Travel stocks in a recovering economy

There were few industries as completely devastated by the impacts of COVID-19 as the travel and tourism industries.

International flights were grounded, airline staff stood down and tourism destinations around the globe deserted.

When the pandemic took hold in 2020, the UN predicted $1 trillion would be snatched from the global economy and more than 100 million jobs would be lost.

To fully understand this figure, it can be compared with the $8.9 trillion the travel industry contributed to the world’s GDP in 2019.

But now that vaccines are being rolled out, planes are taking to the skies again and lockdowns are easing, a returning sense of normality has already begun reviving hopes for airline, hotel and travel agency stocks, particularly those in domestic travel and tourism.

One example is Australian adventure tourism provider Experience Co Ltd (ASX: EXP), which has risen from its February low of 18 cents to 27 cents at the start of June.

Another is Flight Centre (ASX: FLT), which fell to $8.92 when planes were grounded in January 2020, but has staged a slow comeback to hover around $15 currently.

Yet a full recovery of the industry won’t occur until international travel returns, said Tony Sycamore, City Index market analyst.

As the travel industry stages a recovery, there are some setbacks for investors. Photo: Getty

“The recent return to domestic travel has eased the impact of COVID-19, however international travel remains largely grounded apart from repatriation services and a limited number of flights to New Zealand under a bubble arrangement,” he said.

“Broader international travel is unlikely to resume until mid-2022 and is expected to take some years to fully recover.”

Australia’s steps to travel and tourism recovery were bolstered by a $1.2 billion tourism stimulus package from the federal government in March, which included 800,000 discounted airline tickets.

However, it did little to boost the share prices of Qantas (ASX: QAN), which fell to $5.00 in April and even further to $4.70 in June, and Regional Express (ASX: REX), which fell from $1.68 to $1.26 in the same time period.

There are bound to be setbacks in the road to recovery, Sycamore said.

“Short-term risks remain around variants of the virus and snap lockdowns,” he said.

“However, in the medium term buoyed by vaccine rollouts, the reopening of borders, and cashed-up consumers desperate to travel and holiday internationally again, the outlook for travel stocks is positive.”

The long-term outlook in domestic and global tourism shares is positive and City Index global market analyst Matt Weller said investors can take heart from what is sure to be an explosive demand for travel.

“After over a year of many individuals sheltering in place, saving money, and dreaming of future travel, the global economy is starting to reopen and present opportunities to take business and leisure trips once again,” he said.

“These stocks will presumably benefit from the pent-up demand and excess savings and may even have record-setting profits.”

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