Are Travel Stocks Still in the State of Quarantine

  • Jul 12, 2020 NZST
  • Team Kalkine
Are Travel Stocks Still in the State of Quarantine

Summary

  • The COVID-19 is a severe shock to the travel industry as almost every business is struggling to meet the costs amid no or very insignificant revenue.
  • Travels stocks had plunged to fresh lows amid the COVID-19 restrictions, and due to the worries of a second wave of infections, travellers are only willing to proceed with their plan when necessary.
  • Only a smaller number of businesses are going to continue while a lot of companies are shutting down, to ride out of the COVID-19 storm.

At many instances, travel stocks have been leading the slide in the market during the current period of COVID-19. Travel stocks are said to be amongst the most severely hit stocks across the world and from these recent instances, it looks like that the fall in the travel stocks is directly related with the growth in the number of COVID-19 cases.

Restrictions imposed due to COVID-19 have compelled several businesses to close, especially the small and medium-sized in the tourism sector. The tourism industry is slowly beginning to open after a complete shut down as restrictions are gradually lifted. However, the industry is still limited to domestic operations only across most of the economies and is facing several challenges due to cautious travellers who are only travelling when necessary.

God Read: Travel Stocks impacted by Coronavirus: A look at Global and Australian Stocks

THL Focusing on Liquidity and Expects NPAT of $17.5 – $19 million

NZX listed premier tourism company, Tourism Holdings Limited (NZX:THL) expects to report an underlying net profit after tax of $17.5 – $19 million for the financial year ending 30 June 2020 excluding the impact of the partial Togo exit undertaken in March 2020, or any potential impairments or other non-ordinary items.

Moreover, THL is undertaking impairment testing across its businesses, and the Board has approved the write-off of the full $3.1 million of goodwill attributed to Kiwi Experience on its balance sheet as a result of the expectation that the Kiwi Experience business will be hibernated until international borders reopen.

Further, THL shared its strong commitment to its Kiwi Experience business and now looks forward to reopening the business when long haul international tourism recommences. The Company is in the process of the annual impairment testing, which is completed as part of its year-end and audit procedures.

In addition to this, the Company has called off its dividend distribution for FY20 given the focus on debt reduction, the inherent uncertainty in the operating environment and the Company’s new funding requirements.

The Company has concluded the discussions regarding funding arrangements with its banking partners has entered a binding term sheet reflecting fresh arrangements with commitments provided for $225 million comprising of several tranches maturing between September 2021 and July 2022.

On 10 July 2020, THL stock closed at $1.90.

Did you read: Dream New Zealand: Lens on Travel Stocks

AIR Anticipates Underlying Loss for FY20

Due to the significant uncertainty surrounding the duration, scale and impact of the Covid-19 pandemic, Air New Zealand (NZX:AIR) had suspended its earnings guidance for FY2020. Now, the Company is anticipating an underlying loss of up to $120 million (before Other Significant Items and Taxation) for FY2020.

Other than the loss, the Company expects several Other Significant Items to impact its FY20 results.

Moreover, the company looks forward to becoming highly efficient and operate fewer wide-body aircraft and could be more profitable in the future than before.

Going forward, AIR expects to thrive in the environment and overcome the challenges presented by the varying situation of COVID-19.

On 10 July 2020, AIR stock closed at $1.34.

AIA Plans to Reduce Costs

As the Company had actively countered to the disturbance of aviation and tourism markets, the AIA has a broad plan to lessen operating costs, bolster liquidity and defer or stop capital expenditure. Other items are also anticipated to influence the earnings of Auckland International Airport Limited (NZX:AIA) for FY20.

Presently, the airlines companies and the whole travel industry is undergoing extraordinarily challenging times, and the international passenger numbers have now started averaging 800 per day at Auckland Airport.

Due to the disruption caused by the COVID-19, the number of carriers operating in NZ have declined from 29 to 11, and there has been a dramatic decline in the daily flight numbers.

The businesses in the travel industry are fighting out ways to come out of the never before seen shock that has materially impacted the organisations, including AIA.

Experts believe that the travellers are less likely to travel in the present scenario of a rebound in the number of COVID-19 cases. Also, there are fears of a second wave of infections on top of no vaccine development in sight.

On 10 July 2020, AIA closed at $6.24.

Interesting Read: Is there another leap for NZ Travel Sector?

Fear of Second Wave

Many countries have been able to flatten the COVID-19 curve; however, the second wave of infections has emerged across several nations. New Zealand also looked like to have curbed the virus spread entirely but only to experience the second wave of cases. NZ has been reporting new cases from its managed isolation facilities, and the last case of COVID-19 acquired locally from an unknown source was 69 days ago.

Moreover, the rising number of cases is the reason that several countries have not entirely removed the restrictions. It’s also believed that a few countries are yet to see their peak number of cases. Recently, Australia has closed the New South Wales-Victoria border after a spike in Covid-19 cases in Melbourne as a measure to curb further transmission of the disease across the border.

Opening international border restrictions in such a scenario is nothing but a considerable risk to make the mass population vulnerable to infections.

Does this mean that travel and tourism stocks still have a long way to go?

Low Willingness to Travel

A survey conducted by the International Air Transport Association (IATA) shows that the willingness to travel has been tempered by worries over the possibilities for the spread of COVID-19 during air travel. People are clearly worried about the spread of COVID-19 during travelling; however, they are also comforted by the pragmatic actions being launched by governments as well as the industry.

With the outbreak of COVID-19, tourism stocks across share markets plunged to fresh lows and are still vulnerable to the slightest dislocation caused by the COVID-19.

Recently, the New Zealand Government has enabled air travel to restart the Domestic network slowly. However, earnings and revenue shall be substantially lower than what was expected earlier to the outbreak of COVID-19.

Bottomline

Undoubtedly, the COVID-19 pandemic has stunned every airline in the world. The event has a very large-scale impact and is not like any other event of dislocation in the industry.

Only a small number of airlines shall be able to make a comeback to the former ways of working. Attempting a fresh start; the survivors are expected to be more focused, cost-effective and shall offer enhanced service for its customers.

 


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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