Why are These Travel Companies Worth Your Attention?

The Australian economy seems to be on the brink of recession owing to the coronavirus pandemic, which is nearly crippling the entire world, spreading fears of a massive economic downturn. The uncertainty of the duration and scale of the coronavirus is further exacerbating the situation, leading to panic selling in the equity market.

As a consequence of international travel bans imposed to prevent COVID-19 spread, the travel stocks have been facing the most heat, with investors liquidating their holdings to evade the risk of incurring losses from the investments.

However, market participants need not lose hope amidst this challenging scenario as positive signals are brewing up from the companies in the travel space, which seems to be in a strong liquidity position.

Given this backdrop, let’s discuss three companies operating in the travel space with a strong liquidity position:

No need to Raise Equity, Said CTM

The global leader in business travel management services, Corporate Travel Management Limited (ASX:CTD) recently notified that there is no current need to raise equity amidst changing landscape due to coronavirus pandemic, as the Company’s liquidity position remains robust.

As at 20^th March 2020, the Company’s operating cash exceeds its drawn debt, which means it is in a net cash position. Moreover, the Company has committed debt facility of $250 million, maturing in August 2022.

Recently, the Company has also actioned numerous plans to manage costs against the reduced corporate travel activity owing to the government-imposed restrictions on international travel. These measures included:

• shorter working weeks on proportionate pay,
• staff leave,
• leave without pay,
• reduction of all discretionary expenditure,
• freeze on all non-essential recruitment, and
• delaying non-client facing project work.

Moreover, the Company’s Managing Director and Non-executive directors will take a 20 per cent reduction in their fixed remuneration and fees, respectively, for the remaining FY20.

In combination with the cost measures mentioned above, the Company’s liquidity places it in a solid position to resist considerable and sustained reductions in activity as a consequence of these unprecedented conditions. The Company has begun a round of cost cuts of minimum $10 million per month, effective from March 2020 end.

It is imperative to note that more than half of the CTM’s global total transaction value is domestic in nature. Also, though there is a reduction to domestic capacity, many of the Company’s clients are continuing to travel across all of its regions, but at low levels.

In view of current circumstances, the Company has deferred its interim dividend previously scheduled for payment on 14^th April 2020 to 2^nd October 2020.

Following the release of CTM’s announcement on liquidity position, its share price surged by ~19.3 per cent, closing at $5.610 on 20^th March 2020.

Our Liquidity Position Remains Strong, Said Sydney Airport CEO

Considered as one of Australia’s most prominent pieces of infrastructure, Sydney Airport (ASX:SYD) reported in its latest ASX update that the Company is also experiencing the financial impacts of COVID-19. The Company added that the total traffic in February 2020 was 9.3 per cent down on the prior corresponding period at 3.1 million passengers.

Moreover, the international traffic was also 16.8 per cent down on the prior year, at 1.1 million passengers, and domestic traffic was 4.5 per cent down on the prior year, at 2.0 million passengers.

The Company’s update highlighted that travel across most nationality groups was impacted during February, with South Korean and Chinese nationals demonstrating the greatest reduction of 34 per cent and 72.4 per cent, respectively on the prior year.

However, Sydney Airport’s CEO mentioned that the Company has detailed continuity plans which provide confidence that it can deal with the challenges posed by any potential intensification of the coronavirus outbreak. He added that the Company’s liquidity position and balance sheet stay strong, and its recent bond issue fully refreshes $1.4 billion of available bank facilities.

The Company is also continuing its disciplined approach to manage operating costs amidst the current scenario.

As on 20^th March 2020, SYD gained ~3.4 per cent, closing at $4.86.

Maintaining Balance Sheet is FLT’s Priority

Brisbane-headquartered travel agency company, the Flight Centre Travel Group Limited’s (ASX:FLT) key priority during this tough trading period is to maintain balance sheet strength. The Company informed that it had a positive net debt position of $189 million at 29^th February 2020, which comprised:

• $403.2million in investments and general cash (as part of a broader $1.3billion global cash and investment portfolio); and
• $213.9million in debt.

Moreover, the Company has access to additional liquidity, in addition to undrawn debt facilities in the order of $80million, with its existing debt facilities running to February 2022.

The Company has also executed strategies to safeguard and expand its market-share in a challenging trading cycle. The Company added that it would draw on its experiences from 2009 GFC and 2003 SARS to induce demand and would apply sensible cost reduction strategies to keep its balance sheet strength. As with both of these events, the rebound can be strong and relatively fast after a relatively large downturn in international travel, informed the Company.

In its latest ASX update, the Company cited that it has accelerated urgent business review to determine further cost and cash saving initiatives. Additionally, the Company noted that it would be considerably affected by recent events such as major reductions in airline capacity and unprecedented government-imposed restrictions on international travel.

The Company is planning to hold further discussions with stakeholders comprising vendors, insurers, landlords, suppliers and banks on methods to handle the financial influence of a steep drop in travel activity in the near-term.

Moreover, the Company has initiated talks with the Federal Government for discussing larger industry assistance packages, taking into account support being offered to companies that have been significantly impacted and airlines in Australia and overseas.

As on 20^th March 2020, FLT closed the trading session at $9.90.

Given global panic sell-off triggered by COVID-19 fears, investors may consider solid fundamentals, strong balance sheet and decent dividend growth stories of such travel companies. Not to forget, “stock market panics go back and forth, but buying opportunities are long-lasting and real.”

Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.