ASX investors have written off the travel and tourism sector until 2022. Here’s why they’re wrong
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After a good start to 2021, the travel and tourism sector on the ASX has crashed back to earth in recent weeks, but perhaps investors have oversold it.
The industry was rocked by the government’s budget assumption that international borders would stay closed until mid-2022.
And while there was some hope that the trans-Tasman bubble might mitigate the impact somewhat, it has been a modest debut. There have been a modest 2,331 arrivals per day – a number which if it held for 12 months would equate to little over half the 2019 numbers of Kiwis visiting Australia. And most of those travellers are people visiting family and relatives.
Many ASX tourism and travel shares, such as Qantas (ASX:QAN) and Helloworld (ASX:HLO) have dropped in recent weeks. That pair is down 18 per cent in six weeks and 30 per cent in two months respectively.
In the past six months the sector is up 32 per cent but in the last month it is down 3 per cent.
Clearly investors have been put off by the truth that international border changes (or even further travel bubbles) are several more months away – but do they have a right to be as pessimistic as they are, at least towards some companies?
One company that thinks investors are too negative is Serko (ASX:SKO), which is New Zealand based and focused on corporate travel.
Yesterday Serko released its FY21 results in which it reported that revenue and travel booking volumes saw a gradual recovery in recent months.
Serko’s share price has been treading water recently – retreating 6 per cent in as many weeks – but CEO Darrin Grafton told Stockhead things were far better than investors may have been making out.
“I think the advantage for Serko in this global recovery is how fast New Zealand recovered – last year we operated 4-5 months ahead of the curve of Australia and the rest of the world,” he said on a conference call yesterday.
Of all the travel sectors hit by COVID-19, business travel has been tipped as the slowest to recover let alone be for travellers what it was before.
Grafton argued even if some travel patterns never came back others would emerge post-COVID and these could be more beneficial for his company than others ever were.
“I was just having a conversation on Monday with the one of the largest travel management groups in New Zealand and they’re seeing for the first time having to manage a different section of travel,” he said.
“That’s the travel where people are now working from home and moving their teams to do on-site events in Queenstown and Wellington.
“Of course the model of WFH has opened up a whole new segment of business travel where companies that are foregoing a commercial premises are looking at different ways of getting their business teams together.
“We’re going to see a different travel make up but our business is predominantly domestic and inter-regional – only 1 per cent of our volume is international so it doesn’t impact us that much and that’s why we’ve seen such a high-volume recovery at this stage.
“We do have a different view to people who are leisure focused or international focused. We see the transactions will still flow; they may not be the high dollar value they were before COVID but it doesn’t really impact us that much.”
Another bullish advocate of the travel and tourism sector is Atlas Advisors‘ Guy Hedley. His firm is a co-investor in Elanor’s Wildlife Park Fund which owns Mogo Zoo in Bateman’s Bay and Featherdale Wildlife Park in Western Sydney.
And Hedley tells Stockhead his firm is on the lookout for further tourism assets.
“Our perspective is that we think no matter what happens to international border, domestic tourism will get pumped for a number of years,” he said.
“Because people are going to be reluctant to travel [overseas] – no one’s going to back to Bali, right? And the choices for domestic travel are limited – there’s not a lot out there.
“What we’re seeing and why we’re continuing to sort this asset class is domestic tourism is back and big-time.
“Patronage at these parks now is well above any of our forecasts and we think that’s going to be a trend – no matter what happens with international borders – that’s going to stay for a long time.
“So domestic tourism assets are going to be valuable; it’s just that there aren’t that many of them.”
ASX travel agents are seeing more demand than 12 months ago but still less than in 2019.
Helloworld (ASX:HLO) for example, reported yesterday April corporate travel Total Transaction Value (TTV) was up 580 per cent from 2020, although down 45 per cent from 2019.
It credited the Trans-Tasman bubble as well as anticipation on the other side of the Tasman about the bubble between New Zealand and the Cook Islands (although Australia isn’t part of).
Webjet (ASX:WEB) also reported results yesterday, noting Australian domestic bookings were 95 per cent of April 2019 levels.
And it was confident whenever international travel resumed it would be a similar boom.
“We know people cannot wait to travel – to reunite with families and loved ones, to embark on adventures and to explore the world,” declared managing director John Guscic.
“Webjet has significant cash reserves, we have a team that’s always been agile and hungry to win, and we are ready to go.”