Leaf Through Three Key Factors Defining Travel Space Recovery Scenario

Summary

• Travel stocks closed the trading session in green zone on Friday despite PM’s statement on continuation of overseas travel bans.
• Trans-Tasman travel bubble is expected to be “on the backburner” for the next several months.
• The promising COVID-19 vaccine trial results have been giving travel stocks a shot in the arm, cheering investors’ sentiments in the equity market.
• The expectation that substantial fiscal and monetary stimulus will be offered for an extended period of time is further boosting investors’ confidence.
• Few signs are emerging as glimmers of hope for Australia’s economic revival from virus crisis.

Despite Australian Prime Minister’s recent statement on continuation of international travel restrictions for some months amid COVID-19 pandemic, the share prices of multiple travel players demonstrated considerable strength on Friday, closing the trading session in green territory.

Australian PM, Mr Scott Morrison, has recently ruled out any modifications in international travel restrictions for several months. The national cabinet has taken this decision to prevent any additional strain on the quarantine system that dramatically failed in Victoria amidst second wave of coronavirus infections.

COVID-19 cases emerging in Victoria have also dashed hopes of sooner resumption of international travel between Australia and Kiwi Land. NZ PM Jacinda Ardern has recently informed that trans-Tasman travel bubble is expected to be “on the backburner” for the next several months in the wake of high coronavirus community transmission in Australia.

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Despite these bleak signals, travel stocks have fared relatively well over the past few days on the back of various developments, as discussed below:

COVID-19 Vaccine Hopes

The promising COVID-19 vaccine trial results have been giving travel stocks a shot in the arm, cheering investors’ sentiments in the equity market. Investors have been upbeat on vaccine development hopes after an initial study indicated Moderna Inc. had made a breakthrough with its coronavirus vaccine, which is expected to be ready by October 2020.

About six vaccine candidates have progressed to the critical Phase III trials so far, developed by Moderna, AstraZeneca, Pfizer/BioNTech, Sinopharm and the Beijing Institute of Biological Products, Sinovac, and Sinopharm and the Wuhan Institute of Biological Products. While several vaccine candidates have reached their late stage clinical trials, WHO does not see any silver bullet to defeat COVID-19 in the future.

Despite WHO’s projection, the optimism around vaccine development has been bolstering investors’ confidence in the battered travel sector, stimulating revival in travel-based stocks.

Dedicated Push from Australian Government

The expectation that substantial fiscal and monetary stimulus will be offered for an extended period of time is supporting investors’ sentiments in financial markets.

In response to the coronavirus pandemic, the Australian government has so far acted decisively and swiftly in offering economic support for households, businesses and workers. The government has provided unprecedented support of about $289 billion or 14.6 per cent of the GDP to cushion the blow of virus crisis.

Recently, the government has also extended its initial JobKeeper support expiring on 28^th September 2020, until 28^th March 2021 to support businesses that continue to bear the brunt of COVID-19 pandemic. The government’s decision was welcomed by major travel and tourism organisations, including the Australian Federation of Travel Agents, the Tourism and Transport Forum, the Australian Tourism Export Council and the Tourism Accommodation Australia.

While the government assistance has emerged as a breather for businesses and households reeling from virus disaster, the dedicated support is likely to deepen the country’s budget deficit to $85.8 billion and $184.5 billion in 2019-20 and 2020-21, respectively.

Economic Revival Signs

Though Australian economy appears to be walking a tightrope during COVID-19 crisis, few signs are emerging as glimmers of hope for the nation’s economic revival.

The nation’s retail sales recorded a rebound in June 2020, surging by 2.7 per cent during the month, backed by an increased spending on food and dining. The June month observed a continued revival of industries affected by trading restrictions in April and May 2020. Moreover, the country’s trade surplus also jumped up to $8.2 billion in June, endorsed by rise of $687 million in exports of non-monetary gold.

Signs of recovery were also apparent in the Australian property market, as evident from 21 per cent increase in new home listings in Sydney during July 2020. Additionally, the value of new loan commitments for housing also marked an uptick of 6.2 per cent in June 2020 amid easing restrictions on open houses, auctions and mobility in general.

Despite these promising signs, the RBA expects nation’s economic recovery to be slower than anticipated with high unemployment levels for several years. The broader economic outlook has been worsened due to a sudden spike in fresh COVID-19 cases emerging in Melbourne.

All in all, it is hard to discern the actual shape of travel sector revival from coronavirus crisis amid looming fears of second wave of COVID-19 infections and fainting hopes of international travel resumption in the near future. Prevalence of record-low interest rates and critical government reforms seem crucial for sector’s sustained path to recovery.

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