When will travel stocks be ready for take-off?

Flight Centre reports that March activity was 20-30 per cent of normal levels Picture: AAP

Make no mistake: the sun has set on the golden era of travel, with both leisure and business passengers likely to avoid the airline lounges and cruise ship terminals for months to come.

Then again, even the most distressed stocks have their price and investors are punting strongly on some semblance of normality returning for the likes of Flight Centre, Helloworld and Webjet.

With most borders closed to all but essential movements, revenues predictably have slumped, but in some cases we’re surprised about the level of residual activity.

Flight Centre reported that March activity (as measured by total transaction value) was 20-30 per cent of normal levels.

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Webjet “anticipates that any revenue in the near term will be nominal only, until the situation improves and travel activity resumes”.

Helloworld expects revenue to remain at “around 5 per cent of previous levels, at least until September”.

The game is all about maintaining a brand presence while reducing cash burn ahead of lifted restrictions.

As of May 1, Helloworld expected domestic travel to return in September and the trans-Tasman travel to revive in October.

The smallest listed player by some margin, Helloworld doesn’t expect overseas travel to return in earnest until next year, adding that a full return depends on a vaccine or drug being developed. Despite the tabloid headlines about miracle cures, that’s a big “if”.

In the short term, the agents with a relatively high exposure to domestic travel look the best placed. The same proviso applies to Flight Centre, which derived just over 50 per cent of its record half-year ticket revenue of $12.4bn from Australia and NZ.

In short, buying the travel stocks now is a classic case of punting on a severely afflicted industry that offers little immediate hope of a rebound, but with the beaten-down shares offering intrinsic value.

Despite the lure of cheap fares, we doubt that most leisure travellers will stray too far, given the prospect of a fresh outbreak or the chances of being marooned in some infected hellhole.

As for businesses, how many assignments really need days of travel when the matter can be settled via an hour on Zoom, Viber and Skype?

Tim Boreham edits The New Criterion

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