually been on the increase since August 2006. A Management share buy-back was announced on 20 June 2007 which has resulted in an increased share price.

The trading multiples are based on the market price for minority or portfolio shareholdings and do not include a premium for control. A premium for control is applicable when the acquisition for control of a company would give rise to benefits such as:

E VALUATION ADVISORY SERVICES

28

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

• Access to cash flows;

• Access to tax benefits; and

• Control of the Board of Directors of the company.

Evidence from studies indicates the control premiums on successful takeovers have frequently been in the range of 20% – 40% and that the premiums vary significantly from acquisition to acquisition.

ASIC Policy Statement 75 Independent Expert Reports to Shareholders requires a valuation of the company assuming 100% ownership and therefore incorporate a premium for control. Given the nature of the arrangement and the requirements of ASIC Policy Statement 75 Independent Expert Reports to Shareholders we have had regard to a premium for control in valuing Flight Centre.

Transaction multiples

There have been a number of transactions in the global travel industry over the past three years. Most recent to note are the three large transactions which took place in Australia and New Zealand during 2006/2007 and the large international transactions that took place in 2007. Brief details of the transactions observed in the global travel industry are set out in the table below:

Transaction Multiples

					EBITDA
				Transaction	multiple
Date	Target	Acquirer	Currency	value ($Million)	(historical)
Australia and
New Zealand
May-06	Gullivers	S8	NZD	239.0	9.2
Mar-06	Transonic	S8	AUD	129.0	10.5
Oct-05	GO Holidays	Gullivers	AUD	23.0	6.8
Sep-05	Harvey World Travel	S8	NZD	87.0	9.2
International
Mar-07	First Choice Holidays PLC	TUI AG (Pending)	USD	3,588.0	10.9
Feb-07	MyTravel Group PLC (Thomas Cook UK)	KarstadtQuelle AG (Thomas Cook	USD	2,883.0	13.3
		Sub AG)
Feb-07	Thomas Cook Group PLC (formerly	KarstadtQuelle AG	USD	1,421.0	5.0
	Thomas Cook AG)
Dec-06	Sabre Holdings	Silver Lake Partners and Texas	USD	4,956.0	12.7
		Pacific Group
Apr-06	Navigant International	Carlson Wagonlit	AUD	385.0	8.2
Mar-06	Parkdean Holidays PLC	PD Parks Limited	USD	517.0	10.6
Sep-05	Holiday Express Group Limited	Travelzest PLC	AUD	11.0	7.4
Jun-04	Northwestern Travel Services	Navigant International	AUD	50.0	5.9
Flight Centre
Acquisition
Feb-07	Toni Brasch Event Management	Flight Centre	AUD	0.9	4.1
Feb-07	The Travelspirit Group	Flight Centre	AUD	10.0	6.3
Mar-06	Bannockburn Travel Management (USA)	Flight Centre	AUD	14.5	5.0
Oct-05	FCM Travel Solutions (formerly Friends	Flight Centre	AUD	18.7	6.0
	Globe Travels Ltd) (India)
Mar-03	Brittanica Travel PLC (UK)	Flight Centre	AUD	122.0	7.0

Source: Mergermarket, Bloomberg *EBIT Multiple

**Any earnouts as part of these transactions have not been incorporated in the above multiples

E VALUATION ADVISORY SERVICES

29

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

Brief descriptions of the transactions included above are provided in Appendix 4. Ernst & Young Transaction Advisory Services has also noted in Appendix 5, details of other transactions we have considered but not used.

We note that the proposed recent transaction between Tourism Holdings and MFS Living and Leisure Group did not proceed at a proposed EBITDA multiple of 8.3 times.

Ernst & Young Transaction Advisory Services notes that the multiples implied in the above transactions were derived based on historical earnings, may incorporate a premium for control and may reflect synergistic benefits paid by the acquirer.

Assessment of earnings multiples

In assessing an appropriate earnings multiple to apply to the valuation of Flight Centre, Ernst & Young Transaction Advisory Services has had regard to the trading multiples and multiples implied by comparable transactions noted in the previous sections. Ernst & Young Transaction Advisory Services has also considered the following key factors:

• Trading multiples have been influenced by significant takeover activity and consolidation within the global travel industry. As a result we have considered that the transaction multiples provide a fairer base from which to assess an earnings multiple of Flight Centre.

• The transactions in Australia and New Zealand show that the larger transactions have occurred within a historical EBITDA multiple range of 9.2 to 10.5 times. The transactions falling below this range are significantly smaller transactions. The Proposed Transaction, if approved will represent one of the larger transactions to occur in the Australian and New Zealand travel industry.

• Historical EBITDA multiples for large international transactions range from 10.9 to 13.3, with one transaction at 5.0 times EBITDA.

Based on the foregoing, Ernst & Young Transaction Advisory Services has adopted an EBITDA multiple of between 10.0 and 10.5 for the purpose of valuing 100% of Flight Centre on a controlling basis.

6.4 Enterprise value

In summary, the enterprise value of Flight Centre has been calculated as follows:

Flight Centre Enterprise Value

Flight Centre Enterprise Value
Currency: $Million	Low	High
Future maintainable earnings (EBITDA)	190.0	190.0
EBITDA multiple	10.0	10.5
Enterprise Value	1,900.0	1,995.0

Source: Ernst & Young Transaction Advisory Services calculations

6.5 Net (borrowings) / cash

Flight Centre has significant cash and cash equivalent holdings, some of which are not required to service working capital requirements of the business. As the financial performance of the nonoperating cash and cash equivalents has been excluded in our analysis of future maintainable

E VALUATION ADVISORY SERVICES

30

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

earnings (EBITDA) of Flight Centre, Ernst & Young Transaction Advisory Services has separately considered the fair market value of this excess cash and cash equivalents.

Our review of the Balance Sheet and discussions with Management indicates a net cash position (exclusive of working capital) of $33.3 million. This is outlined further in the table below:

Net (borrowings) / cash as at 31 May 2007

Net (borrowings) / cash as at 31 May 2007
Currency: $Million	31 May 2007
Cash and available-for-sale financial assets	611.6
Borrowings	(75.7)
Unsecured notes - BOS facility	32.6
Deferred consideration	(32.5)
Australia and overseas client cash	(433.7)
Required working capital	(69.0)
Net (borrowings) / cash	33.3

Source: Information provided by Flight Centre Management

Ernst & Young Transaction Advisory Services notes the following in relation to the above:

• Cash and available-for-sale financial assets - comprises cash on hand, cash at bank, cash invested in 11am deposits on a daily basis and money market term deposits.

• Borrowings - comprise funds from external funding providers.

• Unsecured notes – Represents BOS notes, which have been excluded from borrowings.

• Deferred consideration – represents the deferred consideration payable on Flight Centre acquisitions as referred to in Section 4.4 of this Report.

• Client cash and overseas client cash - comprises cash collected from customers (both Leisure and Corporate) that is held by Flight Centre. These funds are used to settle client liabilities for accommodation and airline ticket purchases.

• Required working capital - represents the excess of the cash balance as at 31 May 2007 over the minimum cash balance over the preceding 12 months required to maintain operations of the Flight Centre business.

• The total net (borrowings) / cash in the table above excludes client cash, which represents funds received from customers and held until settlement is made with the travel provider.

6.6 Surplus assets and liabilities

Ernst & Young Transaction Advisory Services has considered assets and liabilities surplus to Flight Centre’s operations and the effect on future maintainable earnings. We have not considered the available franking credits to be a surplus asset due to their proposed utilisation in respect of the dividend for the year ended 30 June 2007. Ernst & Young Transaction Advisory Services has not assigned value to available US tax losses due to Management’s expressed uncertainty over the timing of the future profitability of the US operations. Ernst & Young Transaction Advisory Services in discussion with Management has not identified any material surplus assets and liabilities.

E VALUATION ADVISORY SERVICES

31

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

6.7 Employee options

In arriving at a value per share, Ernst & Young Transaction Advisory Services has had regard to the impact of the options on issue.

Review of the Employee Share Option Plan in the FY06 Financial Statements indicates that those employee share options granted on 30 March 2006 at an exercise price of $10.66 are “in-the-money” given they are below the assessed value per Flight Centre share.

6.8 Final dividend

The Implementation Deed refers to a fully franked final dividend of $0.40 for each FCL share that will be paid in respect of the financial year ending 30 June 2007.

Therefore, for the purposes of this valuation, we consider it appropriate to adjust the value of the shares for the final dividend.

