Travel Stocks: Not to lose Hope amid Crisis; FLT, WEB and QAN Send Positive Signals

The novel coronavirus, which targeted China’s Wuhan initially in December 2019, has now infected over 120,000 people worldwide and has led to a disturbing death toll of more than 4,700 people so far. In the wake of widening coronavirus pandemic across the world, the regulatory authorities are imposing month-long travel restrictions to curb the spread of the disease.

Though several countries have till date levied entry bans on recent visitors to China or Chinese citizens, some stayed ahead of the curve, imposing worldwide ban by shutting their borders to all international tourists.

The recent to force a 30-days travel ban is the world's largest economy, the United States, which has applied restrictions on foreign nationals travelling from the 26 European countries with open-border agreements (no passport checks between internal borders), in the past 14 days before their planned arrival in the U.S.

The US President, Mr Donald Trump reported about the travel ban on Wednesday due to which the European stocks, majorly airlines, experienced historic losses on Thursday. Moreover, the US stocks also observed their worst day since the 1987 crash on Thursday, owing to the President’s announcement, which hit the US travel and airline stocks hard. Following the leads of the US stocks, the Australian stocks also plunged sharply on Thursday.

However, it is imperative to note that the S&P/ASX 200 index has slightly revived, closing the trading session with a gain of 4.4 per cent on 13^th March 2020 or Friday.

Although the global travel restrictions are weighing heavily on the travel stocks, investors must not lose hope as the Australian travel companies are all set to mitigate the risks springing up from the coronavirus pandemic.

Moreover, the Australian government has also announced a $17.6 billion stimulus package to avert the possible coronavirus-induced recession, which includes $1 billion fund to help the nation’s beleaguered tourism sector.

Let us scroll through some key initiatives undertaken by the Australian travel companies to cope with pandemic:

FLT Outlined Key Strategies to Battle COVID-19

Australia’s retail travel agency, Flight Centre Travel Group Limited (ASX:FLT) has recently outlined key strategies to deal with coronavirus challenges in the short run. In fact, in a challenging trade cycle, the Company has already implemented strategies to grow and protect its market-share, while lowering costs and retaining its robust balance sheet.

FLT’s Managing Director, Mr Graham Turner, notified that the Company will draw on its experiences with 2003 SARS (Severe Acute Respiratory Syndrome) and during the 2009 GFC (Global Financial Crisis) by seeking to stimulate demand and applying sensible cost reduction strategies to uphold its balance sheet strength.

Moreover, he informed that the Company’s Total Transaction Value (TTV) actually increased slightly across the globe in February 2020 relative to February 2019 as the people are still booking travel.

The Company’s priorities in the current scenario are to slash costs, besides ensuring that it is ready to capitalise at the time when the ongoing steep discounting across most travel categories begins to gain footing and as the trading cycle recovers.

The Company emphasized that the trading cycle rebound can be relatively strong and fast post a pretty significant slump in international travel, as was the case with both SARS and the GFC in Australia. It will seek to invest in marketing and sales proactively at the time its competitors may be forced to pull back, to raise its share of voice.

To drive its longer-term growth and complement the strong retention rates, the Company’s broad network of corporate business development managers across the globe will focus on securing new accounts.

The Company reported that it will continue to invest in:

• Unique, new and attractively priced product ranges for customers.
• Promoting internally driven and supplier initiatives.
• Leisure e-commerce capabilities.
• Technology suite.

In addition to these initiatives, the Company has also announced some transformation plans in the wake of this challenging trading cycle, which includes reducing its traditional leisure footprint in Australia over the coming few months and accelerating its network rightsizing program.

The Company’s current financial position, with $1.3billion in total cash and investments & $189million positive net debt position at February 29, reflects its solid balance sheet. However, the Company has suspended its FY20 guidance amidst heightened coronavirus uncertainty.

FLT closed the trading session at $19.15 on the ASX on 13^th March 2020.

Webjet Implementing Broader Cost Reduction Programme

Amidst the broadening spread of coronavirus to countries outside China, Australia’s travel agency, Webjet Limited (ASX:WEB) is undertaking cautious steps to mitigate the brunt of the disease. The Company is implementing a stronger cost reduction programme to lessen its operating expenditure, which is anticipated to result in savings of about $10 million in the remaining FY20.

The Company is also employing some other initiatives to ensure it retains its competitive and strategic advantage when circumstances normalise.

Under the cost reduction programme, the Company’s Board of Directors and the Managing Director, Mr John Guscic have voluntarily agreed to lower their salary and directors’ fees by 20 per cent with immediate effect till the time the situation comes back to normal. Moreover, the MD has agreed to give up any bonus that would have been attained in FY20.

The Company intends to maintain its strength of low net debt levels and a strong balance sheet via cost reductions. The Company is preparing itself to take advantage of the faster-growing market when wide-ranging travel returns across the globe.

In the wake of uncertainty of the scale and duration of the pandemic, the Company has also withdrawn the FY20 EBITDA guidance recently.

WEB closed the trading session at $5.5 on the ASX on 13^th March 2020.

Qantas Adopting Longer Range Capacity Cuts

Australia’s flag carrier, Qantas Airways Limited (ASX:QAN) is also leaving no stone unturned to mitigate the substantial adverse impact of coronavirus. The Company is taking decisive action like longer range capacity reductions that enhance the capability of the business to slash costs.

The Company has undertaken several cost reduction measures besides cutting capacity, including:

• Setting annual management bonuses to zero for FY20.
• Announcing the following measures for the remaining FY20:
  • Qantas Chairman will take no fees.
  • CEO of the group will not take salary.
  • Board will take up a 30 per cent cut in fees.
  • Group Executive Management will take up a pay cut of 30 per cent.
• Freezing all non-essential consultancy and recruitment work.
• Requesting all Jetstar and Qantas employees to take unpaid or paid offs considering reduced flying activity.

As per Qantas Group CEO, Mr Alan Joyce, the Company has low debt levels and a robust balance sheet and is in a good position to ride this challenging phase out.

QAN closed the trading session at $3.18 on the ASX on 13^th March 2020.

Given global panic sell-off triggered by Covid-19 fears, investors may look at the solid fundamentals and optimistic dividend stories of the ASX-listed travel companies; remembering stock market panics go back and forth, but buying opportunities are long-lasting and real.

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