Lockdowns set to hit the travel sector at the worst possible time

The global pandemic brought the world to its knees, decimating economies in its path, not sparing a single country. It left behind a global recession and mountains of debt. Australia was one of the lucky countries, that successfully worked out how to beat the virus. Even still, Covid-19 and its forced lockdowns had a devastating effect on small businesses.

One sector, that was hit harder than any other, was travel. Covid resulted in a full-scale global transportation freeze. Borders closed. Airlines grounded. Ships docked and cars garaged. Bustling metropolises turned into ghost cities overnight. It became quickly evident that it would evolve in a crisis that would cripple the aviation industry into survival mode, impaired by the loss of traffic and revenues. The impact of this crisis reaches way beyond aviation.

The challenges the travel sector faces are not only ongoing but also unpredictable.

Despite the reopening of the Australian economy, travel restrictions only ease once neighbouring countries open their borders for aviation to commence once again. Morgans released a research whitepaper titled Travel Sector: the recovery is underway but there will be bumps along the way. The paper talks about Airline industry body IATA, saying that “the pace of the travel recovery will depend on the continued distribution of vaccines, the relaxation of government travel restrictions, the reopening of air routes and borders, the elimination of quarantine measures, the ability to digitally manage vaccination/testing certificates and consumer’s risk aversion.”

Despite Australia leading the world in its recovery efforts, its domestic travel recovery came to a grinding halt following the recent outbreak in Melbourne and current outbreak in Sydney. Until the world is vaccinated, prevention via minimising contact is the only successful method. Unfortunately, the travel sector is hostage to an outbreak.

Morgans says “Qantas was forecast to reach 95% of its pre-COVID domestic capacity for the 4Q21. However the recent lockdown in Victoria (started 27 May) likely slowed expectations… Before the lockdowns/travel restrictions in Australia, Qantas said that corporate travel, including the small business segment, was at 75% of pre-COVID levels. Apart from some safe travel bubbles, Australian international travel is unlikely until mid-2022.”

Here is a rough timetable on when some of the major economies will open their borders again. Timetable – Global recovery

Morgans sees the following global travel recovery:

• In 2021 global passenger numbers are expected to recover to 52% of pre-COVID levels.
• In 2022 global passenger numbers are expected to recover to 88% of pre-COVID levels.
• In 2023 global passenger numbers are expected to surpass pre-COVID levels (105%).

Going by the above projections, it looks more than likely that international flights will commence towards the end of 2022 to early 2023 with numbers expected to come close to surpassing pre-covid levels. For that reason, it could be time to start thinking about adding a travel stock that is operating below its pre-Covid levels. Here is a list of the main travel stocks on the ASX:

Looking at the table above, Webjet (ASX:WEB) has the largest Covid percent gain required to surpass its pre-Covid share price. Macquarie has an Outperform recommendation with a target price of $6.35. The broker says Web’s “Discretionary returned the best price performance in consumer, up by 3.4% for May.” Within Discretionary, the broker remains positive on travel and says “Webjet is best placed among listed travel stocks to benefit from a domestic-led travel recovery with circa 70% of total transaction volume (TTV) being domestic.” Outperform and $6.35 target unchanged. Corporate Travel Management (ASX:CTD) it’s around 60% domestic and Flight Centre (ASX:FLT) domestic revenue is 53%.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.