6.9 Valuation calculation

Ernst & Young Transaction Advisory Services has valued Flight Centre using the capitalisation of earnings approach. Flight Centre has been valued in the range of $20.04 to $21.05 per share exdividend. This value represents the value of Flight Centre assuming that 100% of the company is acquired and includes a premium for control. The following table sets out a summary of our valuation:

Summary valuation

Summary valuation
Currency: $Million	Section	Low	High
Maintainable EBITDA	6.2	190.0	190.0
Capitalisation multiple	6.3	10.0	10.5
Enterprise value		1,900.0	1,995.0
Add: Surplus assets / (liabilities)		-	-
Less: Net (borrowings) / cash		33.3	33.3
Equity value		1,933.3	2,028.3

Source: Various

Ernst & Young Transaction Advisory Services has assumed that all ‘in-the-money’ employee share options will be exercised and have assessed the following value per Flight Centre share:

Summary valuation
Currency: $million	Low	High
Equity value - undiluted	1,933.3	2,028.3
Add: cash inflow from option conversion	2.6	2.6
Adjusted equity value	1,935.9	2,030.9
Ordinary shares on issue (million)	94.5	94.5
Add: options converted to ordinary shares (million)	0.2	0.2
Total shares (million)	94.7	94.7
Diluted value per share - pre final dividend ($)	20.44	21.45
Less: final dividend ($)	(0.40)	(0.40)
Value per share ($)	20.04	21.05

Source: Various

E VALUATION ADVISORY SERVICES

32

VALUATION OF FLIGHT CENTRE SHARES

EVALUATION REPORT

6.10 Comparison to trading prices

Prior to reaching our valuation conclusion Ernst & Young Transaction Advisory Services has considered the reasonableness of our valuation by comparing our results to the recent share prices of Flight Centre.

On 14 May 2007, the day of the announcement of the in-principle agreement, Ernst & Young Transaction Advisory Services notes that the share price of Flight Centre rose to $17.70 per share at close of trading. Prior to this announcement, fluctuations in the share price were influenced by the failed privatisation scheme which involved PEP. We note the following the share prices at close of trading:

• 22 February 2007 - Ex-dividend date $16.90

• � 1 March 2007 - Post announcement of the failed privatisation scheme $15.00 � Share price prior to preliminary approach received from PEP $14.98 � 29 March 2007 - Preliminary approach received from PEP $16.11

Set out below is a summary of the prices at which Flight Centre Shares have traded on the ASX for various periods prior to the announcement of the Proposed Transaction:

Flight Centre price analysis
Currency: $	1 Monthpost	Announcement Price*	**1 Monthprior **	2 Monthsprior	6 Monthsprior 12 Monthsprior
Volume weighted average share price	18.06	17.70	17.16	15.49	16.58	9.80

Source: Factiva

*This is the closing share price the day that the In-principle agreement between Flight Centre and PEP was announced (14 May 2007)

In the period following the announcement of the Proposed Transaction, Flight Centre’s highest closing price of $19.93 was recorded on 13 July 2007 and the lowest price, $17.54 was recorded on 15 May 2007.

When considering the above prices, Ernst & Young Transaction Advisory Services notes that:

• Our valuation is inclusive of a premium for control, whereas the share prices used in our comparison are in respect of minority parcels of shares traded prior to the announcement of the agreement. Accordingly, these share prices are not likely to incorporate a premium for control;

• Flight Centre shares are not as actively traded as some larger companies on the ASX as illustrated in Section 4.5 of this Report. This analysis of Flight Centre’s shareholders shows that approximately 57.7% are held by founder investors, and not actively traded; and

• Since the failure of the initial privatisation scheme, the price of Flight Centre shares has gradually been increasing.

6.11 Valuation conclusions

It is the opinion of Ernst & Young Transaction Advisory Services that, subject to the purpose and scope of this Evaluation Report as outlined previously in this Report, and the qualifying statements outlined in Appendix 2 of this Report, the underlying value of Flight Centre is in the range of $20.04 to $21.05 per share on a diluted basis, adjusted for the final dividend and inclusive of a premium for control.

E VALUATION ADVISORY SERVICES

33

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

7. Evaluation of the Proposed Transaction as a whole

7.1 Introduction and Approach

In arriving at our opinion as to whether the Proposed Transaction is fair and reasonable as a whole, Ernst & Young Transaction Advisory Services has given consideration to the following:

• We have compared the value of a Flight Centre share before the Proposed Transaction to the value of a Flight Centre share after the Proposed Transaction;

• We have considered the key advantages and disadvantages of the Proposed Transaction;

• We have separately considered the impact of the Proposed Transaction on Flight Centre shareholders based on the two possible alternatives that are available to the Flight Centre shareholders. The two alternative options are to exit from Flight Centre (Buy-back option) or to continue to be a shareholder in Flight Centre (Stay-in-option). To this extent we have performed the following:

• We have compared the value of a Flight Centre share before the Proposed Transaction to the value of a Flight Centre share after the Proposed Transaction for each alternative;

• We have considered the key advantages and disadvantages of the Proposed Transaction for each alternative.

• In addition to the specific areas discussed above, we have also considered other matters that we consider to be of importance for the Flight Centre shareholders in forming their view on the Proposed Transaction.

7.2 Comparing the value of a Flight Centre share before the Proposed Transaction to the value of a Flight Centre share after the Proposed Transaction

Our assessed value of a Flight Centre share before the Proposed Transaction is in the range of $20.04 to $21.05. Our analysis in relation to this valuation is set out in Section 6.11.

In order to determine a value for a Flight Centre share after the Proposed Transaction, we have assessed the individual components that are expected to comprise a Flight Centre share after the Proposed Transaction. Specifically, these components are as follows:

• Cash consideration received from the Proposed Transaction;

• Non-cash consideration received from the Proposed Transaction;

• Franking credits existing after the Proposed Transaction; and

• Capital gains tax payable on the Proposed Transaction.

E VALUATION ADVISORY SERVICES

34

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

Cash Consideration

The total cash consideration payable to Flight Centre will be in the range of $1,069.0 million to $1,086.5 million. The cash consideration is set out in the following table.

Cash consideration

Cash consideration
Currency: $Million	Low	High
PEP subscription fee	195.0	195.0
Debt funding	960.0	960.0
Less: transaction fees	(16.0)	(9.5)
Less: borrowing and stamp duty costs	(70.0)	(59.0)
Cash consideration	1,069.0	1,086.5

Source: Implementation deed dated 21 June 2007

Non-Cash Consideration

The non-cash consideration consist of 50% of the voting and non-voting shares of JV HoldCo and the convertible notes. As at the date of our report the terms of the convertible notes have not been finalised. However, we note that the intention of the convertible notes is to provide Flight Centre shareholders with a 20% economic interest. Therefore we have valued Flight Centre’s economic interest based on 70% of the value of JV HoldCo.

The value of the total non-cash consideration is estimated to be in the range of $681.3 million to $747.8 million. The total non-cash consideration represents a 70% economic interest in the Joint Venture, which comprises:

• a 50% interest in the voting and non-voting shares of the Joint Venture; and

• Convertible notes which represent a 20% economic interest of the Joint Venture. We note that if PEP achieves their performance hurdles as previously discussed, the convertible notes economic interest will be diluted to 16.7%. We have not considered the diluted position as part of our assessment. This is due to the uncertainty surrounding the achievement of PEP’s performance hurdles and the timing of an exit event. We note that that the outcome of whether PEP achieved their performance hurdles are only determined on an exit event.

We have based our assessment of the value of the non-cash consideration on the following:

• Equity value of Flight Centre as set out in Section 6.9 of our report; and

• Additional debt funding incurred by the Joint Venture to acquire the Flight Centre business.

Our assessment in determining a value for the non-cash consideration is set out below.

Non-cash consideration
_Currency: $Million _	Section	Low	High
Equity value of Flight Centre	6.9	1,933.3	2,028.3
Less:debt tofinance theProposedTransaction		(960.0)	(960.0)
Equity value of the Joint Venture (incl. convertible notes)		973.3	1,068.3
70% economic interest in the Joint Venture		681.3	747.8

Source: Ernst & Young Transaction Advisory Services calculations.

We note that due to the fact that the management charge of $10 million payable from the Joint Venture to both PEP and Flight Centre is in accordance with their economic interest held, the net effect on the non-cash consideration is $Nil.

E VALUATION ADVISORY SERVICES

35

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

We note that while Flight Centre will own a 70% economic interest in the joint venture, Flight Centre will not have control of the Joint Venture. Specifically,

• Flight Centre will control only 50% of the voting shares of the Joint Venture; and

• PEP has a casting vote in the event of unanimity of the Board not being achieved in relation to decisions about key aspects of the Joint Venture, namely refinancing and exit events. In terms of an exit event PEP only has control over the exit of their own investment.. Further, we note that if a trade sale to a third party is pursued by PEP and the third party offers to acquire 100% of the Joint Venture, then PEP may give notice to Flight Centre and its shareholders requiring the sale of their shares subject to a shareholders vote in favour of the trade sale.

However, we have not discounted Flight Centre’s 70% economic interest for these factors.

Capital Gains tax

We are advised that the amount of CGT payable under the Proposed Transaction is uncertain. The amount of CGT could increase from approximately $255.0 million to some $430.0 million. Due to uncertainty surrounding the CGT, we have assumed CGT to be in a range of $255.0 million to $430.0.million.

