Dream New Zealand: Lens on Travel Stocks

  • May 27, 2020 NZST
  • Team Kalkine
Dream New Zealand: Lens on Travel Stocks

As stricter isolation, social distancing and lockdown measures poured in, travelling has become a dream for most of the people since many across the globe are waiting to travel back to their places. The closure of international borders, as well as domestic travel, has laid a significant impact on the travel business across the globe.

According to the World Travel and Tourism Council, the direct, indirect and induced impact of Travel & Tourism accounted for US$ 8.9 trillion worth of contribution to the world’s GDP in the year 2019.

The global travel & tourism sector witnessed robust growth during the year 2019 and managed to reinforce its role as a driver of economic growth as well as job creation.

According to the data by IATA, industry-wide revenue passenger kilometres (or RPKs) increased by 2.4% YoY in the month of January, which is the slowest growth outturn since the month of April 2010. However, as per the release, industry-wide available seat kilometres (or ASKs) expanded 1.7 percent annually in the month.

According to the World Travel and Tourism Council, while the global economy grew by 2.5%, Travel & Tourism sector grew at 3.5% in 2019.

Moreover, Stats NZ said that there was the largest-ever drop in monthly visitor arrival numbers in the month of March with 175,500 visitor arrivals in March 2020, down by 54 per cent compared with March 2019 due to the border restrictions imposed by the government for international visitors as part of the broader response to COVID-19.

 

Key Data (Source: Stats NZ)

Key Data (Source: Stats NZ)

 

Given this backdrop of domestic as well as global travel sector, let us look at NZX-listed travel stocks.

Air New Zealand Limited (NZX: AIR)

Being an operator of a global network, Air New Zealand (NZX:AIR) offers passenger as well as cargo services to, from and within New Zealand with a network reach extending from New Zealand into Australia, Asia, and the Americas.

Prior to COVID-19, Air New Zealand recorded annual revenue of around $5.8 billion and made a profit of NZ$374 million during the previous financial year. Air New Zealand’s revenue is expected to be less than NZ$500 million annually from having revenue of NZ$5.8 billion (a decline of over NZ$5 billion) based on the current booking patterns.

Any improvement in the revenue estimate during the current calendar year is expected only if the people of New Zealand adopt domestic travel upon easing of the restrictions. Moreover, a lot depends on international travel as well since countries are likely to take a cautious route in allowing global tourism in the upcoming year.

Since international tourism flows make up two-thirds of Air New Zealand’s revenue, it is clear that billions of dollars in ticket sales won’t be booked and over 1.5 million tourists won’t be flying on Air New Zealand’s domestic network.

The company is planning to operate as a domestic airline with limited international services to keep supply lines open for the anticipated future as it could take years for Air New Zealand to get back to its former size.

During Alert Level 2, Air New Zealand had plans to operate around 20 per cent of its usual domestic capacity compared to pre-COVID-19 levels while ensuring the safety of customers as well as employees.

Auckland International Airport Limited (NZX: AIA)

Auckland International Airport Limited (NZX:AIA) is a major gateway to New Zealand, and its revenue base comprises of airport operations (like landing charges and passenger levies-around 48% of the total), with the remainder from terminal charges, concession revenue, car parking and rents.

In a monthly traffic update, AIA declared that total passenger volumes for Auckland Airport decreased by 42.0% during March 2020 as compared to last year, and there was a decline in international passengers by 43.2%, transit passengers by 49.5% and domestic passengers by 40.1%, reflecting the impact of the travel restrictions imposed by the New Zealand Government in response to COVID-19.

Further, there was a decline of 97.5% in the total passenger volumes at Auckland Airport in April 2020 as compared to last year and there was a decline in international passengers by 96.5%, transit passengers by 98.5% and domestic passengers by 98.6% and April was the first full month impacted by the closure of the New Zealand border.

The Company had also announced a Share Purchase Plan to raise NZD 200 million, which was oversubscribed. SPP received robust shareholder support and Auckland Airport received applications that totalled around NZ$489 Mn.

The company stated that SPP is part of Auckland Airport's equity raising which was announced on April 6, 2020, whereby it also undertook a fully underwritten NZ$1,000 Mn placement of the new shares to existing institutional as well as other select investors in offshore and local markets.

The outbreak of COVID-19 has had a material impact on the Auckland Airport, and there has been a dramatic decline in the international and domestic passenger numbers.

Although the near-term trading conditions remain uncertain and like many organisations, AIA shall continue to face challenges; however, AIA remains optimistic about its long-term future.

 


Disclaimer
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. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
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