This comes after the travel company disappointed the market by forecasting a 58 per cent slump in its annual report because of heavy losses from its newly acquired but under performing US business.
"Flight Centre's 2009 earnings guidance is disappointing," analyst Belinda Moore of ABN AMRO Morgans said. "The timing of the announcement is surprising given May to June is Flight Centre's busiest trading period.
"We have made substantial downgrades to our forecasts as a result of this news. We expect the market to react negatively and we move to a sell rating," Ms Moore said in a note to investors yesterday.
Shares in Flight Centre plunged 9 per cent or 54c to close at $5.64 yesterday.
"We remain cautious and maintain a neutral rating," UBS analyst Ray David said in a note to clients.
Ms Moore said the company spent $135 million acquiring the Liberty travel business in the US, which suffered $16 million in losses in the second half after $9 million in the first half.
"We expect poor operating cash flow to be a feature of the financial year 2009 results. Flight Centre's acquisition of Liberty has been highly detrimental, with losses totalling $60 million in financial year 2009, including one-offs," she said.
"Given the deteriorating macro environment, the limited visibility over earnings and operating cash flow, and current fundamentals, wemove from a hold to a sell recommendation.
"We believe operating conditions could deteriorate further and the duration of the downturn is uncertain." Travel was the cheapest it had ever been, but it was a confidence issue, she said.
"Not many people are taking advantage of these cheap flights, as they are uncertain whether they will come back to a job," she said.
Flight Centre managing director Graham Turner said he expected weak trading conditions to continue until the end of this financial year.
The company has already cut about 100 jobs in Australia, mostly from its support divisions.