Franking Credits

The value of the franking credits is estimated to be in the range of $119.9 million to $210.2 million. We are advised that the balance of the franking credits Flight Centre expects to pay out is estimated to be in the range of $298.6 million to $473.6 million, based on management’s estimate. We are advised that the franking credits balance available to the Flight Centre shareholders will depend on the level of CGT payable under the Proposed Transaction. We are advised that there is a risk that the amount of CGT could increase from approximately $255.0 million to some $430.0 million. We note that the amount of CGT payable will only be determined after completion of the Proposed Transaction. We have based our assessment of the value of franking credits using the range of CGT payable noted above.

The following needs to be considered, when assessing the value of franking credits:

• Franking credits only have a value once they are distributed. Due to the uncertainty surrounding the exact timeframe dividends will be distributed to shareholders, we have assumed a relative short turnaround period, based on the possibility of the cash proceeds being distributed to shareholders under a Buy-back scheme following the Proposed Transaction;

• Only Australian resident Flight Centre shareholders can benefit from the franking credits and must have held their investment for at least 45 days;

• For listed companies, the value of franking credits is already reflected in the multiple;

• Franking credits for shareholders on a marginal tax rate greater than 30% will not offset the tax imposed on the dividend; and

• Individual shareholders with a high marginal tax rate, who have held their investment for more than a year might prefer to receive a capital gain rather than a franked dividend of similar value, as the after tax value of the capital gain could be greater.

E VALUATION ADVISORY SERVICES

36

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

Further, availability of franking credits for distribution is restricted by the following:

• Franking credits are constrained by the level of retained profits. As at 31 May 2007, the balance of Flight Centre’s retained profits was $245.6 million. However, we are advised that the retained profits are expected to increase due to the profit on sale of the Flight Centre business. Retained profits are not expected to be a constraining factor on the actual level of franking credits available for distribution; and

• Franking credits are also constrained by the availability of surplus cash. We understand that the cash consideration will be made available for distributing a dividend and capital return under a Buy-back scheme. We note that in the event that Flight Centre does not have sufficient cash proceeds to ensure that at least the minority Flight Centre shareholders who wish to exit and the minimum number of founder shareholders are paid out, then further cash proceeds will be made available by PEP as discussed later in this section up to a maximum level. We understand that the availability of cash may be a constraining factor on the actual level of franking credits available for distribution, depending on the level of CGT payable by Flight Centre.

In estimating a value for the franking credits under the terms of the Proposed Transaction, we have applied an utilisation percentage of distributable franking credits to the estimated level of franking credits paid out. The utilisation percentage was determined by taking into account the following:

• The maximum number of founder shares that is expected to participate in the Buy-back scheme and that is assumed to be able to utilise the franking credits available to them. From the announcement dated 21 June 2007, we note that following the Proposed Transaction, the directors of Flight Centre are expected to offer the existing shareholders an opportunity to exit their investment under a Buy-back scheme. Flight Centre shareholders are expected to gain access to Franking Credits under this scheme. Under the terms of the Proposed Transaction Flight Centre’s founder shareholders who together hold 57.7% of the shares in Flight Centre are expected to limit their participation in the Buy-back scheme to a maximum of 22 million shares or 40% of their respective holding; and

• Using relevant studies to determine the number of minority Flight Centre shareholders that will be able to utilise franking credits available to them. Specifically, we have relied on Neville Hathaway and Bob Officer’s report dated 2 November 2004 to determine the utilisation percentage of distributable franking credits

The calculation of the utilisation percentage of distributable franking credits is set out below.

Utilisation percentage of distributable franking credits

Utilisation percentage of distributable franking credits
Currency: $Million	Low	High
Total number of shareholders	94.7	94.7
Number of founder shares	54.6	54.6
Remaining shares	40.1	40.1
Estimated number of remaining shares utilising franking credits*	16.0	20.0
Estimated number of founder shares utilising franking credits	22.0	22.0
Total estimated number of shares utilising franking credits	38.0	42.0
Utilisation percentage of distributable franking credits	40.2%	44.4%

Source: Ernst & Young Transaction Advisory Services calculations.

* Note: Utilisation percentage of distributable franking credits of 40% to 50% (Neville Hathaway and Bob Officer's report dated 2 November 2004)

E VALUATION ADVISORY SERVICES

37

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

The calculation of the value of the franking credits is set out in the following table.

Value of franking credits
Currency: $Million	Low	High
Estimated franking credits payable *	298.6	473.6
Utilisation percentage of distributable franking credits	40.2%	44.4%
Total fully franked dividend	119.9	210.2

Source: Ernst & Young Transaction Advisory Services calculations.

* Information provided by Flight Centre management

Value of the Flight Centre share after the Proposed Transaction

The following table sets out our calculation of the value of a Flight Centre share, after the Proposed Transaction.

**Value of Flight Centre shares after the Proposed Transaction **	(including options)
Currency: $Million	**Low **	High
Cash consideration	1,069.0	1,086.5
Non-cash consideration	681.3	747.8
less: Capital gains tax	(430.0)	(255.0)
Franking credits	210.2	119.9
Total value of Flight Centre shares	1,530.5	1,699.2
Add: Cash inflow from option convertion	2.6	2.6
Adjusted total value of Flight Centre shares	1,533.1	1,701.8
Total number of remaining Flight Centre shares including options (million)	94.7	94.7
Value per share ($)	16.19	17.97

Source: Ernst & Young Transaction Advisory Services calculations.

Comparison of the value of a Flight Centre share before the proposed transaction to the value of a Flight Centre share after the proposed transaction

Set out below is a comparison of our estimate of the value of a Flight Centre share before the Proposed Transaction to the value of a Flight Centre share after the Proposed Transaction.

Value of Flight Centre shares (before and after the Proposed Transaction)
Currency: $	Low	High
Diluted value per share (before the Proposed Transaction)	20.04	21.05
Diluted value per share (after the Proposed Transaction)	16.19	17.97
Variance	3.85	3.08

Source: Ernst & Young Transaction Advisory Services calculations.

7.3 Advantages and disadvantages to Flight Centre shareholders as a whole

Advantages

Potential to participate in the Joint Venture

If the Proposed Transaction is agreed to the Flight Centre shareholders have the option to participate in the retained earnings that may be derived from the Joint Venture.

Potential to participate in a Buy-back scheme

Flight Centre shareholders may have an option to participate in a future Buy-back scheme announced by Flight Centre. This will provide the shareholders with an opportunity to dispose of their shares in

E VALUATION ADVISORY SERVICES

38

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

a controlled environment and realize their investment. Flight Centre directors expect to offer existing Flight Centre shareholders a minimum of $16 per share under the Buy-back scheme, with the potential to increase the price to a maximum of $16.50.

We note that if the Proposed Transaction proceeds a minimum of 60% of the founder shareholders’ shares will not have the option to participate in the Buy-back scheme and therefore the Founders will not have an option to realize their investment in these shares.

Value per share may fall

It is possible that some of the recent increases in Flight Centre’s share price are due to speculation regarding the Proposed Transaction. If the Proposed Transaction is not agreed to, it is possible that the Flight Centre’s share price may decrease to a level which more accurately reflects the underlying fair value of Flight Centre in the absence of the Proposed Transaction.

Disadvantages

Value after the Proposed Transaction is less than the value before the Proposed Transaction

Based on our analysis above, we note that the value after the Proposed Transaction is less than the value before the Proposed Transaction.

Value shift to PEP after the Proposed Transaction

Based on our assessment of the equity value of the Joint Venture, we note that PEP’s 30% economic interest in the Joint Venture will represent a significant increase in value compared to their original investment of $195 million. However we note that it is not possible for us to quantify the value that PEP may add to Flight Centre in terms of their experience, expertise and history of achieving performance hurdles.

We set out below the comparison of PEP’s investment and their economic interest in the Joint Venture.

Venture.	Venture.
Comparison of PEP's investment vs economic interest in the Joint Venture
_Currency: $Million _	Section	Low	High
Equity value of Flight Centre	6.9	1,933.3	2,028.3
Less:debt tofinance theProposedTransaction		(960.0)	(960.0)
Equity value of the Joint Venture (incl.convertible notes)		973.3	1,068.3
30% economic interest in the Joint Venture		292.0	320.5
PEP's original investment		195.0	195.0
Increase in value (post transaction)		97.0	125.5

Source: Ernst & Young Transaction Advisory Services calculations.

Significant transaction costs and Capital Gains Tax on the Proposed Transaction

We note that there are significant transaction costs and Capital Gains Tax costs associated with the Proposed Transaction. We are advised that transaction costs are estimated to be between $68.5 million and $86.0 million and Capital Gains Tax payable is expected to be between $255.0 million and $430.0 million. Capital Gains Tax can be utilised as franking credits in future.

Other matters to consider

In addition to the specific areas discussed above, we have also considered other matters that we consider to be of importance for the Flight Centre shareholders in forming their view on the Proposed Transaction.

