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Date : 08/12/2021

Travel Stocks On ASX Set To Gain Ground. Are Investors Ready For It?

Most Australians have overseas holidays on their minds. This alone could significantly boost travel stocks. However, the recent advent of technologies such as Zoom has changed the way we work. Thus, this significantly impacted corporate travel. As borders are gradually opening, one question arises. How will ASX travel stocks fare in the upcoming year?

Despite the recent resurgence of fears and uncertainties regarding the latest COVID variant, we remain positive for 2022. We are confident that leisure and corporate travel will bounce back. We think that it might even be a good time to consider some travel stocks. Hence, it appears obvious to us that investors have under-priced the travel industry.

No industry has been hit harder by the COVID crisis than travel and tourism. Although, the best operators have been able to withstand plummeting revenues and even became more efficient. Furthermore, as the economy heads towards a post-pandemic phase, There are also other “kickers” that will substantially boost the industry.

Which ASX Travel Stocks Are Due For a Big Jump In 2022?

Throughout the COVID period, there have been glimpses of what it might be for the industry. If we look back at late 2020 and then the June quarter, the recovery in travel was quite substantial. The whole sector ramped back up much faster than we could expect.

Moreover, there are other factors that could support travel stocks. For instance, many companies in the sector will have tax losses they can carry forward. Also working capital should benefit balance sheets in the short term, based on the experience of the industry during the June quarter, when travel and tourism re-opened ahead of the most recent lockdowns. Another boost will be in terms of liquidity. Hence, there will be an initial surge in cash from travellers starting to make bookings again.

We strongly believe that leisure will come back strong. Despite that the travel sector has been hit hard, it looks like there has not been any permanent damage. Before COVID happened, demand for the sector was growing at a couple of per cent every year. Now we have had two consecutive years of interruptions, but the post-COVID starting point should be a trend line above the previous level. Adding to that, a rebound in corporate travel has not been fully priced into some travel stocks. That is the case with Qantas for example.

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The market is pricing in part of the revenue recovery, but it is not pricing in the margin outcome from the recovery. The profitability post-pandemic from domestics and international travel could be substantial. Investors have priced in domestic re-opening but not yet for the expected return to international travel.

These are the five stocks that we think will tremendously rebound upon the reopening next year.

Ticker Company Last Price Month Year-to-date Market Cap
ASX: AIZ Air New Zealand 1.45 -9.00% 2.80% $1,667,423,677.10
ASX: AQZ Alliance Aviation 4.17 -0.80% 3.10% $668,656,339.52
ASX: QAN Qantas Airways 5.17 -11.60% 6.60% $9,430,223,490.00
ASX: SYD SYD Airport 8.38 -0.70% 31% $22,696,069,127.73
ASX: WEB Webjet Limited 5.56 -15.80% 9.70% $2,035,727,531.65

 

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