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Sector spotlight: will travel stocks fly this summer?

The winding queues outside UK airports were incredibly painful for holiday-goers this Easter, but for airline and travel executives this recent surge in travel demand looks set to mark the return of global travel.

While travel and airline stocks have been hampered since the start of the Covid-19 pandemic, there are early indicators that this could be about to change. Last month, the National Travel and Tourism Office reported that US long-haul air travel to and from Europe increased by 862% year-on-year. The European Travel Commission further indicated that three in four Europeans intend to take a trip in the next six months, despite the war in Ukraine. Another early sign that passenger travel will rebound this summer.

While the mood music for travel is changing, there is clearly some way to go. The head of the IATA Willie Walsh recently noted that passenger travel is overall 45.5% down on 2019, with international almost 60% lower and domestic 22% down. China’s zero-Covid policy remains a drag on the global travel industry’s recovery and the Russia-Ukraine conflict will further impair travel figures in coming months.

In addition, structural challenges brought on by the pandemic and the current macro environment will continue to dampen the recovery. The queues at Heathrow, Manchester and Gatwick are a reflection of an industry that laid off thousands of staff during the pandemic and is now struggling to fill vacancies. Questions also remain unanswered about how airlines respond to lower corporate business travel budgets in a world of Zoom, Teams and Google Meets.

Elsewhere, rising oil prices could lead to higher passenger ticket prices, putting off potential holiday-goers during the current cost of living crisis. Many won’t be thinking of holidays abroad to Tenerife and Greece when household bills are rising to eye-watering levels. Equally we are not out of the woods with the pandemic, and distrust built from the previous traffic light system could put some consumers off from flying this summer.

So what does this mean for travel stocks?

It is clear that bellwether stocks in the industry have yet to experience any major uplift this year. Both International Consolidated Group, owner of British Airways, and car rental business Hertz are down around 3% YTD. So far in 2022, Airbnb is down 2% and both plane manufacturer Boeing and low-cost airline Ryanair languish 12% lower than they started the year (as of 21/04/22). While Ryanair’s share price has recovered to pre-Covid levels, International Consolidated Group and Boeing remain well below their pre-pandemic prices.

For traders weighing up the future of travel stocks, the path ahead remains unclear. Despite the challenges still ahead, there is a degree of optimism that stocks might fly this summer as we learn to live with Covid. Nonetheless, the biggest barriers to returning to pre-Covid levels are still in place.

Keep an eye on how the travel sector is performing this week, with Boeing reporting their 2022 first-quarter financial results on Wednesday.

Published: 26 April 2022

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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