E VALUATION ADVISORY SERVICES

39

EVALUATION REPORT

EVALUATION OF THE PROPOSED TRANSACTION

The likelihood of an alternative offer

At present, we are not aware of an alternate offer at the date of this report.

Shareholders should consider their own personal circumstances in evaluating the Proposed Transaction

The decision of each shareholder as to whether to accept the Proposed Transaction is a matter for individual shareholders. The decision of each shareholder should be based on their own views as to the matters at hand, including the underlying value of the Proposed Transaction, risk profiles, liquidity preferences, future market and industry conditions and their tax positions.

E VALUATION ADVISORY SERVICES

40

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

8. Assessment of the Proposed Transaction for shareholders who wish to exit from Flight Centre (buy-back alternative)

8.1 Introduction and Approach

In this section we consider whether a Flight Centre shareholder will be better off after the Proposed Transaction should the shareholder elect to participate in the proposed buy-back scheme following the Proposed Transaction.

Following the Proposed Transaction, the Directors of Flight Centre proposed an off-market buyback, to be effected under a scheme of arrangement, to return a substantial part of the cash proceeds to Flight Centre shareholders who do not wish to continue to participate in the Joint Venture. The directors expect to offer existing shareholders a minimum of $16 per share under the buy-Back Scheme, with the potential to increase the price to a maximum of $16.50. The level of franking credits that will be attached to the buyback will depend on the level of CGT payable.

We note that all minority shareholders who wish to participate in the buy-back will be able to do so, whilst founder shareholders’ participation will be limited to 22 million shares (or 40% of their current shareholding).

In arriving at our opinion as to whether the Proposed Transaction is fair and reasonable to shareholders who elect to participate in the Buy-back scheme, Ernst & Young Transaction Advisory Services has given consideration to the following:

• We have compared the value of a Flight Centre share before the Proposed Transaction to the value of the proposed consideration offered for a Flight Centre share via the Buy-back scheme and the value of the attached franking credits;

• We have considered the key advantages and disadvantages of the Proposed Transaction to those Flight Centre shareholders who wish to accept the Buy-back alternative; and

• In addition to the specific areas discussed above, we have also considered other matters that we consider to be of importance for the Flight Centre shareholders who wish to participate in the Buy-back scheme.

8.2 Comparing the value of a Flight Centre share before the Proposed Transaction to the value of the buy-back consideration and franking credits

Buy-back consideration

The estimated buy-back consideration available to Flight Centre shareholders is in the range of $16.00 to $16.50 per share. We are advised that Management expect the buy-back consideration to be $16.00 per share. For the purpose of assessing the value of the buy-back consideration we have therefore assumed $16.00 per share as our assessed value for the buy-back consideration.

E VALUATION ADVISORY SERVICES

41

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

Franking credits

We have further assessed the value of the franking credits based on the minimum and maximum level of franking credits available to individual shareholders.

The franking credits which attach to the buy-back consideration potentially carry a different value for different classes of shareholders. Franking credits reflect the payment of company tax, at a rate of 30%, on profits, the benefit of which is passed to shareholders by attaching the franking credit to the dividend component of the buy-back consideration (franked dividends). We are advised that the proposed buy-back amount of $16.00 per share is expected to comprise a dividend component of $13.24 per share and a capital component of $2.76 per share. The maximum franking credit benefit available on the buy-back consideration is $5.67 per share. This is available to certain resident shareholders, including those who are on a zero tax rate, and who will receive a cash refund of $5.67 per share.

In contrast, those resident shareholders who are on the top marginal tax rate of 45.6% (including medicare levy) receive a benefit of approximately $3.04 per share from the franking credits received.

Non-resident shareholders will obtain some benefit from the receipt of franking credits in that franked dividends do not attract dividend withholding tax, whereas unfranked dividends do. However, in most jurisdictions that have a tax treaty in place with Australia, the non-resident taxpayer will receive credit in their country of residence for Australian dividend withholding tax paid and so the benefit will only be one of timing. Hence at a practical level we have assumed the benefit of receiving a franking credit for non-resident shareholders will be nil.

The franking credit position of various classes of shareholders is set out below:

Value of the buy-back consideration to different classes of shareholders	Value of the buy-back consideration to different classes of shareholders	Value of the buy-back consideration to different classes of shareholders
	Individuals	**Companies Complying superfunds **		Individuals
Currency: $	46.5% tax rate	30% tax rate	15% tax rate	Nil tax rate
Consideration per share	16.00	16.00	16.00	16.00
Value for Franking Credits	3.00	4.00	4.80	5.70
Value of the buy-back consideration	19.00	20.00	20.80	21.70

Source: Ernst & Young Transaction Advisory Services calculations.

Whilst it is possible to determine that the franking credits carry value, it is not possible to be precise as the quantum depends on the tax position and residency of the recipient shareholder.

8.3 Advantages and disadvantages to Flight Centre shareholders accepting the buy-back alternative

Advantages

Return cash in a tax effective manner to shareholders

Return significant cash to Flight Centre shareholders in a tax effective manner via non-recourse debt and outside equity. It is expected that the dividend component of the buy-back consideration will be fully franked, which will significantly reduce tax payable on the buy-back receipts. However, the benefits received from franking credits will depend on each individual shareholder's personal circumstances.

E VALUATION ADVISORY SERVICES

42

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

Sufficient cash to ensure minority shareholders can exit

Founders have restricted their participation in a buy-back scheme to that all minority shareholders who wish to exit can exit. Further PEP has put a mechanism in place to ensure that there is additional cash available in the event of a cash shortfall.

Provide shareholders with the opportunity to realise their investment in Flight Centre

This option provides the shareholders with an opportunity to dispose of their shares in a controlled environment and realise their investment. Flight Centre directors expect to offer existing Flight Centre shareholders a minimum of $16.00 per share under the buy-back scheme, with the potential to increase the price to a maximum of $16.50.

Disadvantages

Value of the buy-back consideration per share may be lower than the value of a Flight Centre share, depending on individual circumstances

As part of the buy-back consideration, Flight Centre shareholders will also receive franking credits for the dividend component of the buy-back consideration. Whilst it is possible to determine that the franking credit carries value, it is not possible to be precise as its quantum depends on the tax position and residency of the recipient shareholder. The value benefit shareholders receive can range from $nil to $5.67. per share. This may result in the value received for some shareholders to be lower than the value of a Flight Centre share before the transaction.

The buy-back may not occur

We note that the buy-back is subject to a further resolution being voted on and approved by the Flight Centre shareholders. However, we note that Flight Centre has release an announcement on 14 May 2007 to inform shareholders of their intention to implement the buy-back following the Proposed Transaction.

Following the Proposed Transaction founder shareholders can withdraw their support for the buy-back scheme

We note from the terms and conditions as per the buy-back commitment deed, founder shareholders can withdraw their support for the distribution of the net proceeds following the Proposed Transaction, in the event that the net proceeds to be distributed is less than $815.0 million and the majority of founder shareholders gives notice of their withdrawal.

Insufficient cash proceeds

There is a risk that there may not be enough cash proceeds to ensure that all shareholders who wish to participate in the buy-back scheme is able to do so. The level of CGT may further impact the available cash proceeds, especially if the CGT is at the high end.

Other matters to consider

Shareholders should consider their own personal circumstances in evaluating the Proposed Transaction

The decision of each shareholder as to whether to accept the Proposed Transaction is a matter for individual shareholders. The decision of each shareholder should be based on their own views as to the matters at hand, including the underlying value of the Proposed Transaction, risk profiles, liquidity preferences, future market and industry conditions and their tax positions.

E VALUATION ADVISORY SERVICES

43

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

9. Assessment of the Proposed Transaction for shareholders who wish to participate in the Joint Venture (stay-in alternative)

9.1 Introduction and Approach

In this section we consider whether a Flight Centre shareholder will be better off after the Proposed Transaction should the shareholder elect to participate in the Joint Venture.

Following the Proposed Transaction, Flight Centre shareholders who wish to participate in the Joint Venture will together hold 70% of the economic interest of the Joint Venture. However, we note that there is a possibility that the 70% economic interest can be diluted to 66% if PEP achieves their performance hurdles. The 70% economic interest could further be diluted to 50.1% in the event that there is insufficient cash proceeds to buy-back all the Flight Centre shareholders who wish to exit. We have not considered the impact of these dilutions as part of our value assessment due to the uncertainty in their occurrence. However, we have considered the potential impact of these dilutions as part of our advantages and disadvantages analysis.

In arriving at our opinion as to whether the Proposed Transaction is fair and reasonable to shareholders who elect to participate in the Joint Venture, Ernst & Young Transaction Advisory Services has given consideration to the following:

• We have compared the value of a Flight Centre share before the Proposed Transaction to the value of a Flight Centre share following the Proposed Transaction;

• We have considered the key advantages and disadvantages of the Proposed Transaction to those Flight Centre shareholders who wish to participate in the Joint Venture; and

• In addition to the specific areas discussed above, we have also considered other matters that might be of importance for the Flight Centre shareholders who wish to participate in the Joint Venture.

