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Is it time to load up on airline and travel stocks?
The world is largely open for travel. As vaccination rates peak, governments across the globe are managing to contain COVID-19 and relax border restrictions. Travel in China, however, is heavily compromised by COVID restrictions. According to the International Air Transport Association (IATA), “North American and European international traffic rebounded to -42% of their 2019 peaks last year, traffic in the Asia Pacific remained at -88%.
Even in this region, however, there has been some progress, with India and Malaysia among the countries recently announcing relaxation of restrictions.” Recent relaxations include Australia, Bangladesh, New Zealand, Pakistan, and the Philippines.
It’s great news for the travel and aviation industries that will receive a much-needed economic boost from the upcoming Easter and Northern Summer travel seasons. Both these industries have endured a tough two years and are yet to recover to pre-Covid levels.
It’s time to buy travel and tourism stocks, according to some fund managers.
Looking at the table above, travel stocks have started to recover following the reopening of international borders. The market is now well past the pandemic, despite the Omicron variant in China. With borders reopening and international flights continuing, Australians who love to travel but have been stuck at home for the last two years will be dying to get away.
With that in mind, the underperformance suffered by travel stocks will reverse in the next six months provided they are able to meet debt requirements.
Webjet (ASX:WEB)
Is currently trading at $5.81 and is on the road to recovery. To fully recover to its pre-Covid level, the stock will have to rise by 132.7 percent, to $13.52. That’s the potential opportunity. Webjet is highly leveraged to the travel sector recovery. During the pandemic, the business raised $257m in emergency capital to stay afloat and prop up its WebBeds business. Citigroup has upgraded its recommendation to Buy from Neutral, with a target price of $6.50. The broker expects Webjet to lead re-opening earnings thanks to its “exposure to volumes from its user-pay business model and low fixed costs.” Citigroup is also tipping the B2B business to bounce back quite strongly supported by lower costs, improved industry position, and market share online. Overall, earnings could fall a little due to Omicron, but the market should look past this to the re-opening play.
Qantas (ASX:QAN)
Qantas is a household name in Australia, and is the country’s flag carrier airline. Its enviable safety record has earned it world fame. And it’s backed by the federal government: Qantas has now received over $2 billion in aid from Canberra through wage subsidies, financial support and fee-waiving since the beginning of the COVID pandemic. Qantas also receives assistance from the state governments in the form of tax breaks and tourism funding. Being the main airline means it handles the greatest number of passengers.
The price of Qantas shares has been volatile partly due to the rise in the cost of fuel and fierce competition domestically. The stock is trading at $5.39 and is well on the way to recovery. Its pre-Covid share price is $6.67. That’s a potential 23.7 percent gain to reach its pre-Covid levels. Ord Minnett has a Buy recommendation with a target price of $5.95. The broker likes the commitment to “refresh the fleet by introducing more fuel-efficient aircraft and the increased adoption of sustainable fuels.” As such. Ord Minnett retains its Buy rating on QAN.
