How Long Does the Woes of Travel-Tourism and Aviation Sector Will Continue Post Lockdown?

Summary

• France becomes the latest entrant in the list of UK quarantine countries
• Spain was removed from travel corridor list in last week of July after reports of a rise in infection
• Travel & Tour companies in focus: easyJet & TUI

The carnage caused by the coronavirus pandemic seems to continue in the battered sectors of the economy. During the unprecedented crisis, travel restrictions were imposed to curb the spread of the deadly pandemic. The crisis caused by the Covid-19 outbreak is completely unprecedented, unseen, and different from any other crisis the world has ever seen. The impact of this catastrophe is yet to be quantified, and nothing much can be said about when this meltdown would stop. The slump caused by the deadly pandemic has severely impacted the business fortunes of the air carriers & manufacturers, travel-tourism businesses by demolishing them financially and disrupting their operations.

In a recent move by the British government, France is now removed from the UK’s travel corridor list due to spike in the number of coronavirus cases. France is a popular holiday destination for Britons. Spain, another hot favourite destination, was removed from travel corridor list in the last week of July. This would induce a rush at the airports and ports as UK tourists who have already crossed the lines to return home before Saturday (deadline) to avoid quarantine rules.

Do read: Fear of Second Wave Impact European Travel, Spain Faces the Wrath

Air Bridges announcement

Earlier in June, the UK announced ‘Air Bridges’ with select European nations. The countries were chosen based on their low corona infections in the present circumstances when the UK is grappling with the COVID-19 flu disease and taking all the necessary precautions so that it subsides as quickly as possible. Countries were being ranked under high, medium, and low-risk zones. An air bridge between two nations will allow passengers flying from either side to forego a two-week quarantine requirement once they land in the other country. France, Greece, Italy, and Spain were some of the countries which were earlier considered for implementing travel corridors.

For any passenger coming into Britain through the air route, it is mandatory that he or she undergoes a 14-day quarantine before he can initiate his holiday or work-related travel in the country. If the rule is flouted, a 1000-pound fine is imposed.

Do read: Air Bridges to Be Announced, Connecting Select European Nations and Australia With UK

Government’s latest measures

The British Prime Minister, Boris Johnson in a public announcement, stated that the UK has passed its peak amid coronavirus and rolled out a three-step plan as an exit strategy from lockdown induced by the novel coronavirus. This was followed by new public health measures announced for all UK arrivals last week. The Home Secretary announced these measures to guard against the second wave of coronavirus infections by keeping the reproduction rate (R) of virus less than one.

The unseen enemy has already claimed more than 37 thousand lives in the United Kingdom. The British Government and the NHS have left no stone unturned to keep the reproduction rate (R) in the range of 0.5 to 0.9. As the UK witness a decline in the reproduction rate (R) of the virus, the number of people entering the UK is expected to rise. The people entering UK might pose a bigger threat of Covid-19, as they are asymptotic carriers of the virus which can increase the overall number of infections in the UK significantly and may trigger a second wave of the novel coronavirus. It has been learnt from the history of pandemics that the maximum carnage happens when the pandemic strikes back.

However, there are some exemptions. People involved in the supply of goods & services such as road haulage and freight workers are exempted from these measures and might have specific guidelines. Medical persons entering the UK to bolster the support against the novel coronavirus are exempted from these measures. In addition, farmworkers would self-isolate on the property where they work.

Impact on the industry

UK has always been a great travel destination. Due to the novel coronavirus washing up its shores and lockdown restrictions, the confidence level of travellers has already gone down. The pandemic has wreaked havoc in the Travel & Tourism space, and the businesses might continue to suffer from the social distancing guidelines in place. The 14-day period of a mandatory quarantine imposed on the travellers coming to the UK would be the final nail in the coffin for the Travel & Tourism sector. The stringent guidelines would deter travellers from coming into the country. This would also impact the businesses in the Travel & Tourism space, which are already on the verge of a shutdown and might even collapse.

In this article, we would put a lens through some Travel & Tourism stocks. Investors need to ponder on these stocks as they might have these in their portfolio or watchlist. Given the prevailing circumstances in the economy, timely informed decisions could help in protecting the gains/capital.

• easyJet Plc

The low-cost airline is planning to close operations at Stansted, Southend, and Newcastle bases due to the economic impact of the novel coronavirus. Reportedly, the company also plans to cut more than 700 jobs based on their sickness records. The company plans to make around 4,500 jobs redundant across Europe.

Easyjet Plc (LON:EZJ) is expected to commence operations on European routes by August to capitalise on the holiday season. The low-cost airline has managed to secure funds of £600 million from UK’s treasury, as a support package during these unprecedented times.

The airline group has delivered a decent increase in revenue during the first half of the financial year 2020, as stated in the trading update. The company achieves operational efficiency through operating on point-to-point routes, hence charges economical fares. During the first quarter of the financial year 2020, the company had launched easyJet holidays to lure customers and propel the company towards growth. In the short term, the revenue and profitability of the company are severely impacted due to the economic impact of the novel coronavirus.

On 14 August 2020, at the time of writing, GMT 11:14 AM, EZJ shares were trading at GBX 571.80, down by 6.39% against the previous day closing price.

• TUI AG

Germany-based tourism group, TUI AG’s all three Cruise operations remained suspended throughout the quarter, sticking to both the UK and German government advice on cruising. On the operational front, TUI AG (LON:TUI) reported 98 per cent slump in group revenue for the third quarter of the fiscal year 2020.

The company has stated that reflecting business remaining standstill for most of the quarter despite partial operations successfully resumed from mid-May, the Group revenue slumped to €75 million in the quarter ended June 2020. The business suspension for most of the quarter, impairments triggered by COVID-19 and net costs arising from ineffective hedging contracts resulted in Q3 Group underlying EBIT loss of €1.1 billion.

On 14 August 2020, at the time of writing, GMT 11:15 AM, TUI shares were trading at GBX 325.90, down by 5.45% against the previous day closing price.

Billions have been wiped out of businesses which thrived upon incoming passengers since the travel restrictions were imposed on domestic and international travel. Slight uptick in economic activity was expected for UK’s travel and related businesses given the prospects of air bridges and easing restrictions on social distancing. This is the peak season which businesses look forward to as a lot of people usually plan holidays during this time of the year. However, due to a surge in coronavirus infections, countries are being left out of air bridges. This would certainly deter the confidence of the battered industry, making things look a bit gloomy for the sector in the near term.