9.2 Comparing the value of a Flight Centre share before the proposed transaction to the value of a Flight Centre share after the proposed buy-back

We have assessed the individual components that are expected to comprise a Flight Centre share after the Proposed Transaction for those shareholders who wish to participate in the Joint Venture. Specifically, these components are as follows:

• Non-cash consideration received from the Proposed Transaction; and

• Available net cash proceeds to determine the number of remaining shares after the buy-back.

E VALUATION ADVISORY SERVICES

44

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

Non-Cash Consideration

As set out in Section 7.2 of our report the value of the total non-cash consideration is estimated to be in the range of $681.3 million to $747.8 million. The total non-cash consideration represents a 70% economic interest in the Joint Venture.

Number of remaining Flight Centre shares following the buy-back

We have estimated the number of Flight Centre shares that will participate in the Joint Venture to be in the range of 42.7 million to 54.8 million shares. We have based our estimate on the assumption that the net proceeds available for distribution will be used to buy-back the maximum number of Flight Centre shares. Our calculation of the estimated number of remaining Flight Centre shares following the buy-back is set out below:

Number of remaining shares participating in the Joint Venture

Currency: $Million	**Low **	High
Cash consideration received	1,069.0	1,086.5
less: Capital gains tax	(430.0)	(255.0)
Total cash available for distribution	639.0	831.5
Buy-back consideration per share ($)	16.0	16.0
Number of shares participating in the buy-back (million)	39.9	52.0
Total number of Flight Centre shares including options (million)	94.7	94.7
Number of remaining Flight Centre shares (million)	54.8	42.7

Source: Ernst & Young Transaction Advisory Services calculations.

Value of a Flight Centre share after the Proposed Transaction – assuming full participation in the buy-back

The following table sets out our calculation of the value of a Flight Centre share, after the proposed buy-back, assuming full participation in the buy-back.

Value of Flight Centre shares after the proposed buy-back

Value of Flight Centre shares after the proposed buy-back
Currency: $Million	Low	High
Value of the non-cash consideration	681.3	747.8
Add: Cash inflow from option conversion	2.6	2.6
Adjusted total value of non-cash consideration	683.9	750.4
Total number of remaining Flight Centre shares including options (million)	54.8	42.7
Value per share ($)	12.48	17.57

Source: Ernst & Young Transaction Advisory Services calculations.

Value of a Flight Centre share after the Proposed Transaction – assuming no participation in the buy-back

The value of a Flight Centre share, after the proposed buy-back, assuming no participation in the buy-back is calculated in Section 7.2 and set out below:

E VALUATION ADVISORY SERVICES

45

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

Value of Flight Centre shares after the Proposed Transaction	(including options)
Currency: $Million	**Low **	High
Cash consideration	1,069.0	1,086.5
Non-cash consideration	681.3	747.8
less: Capital gains tax	(430.0)	(255.0)
Franking credits	210.2	119.9
Total value of Flight Centre shares	1,530.5	1,699.2
Add: Cash inflow from option convertion	2.6	2.6
Adjusted total value of Flight Centre shares	1,533.1	1,701.8
Total number of remaining Flight Centre shares including options (million)	94.7	94.7
Value per share ($)	16.19	17.97

Source: Ernst & Young Transaction Advisory Services calculations.

Summary

Set out below is a comparison of our estimate of the value of a Flight Centre share before the Proposed Transaction and the value of a Flight Centre share after the proposed buy-back.

- Value of Flight Centre shares (after the proposed buy back)

Value of Flight Centre shares (after the proposed buy-back)
Currency: $	Low	High
Diluted value per share (before the Proposed Transaction)	20.04	21.05
Diluted value per share (after the Proposed Transaction) - full buy-back participation	12.48	17.57
Diluted value per share (after the Proposed Transaction)-no buy-back participation	16.19	17.97

Source: Ernst & Young Transaction Advisory Services calculations.

9.3 Advantages and disadvantages to Flight Centre shareholders accepting the Stay-in alternative

Advantages

Value increase if return on equity exceeds additional deal costs and interest charges

If the return on equity post transaction exceeds the interest charges incurred on the $960 million additional debt and transaction costs then there is a financial benefit that will flow to the Flight Centre shareholders that elect to stay-in. This is the result of the gearing being introduced into Flight Centre’s capital structure, effectively reducing the equity base.

PEP’s history in increasing shareholders returns on their investments and extracting additional value from the balance sheet

Flight Centre shareholders may benefit from PEP’s capability of improving shareholder returns on their investments. Set-out in the table below are some of PEP’s prior investments and exit multiples achieved.

E VALUATION ADVISORY SERVICES

46

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

PEP equity returns

PEP equity returns
	Investor multiple of
Currency: $Million	money returns
Frucor Beverages Limited	9.5
Vertex	4.0
Guardian Healthcare Group	2.0
Oasis	5.4
Emeco	3.8
Link Market services	4.1

Source: PEP presentation - March 2007

We are advised that PEP also has significant experience in extracting additional value from a company’s balance sheet and has identified several opportunities within the Flight Centre balance sheet to extract value. These opportunities include an improved management of client funds and improved management of working capital.

The new structure will also allow the company to be less restricted in terms of their bonding requirements, which will release additional funds to the company to invest for improved returns.

Exit on same basis as PEP

Flight Centre shareholders have the option to participate in an exit event initiated by PEP. Flight Centre shareholders could benefit from PEP’s status as a private equity investor and their requirement for a minimum return on their equity investment, which will result in Flight Centre shareholders receiving a similar return on their equity as PEP should they elect to participate in the exit event. Alternatively Flight Centre shareholders can manage their downside in that they may elect not to participate in an exit event and continue to hold their investment until such time as a satisfactory exit result can be achieved.

Increased debt capacity

Flight Centre’s debt capacity is restricted due to Flight Centre having to adhere to TCF’s regulatory and licensing requirements. Flight Centre’s debt capacity is further restricted due to the thin capitalisation rules. Restructuring the business into the different operating and asset subsidiary companies and transferring the subsidiary companies to the Joint Venture significantly increases Flight Centre’s borrowing capacity. We are advised that as a result of the Proposed Transaction Flight Centre can increase their debt capacity significantly.

Introduction of skilled strategic partner

Introduction of a skilled strategic partner to assist in driving growth initiatives and who can bring to bear experience and expertise in managing debt providers, cash flows and leveraged vehicles together with access to significant leverage

Strengthening and diversification of the Board’s capabilities

Under the proposed Transaction, members of the Joint Venture Board will consist of a combination of Flight Centre’s existing Board members and members elected by PEP. Shareholders may benefit from the composition of the new Board.

The introduction of a skilled strategic partner can assist in driving growth initiatives and bring to bear experience and expertise in managing debt providers, cash flows and leveraged vehicles together with access to significant leverage available to PEP.

E VALUATION ADVISORY SERVICES

47

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

Possibility of increased returns if PEP meets their performance hurdles

The terms of the Proposed Transaction put forward includes an equity incentive to PEP, based on a performance hurdle. The performance hurdle put forward represents PEP achieving an aggregate return on its investment in the Joint Venture, on an exit event, which equals or exceeds an IRR of 20% in respect of their investment. If PEP should achieve their performance hurdle their shareholding in the Joint Venture will increase their economic interest in the Joint Venture from 30% to 33.3% with a resultant decrease in the economic interest held by Flight Centre from 70% to 66%. Shareholders could benefit from PEP achieving their performance hurdles due to an increase in value over and above the dilution of the economic interest. Due to the uncertainty of PEP achieving the performance hurdles and timing of an exit event, it is not possible for us to quantify the underlying value to shareholders should PEP achieve their performance hurdles.

Disadvantages

Value of a Flight Centre share after the Proposed Transaction is less than the value of a Flight Centre share before the Proposed Transaction

Based on our analysis above, we note that the value of a Flight Centre share after the Proposed Transaction is less than the value of a Flight Centre share before the Proposed Transaction.

Lack of control in the Joint Venture

The Joint Venture will be governed through a Board of Directors with equal representation by both Flight Centre and PEP, each represented by three nominee directors. We note that PEP has a casting vote in the event of unanimity of the Board not being achieved in relation to decisions about key aspects of the Joint Venture, namely refinancing and exit events.

Through PEP’s casting votes on refinancing and exit events as well as the restriction being placed on the payment of dividends, PEP will effectively have control over the cash flow of Flight Centre and thus have an increased control position compared to the Flight Centre shareholders.

Dilution of the ownership of Flight Centre’s business

Under the terms of the Proposed Transaction Flight Centre’s shareholders will hold a 70% economic interest in the Joint Venture, which is a diluted position if compared to their current position of owning 100% of the Flight Centre business.

Dilution of Flight Centre’s economic interest in the Joint Venture

The terms of the Proposed Transaction put forward include an equity incentive to PEP, based on a performance hurdle. The performance hurdle put forward represents PEP achieving an aggregate return on its investment in the Joint Venture, on an exit event, which equals or exceeds the return representing an IRR of 20% in respect of their investment. If PEP should achieve their performance hurdle their shareholding in the Joint Venture will increase their economic interest in the Joint Venture from 30% to 33.3% with a resultant decrease in the economic interest held by Flight Centre from 70% to 66%.

Possibility of further dilution of Flight Centre’s economic interest based on the proposed mechanism to ensure sufficient funds for the Buy-back.

To ensure sufficient funds are available to allow participation in the proposed Buy-back scheme by all the minority shareholders who wish to exit as well as the minimum participation of the Founder shareholders, Flight Centre is required to sell their non-voting shares in the Joint Venture to PEP,

E VALUATION ADVISORY SERVICES

48

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

thereby reducing Flight Centre’s economic interest, subject to Flight Centre retaining a minimum of 50.1%.

Under the terms stated in the Buy-back Commitment Deed cash proceeds received from the Proposed Transaction must be sufficient to ensure that Flight Centre can offer a cash amount of $16.00 to $16.50 per share to the Flight Centre shareholders who wish to exit (Founders are allowed to exit, subject to a maximum of 22 million shares).

In the event that there is a cash shortfall Flight Centre will receive $6.5 million for every additional 1% of the Joint Venture equity sold to PEP. We note that additional Joint Venture equity acquired by PEP under this scenario, will be for the same cash consideration/equity ratio as PEP’s original investment of $195 million to acquire 30%. However, based on our previous analysis this will result in a further value shift to PEP through their increased investment in the Joint Venture.

Amortisation of goodwill and other intangible assets

If the Proposed Transaction is agreed to, the acquisition may result in goodwill being recognised on the statement of financial position of the Joint Venture which would have to be amortised and may impact upon the Joint Venture’s future ability to pay dividends.

The likely liquidity of the market in Flight Centre shares

If the Proposed Transaction succeeds the Founder shareholders current dominant shareholding position (currently holding 57.7% of the total ordinary shares) will be further increased due to the restriction placed on their ability to participate in the Buy-back. As a result market liquidity and shareholder spread will be further restricted. Reduced liquidity and decreased market capitalisation post deal is likely to result in a lower market coverage by brokers and investors which may lead to a lower share price.

Volatility

Smaller, less liquid stocks will generally have higher volatility, all other things being equal

Different risk profile of Flight Centre shares post transaction

The risk profile of holding shares in Flight Centre prior to the Proposed Transaction is fundamentally different from the position after the event. Flight Centre shareholders will subsequently become exposed to the operational and economic risks relevant to the Joint Venture. The ownership of the 70% interest in a highly geared Joint Venture also increases the financial risk to the current shareholders as equity holders will naturally rank behind debt providers on liquidation.

Value shift to PEP after the Proposed Transaction

Based on our assessment of the equity value of the Joint Venture, we note that PEP’s 30% economic interest in the Joint Venture will represent a significant increase in value compared to their original investment of $195 million. However we note that it is not possible for us to quantify the value that PEP may add to Flight Centre in terms of their experience, expertise and history of achieving performance hurdles.

E VALUATION ADVISORY SERVICES

49

ASSESSMENT OF THE PROPOSED TRANSACTION

EVALUATION REPORT

We set out below the comparison of PEP’s investment and their economic interest in the Joint Venture.

Comparison of PEP's investment vs economic interest in the Joint Venture	Comparison of PEP's investment vs economic interest in the Joint Venture
_Currency: $Million _	Section	Low	High
Equity value of Flight Centre	6.9	1,933.3	2,028.3
Less:debt tofinance theProposedTransaction		(960.0)	(960.0)
Equity value of the Joint Venture (incl.convertible notes)		973.3	1,068.3
30% economic interest in the Joint Venture		292.0	320.5
PEP's original investment		195.0	195.0
Increase in value (post transaction)		97.0	125.5

Source: Ernst & Young Transaction Advisory Services calculations.

Participation in future dividends

Flight Centre shareholders will forego future dividends. We note that it is not anticipated that any dividends or other distribution will be paid to shareholders of Flight Centre. It is expected that the Joint Venture will be applying its earnings towards servicing the debt acquired under the Proposed Transaction. An exception to this is that in the absence of a Buy-back, dividends may be paid out to the Flight Centre shareholders based on their entitlement to a $10 million management fee to be shared with PEP and other income earned on the investment of the cash consideration.

Shareholder approval

No shareholder approval required for PEP to dispose of their 30% economic interest

Under the Corporations act shareholders approval is required if 20% or more of the equity is disposed off. Under the terms of the Proposed Transaction PEP will be able to dispose of their 30% economic interest in the Joint Venture, without the requirement for shareholder approval. This will severely impact the shareholders ability to control future Joint Venture partners.

E VALUATION ADVISORY SERVICES

50

CONCLUSION SUMMARY

EVALUATION REPORT

10. Conclusion summary

As we mentioned in Section 7.1 we have considered whether the Proposed Transaction is fair and reasonable for the Flight Centre shareholders as a whole. We have also determined whether the Proposed Transaction is fair and reasonable for each of the two alternatives that is available to the Flight Centre shareholders

Set out below is a summary of our opinions as discussed in Section 7, Section 8 and Section 9 of this report.

Is the Proposed Transaction fair and reasonable to shareholders accepting the Buy-back alternative?

Whether the Proposed Transaction is fair and reasonable to shareholders who wish to participate in the buy-back scheme will depend on each shareholder’s personal tax circumstances.

In our opinion, based on our analysis outlined in Section 8 of this report, we have concluded that the Proposed Transaction is not fair and reasonable to the shareholders of Flight Centre who wish to participate in the buy-back scheme.

We note however that the opinion given above should be read in light of each shareholder’s individual personal circumstances. This opinion should also be read in conjunction with our opinion on the Proposed Transaction as a whole.

Is the Proposed Transaction fair and reasonable to shareholders accepting the Stay-in alternative?

In our opinion, based on our analysis outlined in Section 9 of this report , we have concluded that the Proposed Transaction is not fair and reasonable to the shareholders of Flight Centre who wish to accept the stay-in alternative. We note however that the opinion given above should be read in light of each shareholder’s individual personal circumstances. This opinion should also be read in conjunction with our opinion on the Proposed Transaction as a whole.

Is the Proposed Transaction fair and reasonable as a whole?

Based on our analysis outlined in our Report, we have concluded that the Proposed Transaction is not fair and reasonable to the shareholders of Flight Centre.

Shareholders should recognise that there is significant uncertainty in any estimate of the underlying value of Flight Centre shares. Value is highly sensitive to assumptions regarding the outlook for the travel agency services industries and other economic factors such as disposable incomes and interest rates.

E VALUATION ADVISORY SERVICES

51

APPENDIX 1: SOURCES OF INFORMATION

EVALUATION REPORT

Appendix 1: Sources of Information

Ernst & Young Transaction Advisory Services has had regard to the following sources of information in the preparation of this report:

• Discussions with Management of Flight Centre, in particular Shannon O’Brien, Andrew Flannery, Stephen Kennedy, Graham Turner and John Zeilinga;

• Internal information provided by Management of Flight Centre, including Board Reports and management accounts;

• Implementation Deed dated 21 June 2007;

• Annual reports of Flight Centre;

• Australian Securities Exchange;

• Bloomberg LLP;

• Annual reports of, and news releases related to, the comparable companies and their respective transactions;

• IBISWorld Industry reports, IBISWorld Pty Limited

• Reuters

• Mergermarket Limited

• Computershare Limited;

• Huntleys' Investment Information Pty Limited (HII); and

• 2006 Dow Jones Reuters Business Interactive LLC (trading as Factiva).

E VALUATION ADVISORY SERVICES

52

APPENDIX 2: STATEMENT OF QUALIFICATIONS

EVALUATION REPORT

Appendix 2: Statement of Qualifications and Declarations

Ernst & Young Transaction Advisory Services, which is wholly owned by Ernst & Young holds an Australian Financial Services Licence under the Corporations Act and its Representatives are qualified to provide this report. The Directors of Ernst & Young Transaction Advisory Services responsible for this report have not provided financial advice in respect of this transaction to Flight Centre.

Prior to accepting this engagement, Ernst & Young Transaction Advisory Services considered its independence with respect to Flight Centre with reference to the ASIC Practice Note 42 entitled “Independence of Expert’s Reports” . We advise that Ernst & Young Transaction Advisory Services has had the following relationship with Flight Centre over the past 2 years:

• Ernst & Young Transaction Advisory Services was engaged by Flight Centre’s Independent Directors to provide an Independent Expert’s Report in relation to the privatisation of Flight Centre by Scheme of Arrangement.

• Ernst & Young Transaction Advisory Services was engaged by Flight Centre to provide taxation and accounting advice on certain matters.

In Ernst & Young Transaction Advisory Services’ opinion it is independent of Flight Centre.

This report has been prepared specifically for Directors of Flight Centre. Neither Ernst & Young Transaction Advisory Services, Ernst & Young, nor any member or employee thereof undertakes responsibility to any person, other than the Directors of Flight Centre, in respect of this report, including any errors or omissions howsoever caused.

The statements and opinions given in this report are given in good faith and with the belief that such statements and opinions are not false or misleading. In the preparation of this report Ernst & Young Transaction Advisory Services has relied upon and considered information believed after due inquiry to be reliable and accurate. Ernst & Young Transaction Advisory Services has no reason to believe that any information supplied to it was false or that any material information has been withheld from it. Ernst & Young Transaction Advisory Services has evaluated the information provided to it by Flight Centre, through inquiry, analysis and review, and nothing has come to its attention to indicate the information provided was materially misstated or would not afford reasonable grounds upon which to base its report. Ernst & Young Transaction Advisory Services does not imply and it should not be construed that it has audited or in any way verified any of the information provided to it, or that its inquiries could have verified any matter which a more extensive examination might disclose.

Flight Centre has provided an indemnity to Ernst & Young Transaction Advisory Services for any claims arising out of any misstatement or omission in any material or information provided to it in the preparation of this report.

Ernst & Young Transaction Advisory Services provided draft copies of this report to the Directors and Management of Flight Centre for their comments as to factual accuracy, as opposed to opinions, which are the responsibility of Ernst & Young Transaction Advisory Services alone. Changes made to this report as a result of this review by the Directors and Management of Flight Centre have not changed the methodology or conclusions reached by Ernst & Young Transaction Advisory Services.

E VALUATION ADVISORY SERVICES

53

APPENDIX 2: STATEMENT OF QUALIFICATIONS

EVALUATION REPORT

Ernst & Young Transaction Advisory Services will receive a professional fee based on time spent in the preparation of this report, estimated at approximately $170,000. Ernst & Young Transaction Advisory Services will not be entitled to any other pecuniary or other benefit whether direct or indirect, in connection with the making of this report.

Mr Grant Murdoch, Director of Ernst & Young Transaction Advisory Services and a Partner of Ernst & Young has assumed overall responsibility for this report. He has over 31 years experience in providing financial advice and valuation advice and has professional qualifications appropriate to the advice being offered.

Mr John Hope, a Director of Ernst & Young Transaction Advisory Services and a Partner of Ernst & Young has also been involved in the preparation of this report. He has over 21 years experience in providing financial advice and valuation advice and has professional qualifications appropriate to the advice being offered.

Mrs Cathy Montesin, Representative of Ernst & Young Transaction Advisory Services and an Executive Director of Ernst & Young has also been involved in the preparation of this report. She has over 13 years experience in providing financial advice and valuation advice and has professional qualifications appropriate to the advice being offered.

The preparation of this report has been undertaken at the request of the Directors of Flight Centre to provide an evaluation of the Proposed Transaction.

We have had reference to ASIC Policy Statement 74 Acquisitions Agreed to by Shareholders and ASIC Policy Statement 75 Independent Expert Reports to Shareholders in preparing our report. It is not intended that this report should be provided to the shareholders of Flight Centre or used for any other purpose other than as an expression of its opinion to the Directors as to whether or not the Proposed Transaction is fair and reasonable. The report does not include all the disclosures required by ASIC in relation to an Independent Expert’s Report to be provided to shareholders. In particular, it does not contain a Financial Services guide in accordance with the Corporations Act 2001.

The financial forecasts used in the preparation of this report reflect the Directors and Management’s judgement based on present circumstances, as to both the most likely set of conditions and the course of action it is most likely to take. It is usually the case that some events and circumstances do not occur as expected or are not anticipated. Therefore, actual results during the forecast period will almost always differ from the forecast and such differences may be material. To the extent that our conclusions are based on forecasts, we express no opinion on the achievability of those forecasts.

Our opinion is based on economic, market and other conditions prevailing at the date of this Report. These conditions can change significantly over relatively short periods of time.

E VALUATION ADVISORY SERVICES

54

APPENDIX 3: COMPARABLE COMPANIES

EVALUATION REPORT

Appendix 3: Comparable Companies

Comparable company descriptions

Company	Description
Jetset Travelworld Limited	Jetset Travelworld is Australia’s largest travel agency franchise group, with a vast network of 665 travel centres
(Australia)	covering all major regions and pockets across Australia. The group operates in the travel retail market with its
	most recognised brands being Jetset and Travelworld. The group’s expansive network allows it to negotiate a
	competitive level of commissions from preferred suppliers which include airlines, wholesalers, cruise
	companies and tour operators.
MyTravel Group PLC (UK)	The MyTravel Group is a multi-national travel group competing in the market for package holidays and other
	leisure travel services. It sells its holidays through more than 500 of the companies own stores as well as
	travel agents, call centres and increasingly, online. It has created online travel sites such as
	www.crestaholidays.co.uk andwww.mytravel.com and owns holiday packages such as Airtours Holidays,
	Panorama and Direct Holidays. MyTravel Group is currently in the process of being acquired by Thomas
	Cooks AG, the European travel group (see Appendix 4).
Expedia Inc. (US)	Expedia Inc. is the largest online travel agency in the world providing travel products and services to leisure
	and corporate travellers in the US and around the world. Its diversified portfolio of well-recognised brands
	includes Expedia.com, Hotels.com, Hotwise.com, TripAdvisor, Expedia Corporate Travel, Classic Vacation®
	and other US-based and international businesses.

Geographical segments for comparable companies

Entity	Australia	New Zealand	UK	USA	China	**Europe **	Other
Flight Centre Limited	�	�	�				�
Jetset Travelworld	�
Limited
Expedia Inc.	�		�	�	�	�	�

E VALUATION ADVISORY SERVICES

55

APPENDIX 4: TRAVEL INDUSTRY TRANSACTIONS

EVALUATION REPORT

Appendix 4: Travel Industry Transactions

Travel industry transactions

Acquirer	Target	Date Description
Australia and New Zealand
S8	Gullivers	May 06 S8 Limited, the listed Australian travel and property management company, has
		acquired Gullivers Travel Group Limited, the listed New Zealand based travel
		company, for a cash offer price of NZD 2.35 (USD 1.49) per share.
S8	Transonic	Mar 06 S8 Ltd, the listed Australian property management services company, has
		made an offer to acquire Transonic Travel Limited (TTL), the listed Australian
		provider of services to the airline and travel industry, for a consideration of
		approximately $128.7 million in a cash and stock deal.
Gullivers	GO Holidays	Oct 05 Gullivers Travel Group, the listed New Zealand based travel company has
		acquired GO Holidays for NZD23 million.
S8	Harvey World	Sep 05 S8 Limited, the listed Australian property management services, has launched
	Travel	an unsolicited takeover offer to acquire the entire issued shares that it does not
		hold in Harvey World Travel Limited, the listed Australia based tourism retailer,
		for a cash offer price of $1.85 per Harvey World Travel share.
International
TUI AG (Pending)	First Choice	Mar 07 TUI AG, the Germany based tourism group, has agreed to merge its travel
	Holidays PLC	subsidiary TUI Travel with First Choice Holiday Group PLC, the UK based travel
		operator. The transaction will be carried out via a scheme of arrangement with
		the new company named TUI Travel PLC acquiring all of the issued capital of
		First Choice in consideration for the issue of 49 per cent of TUI Travel PLC
		outstanding share capital.
KarstadtQuelle AG (Thomas	MyTravel Group	Feb 07 KarstadtQuelle, the Germany based retail firm has agreed to merge its
Cook Sub AG) (Pending)	PLC (Thomas	subsidiary Thomas Cook AG, the European travel group with MyTravel Group
	Cook UK)	PLC, Thomas Cook’s UK based counterpart. The merger will be carried out via
		a scheme of arrangement with the implied offer price approximating GBp360
		per share.
KarstadtQuelle AG	Thomas Cook	Feb 07 KarstadtQuelle AG, the listed Germany based department store and mail order
	Group PLC	group has agreed to acquire the remaining 50 per cent stake it does not already
		own in Thomas Cook AG, the German travel services company from Lufthansa
		AG, the listed German Airline and aviation group.
Silver Lake Partners and Texas	Sabre Holdings	Dec 06 Sabre Holdings Corp, a Delaware corporation has signed a definitive
Pacific Group		agreement to be acquired by Texas Pacific Group and Silver Lake Partners for
		USD 32.75 per share.
Carlson Wagonlit	Navigant	Apr 06 Carlson Wagonlit Travel, the world leader in business travel management, has
	International	acquired Navigant International, a global provider of travel management
		solutions for USD16.50 per share.
PD Parks Limited	Parkdean Holidays	Mar 06 PD Parks Ltd, the UK based acquisition vehicle formed by Alchemy Partners
	PLC	LLP, the UK based private equity firm and the Management of Parkdean
		Holidays p.l.c., the listed UK based holiday parks operator, has agreed to
		acquire the company for a cash consideration of GBP139.7 million.
Travelzest PLC	Holiday Express	Sep 05 Travelzest p.l.c., the listed UK based travel company, has agreed to acquire
	Group PLC	Holiday Express Group Limited, the UK based travel agent, for GBP4.45 million,
		inclusive of a maximum contingent consideration of GBP2.26 million payable
		depending on the future performance of the business.
Navigant International	Northwestern	Jun 04 Navigant International Inc, the US based provider of corporate travel
	Travel Services	management services, has acquired Northwestern Travel Service LP, the US
		based travel services company from Northwestern Travel Service Inc, the US
		based travel company and the Noble Family Limited Partnership, for
		approximately USD30.67 million.
Flight Centre acquisition
history
Flight Centre	The Travelspirit	Feb 07 Acquired all the assets of The Travelspirit Group, owner of brands including
	Group	Explore Holidays, Venture Holidays and African Holidays, for $10 million.
Flight Centre	Toni Brasch Event	Feb 07 Acquired all the assets of Toni Brasch Event Management for $0.9 million.
	Management

E VALUATION ADVISORY SERVICES

56

APPENDIX 4: TRAVEL INDUSTRY TRANSACTIONS

EVALUATION REPORT

Acquirer	Target	Date	Description
Flight Centre	Bannockburn	Mar 06	Acquired Bannockburn Travel Management Inc (BTM), the US based travel
	Travel		management company, for $13 million (USD9.31 million).
	Management
Flight Centre	FCM Travel	Oct 05	Acquired a 51% stake in Friends Globe Travels Ltd (FGTL), the India based
	Solutions (formerly		travel agency, for a cash consideration of $8.3 million (USD6.54 million).
	Friends Globe
	Travels Ltd) (India)
Flight Centre	Brittanica Travel	Mar 03	Acquired for approximately $122 million. Britannic provides travel services to
	PLC(UK)		medium and large corporate accounts within the UK market.

E VALUATION ADVISORY SERVICES

57

APPENDIX 5: ALTERNATIVE TRANSACTIONS CONSIDERED

EVALUATION REPORT

Appendix 5: Alternative Transactions Considered

The tables below outline those transactions considered as part of our analysis of transaction and trading multiples respectively. For the reasons stated below, these transactions were not considered comparable for inclusion in the valuation section of this report.

Alternative transactions

Date	Target	Acquirer	Currency	Transaction	Historical	Transaction Description	Reason for exclusion from comparable
				value($m)	EBITDA multiple		companies
Australia
Sep 06	S8	MFS	AUD	916	25.5	MFS Limited, the Australian manager of properties and equity	We have excluded this transaction from our
						funds, has acquired S8 Limited, the Australian travel services	historical EBITDA assessment due to the inability to
						company. The transaction was conducted via an off-market	source S8 proforma accounts inclusive 12 months
						bid.	trading for Gullivers, travelscene, Transonic and
							Harvey World Travel acquisitions.
Apr 06	Travelscene	S8	AUD	67	na	S8 Limited, the listed Australian property management	EBITDA multiple not available.
						company, has agreed to acquire Travelscene Ltd (trading as
						Travelscene American Express), the Australian travel agency,
						for a total cash and stock consideration of AUD 67m.
International
Aug 06	TravelPort Inc, Cendant	The Blackstone	USD	4300	43.0	Cendant entered into an agreement to sell TravelPort Inc,	We have excluded this transaction from our
		Group				Cendant’s subsidiary that holds the assets and liabilities of its	historical EBITDA assessment. We have considered
						former Travel Distribution Services businesses, to an affiliate	this multiple not comparable due to the lack of
						of The Blackstone Group for $4.3 billion in cash.	proforma accounts inclusive of entities acquired
							during 2005.
May 05	lastminute.com	Sabre	GBP	577	25.2	Sabre Holdings Corporation, the US-based travel commerce	Large EBITDA multiple is not a true reflection of
						retailer and provider of technology to the travel industry, has	normalised trading results of entities acquired during
						agreed to acquire the issues and to-be-issued share capital of	FY06.
						lastminute.com p.l.c., the UK-based online travel company, for
						GBP 165 per share in cash. The acquisition is to be conducted
						via a Scheme of Arrangement and through Sabre’s newly
						created acquisition.
Flight Centre acquisition history
Aug 04	travelthere.com (Aus)	Flight Centre	AUD	5.0	na	Acquired travelthere.com and an associated software	No historical EBITDA multiple available for
						development operation for $5 million.	comparison.
Sep 03	Kistend Travel (Aus)	Flight Centre	AUD	2.5	na	Acquired for $2.5 million. Kistend Travel is a niche corporate	No historical EBITDA multiple available for
						agency that provides travel services to Victoria’s student travel	comparison.
						segment.

E VALUATION ADVISORY SERVICES

58

APPENDIX 5: ALTERNATIVE TRANSACTIONS CONSIDERED

EVALUATION REPORT

Date	Target	Acquirer	Currency	Transaction	Historical	Transaction Description	Reason for exclusion from comparable
				value($m)	EBITDA multiple		companies
Dec 02	Cruiseabout (Aus)	Flight Centre	AUD	0.3	na	Acquired Cruiseabout (and a retail outlet – Turramurra Travel)	No historical EBITDA multiple available for
						for $0.3 million.	comparison.
Sep 02	quickbeds.com (Aus)	Flight Centre	AUD	0.8	na	Acquired the online hotel booking service quickbeds.com for	No historical EBITDA multiple available for
						$0.8 million. This business offers travellers easy access to	comparison.
						heavily discounted last minute specials at hotels throughout
						Australia.
Aug 02	American International	Flight Centre	AUD	2.8	na	Acquired the Hong Kong based American International Travel	No historical EBITDA multiple available for
	Travel (Hong Kong)					for $2.8 million. This business operates within the corporate	comparison.
						market.
Mar 02	ITG (Aus)	Flight Centre	AUD	40.0	na	Acquired 100% of the issued capital of ITG for a sum of $40	No historical EBITDA multiple available for
						million.	comparison.
Sep 01	Shopper Travel (Aus)	Flight Centre	AUD	0.2	na	Acquired for $0.2 million. This business offers business and	No historical EBITDA multiple available for
						leisure travel services to members of various unions and	comparison.
						associations.
Oct 06	Nationwide Currency	Flight Centre	AUD	na	na	Agreed to acquire Nationwide Currency Services (“NCS”), a	No historical EBITDA multiple or transaction value
	Services					Perth- based business with a small number of foreign	available at the time of this report.
						exchange shops across three cities.

Alternative comparable companies

Company	Country	Reason for exclusion from comparable companies
Travel.com.au Limited	Australia	Loss making entity
Viagold Capital Limited	Australia	Suspended from the ASX as at 1 June 2007
Webjet Limited	Australia	The trading multiple for this company is significantly higher than other comparable companies due to earnings growth not yet being reflected in the companies share price.
First Choice Holidays	UK	The company has been a party to a merger with TUI AG since its announcement date as at 19 March 2007. This has resulted in a significant change in the companies
		share price between that used in our calculation as at 19 June 2007 and the companies financial reporting date.
MFS Limited	Australia	The company announced that it would acquire Tourism Holdings Limited on 30 April 2007. The companies share price has increased between that used in our calculation
		as at 19 June 2007 and the company’s financial reporting date.
Travelzest PLC	UK	The company has an enterprise value significantly smaller than other comparable companies used in this analysis.
Sabre Holdings	US	The company was acquired by multiple private equity firms in February 2007 and is therefore privately owned with no publicly available information to calculate trading
Corporation		multiples.

E VALUATION ADVISORY SERVICES

59

APPENDIX 6: HISTORY OF FLIGHT CENTRE’ SHARE PRICE AND TRADING VOLUMES

EVALUATION REPORT

Appendix 6: History of Flight Centre’s Share Price and Trading Volumes

Share price and trading volume since December 1995

==> picture [751 x 171] intentionally omitted <==

----- Start of picture text -----

6,000 30.00
5,000 25.00
4,000 20.00
3,000 15.00
2,000 10.00
1,000 5.00
- -
Share trading v olume Share price
6-Dec-956-Mar-963-Jun-966-Sep-9629-Nov-966-Mar-9716-Jun-9711-Sep-9712-Dec-9717-Mar-9819-Jun-9817-Sep-9811-Dec-9816-Mar-9911-Jun-996-Sep-9929-Nov-9928-Feb-0025-May-0018-Aug-0010-Nov-008-Feb-017-May-0131-Jul-0123-Oct-0118-Jan-0217-Apr-0212-Jul-024-Oct-0231-Dec-0231-Mar-0327-Jun-0319-Sep-0312-Dec-0311-Mar-047-Jun-0431-Aug-0423-Nov-0421-Feb-0518-May-0511-Aug-053-Nov-051-Feb-061-May-0625-Jul-0617-Oct-0612-Jan-0712-Apr-079-Jul-07
Share price ($)
Share trading volume ('000)
----- End of picture text -----

E VALUATION ADVISORY SERVICES

60