Consumer Discretionary

Stormy outlook clearing for travel stocks and airlines

Wed 16 Mar 22, 5:32pm (AEST)
Travel - New York, USA - May 11, 2013 Times Square with tourists
Source: iStock

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Key Points

  • Delta Air Lines reported its highest ever ticket sales last week
  • Several US airlines expect first quarter revenues to be close to 2019 levels
  • ASX travel stocks push higher on Wednesday

Several US airlines rallied more than 8% overnight after encouraging guidance upgrades and a sharp reversal in oil prices.

Local airlines and travel stocks have followed suit, with names like Corporate Travel Management (ASX: CTD) and Qantas (ASX: QAN) up 5% and 3% respectively.

Oil prices come back to earth 

Oil prices fell as fast as it went up, down almost -30% from last Monday’s highs of US$138 a barrel. 

Brent Crude Oil
Brent Crude Oil 12-month chart (Source: TradingView)

Notable drivers for the sharp reversal include:

  • A new wave of covid in China resulting in severe lockdowns

  • European leaders showing support for Ukraine’s independence

  • India purchasing Russian oil

  • Weak US manufacturing data

Airlines can breathe a sigh of relief as oil prices finally take a breather after running from just US$70 a barrel in mid-December.

"WTI crude should find support ahead of the US$90 level, but if China’s lockdown spreads much further, the mid-US$80s would not be that hard to reach," said Oanda senior market analyst, Ed Moya.

US airlines poised to bounce back

Earnings updates from major US airlines have reassured investors that the travel industry’s comeback narrative remains intact. 

Delta Air Lines said that its bookings are ahead of 2019 figures, with the airline reporting its highest ever ticket sales last week. From a revenue perspective, Delta expects first-quarter sales to be roughly 78% of 2019 (pre-covid) levels.

“We are very, very confident of our ability to recapture over 100% of the fuel price run-up in the second quarter and through probably the end of the summer,” said Delta President Glen Hauenstein, CNBC reported. 

Likewise, American Airlines said it expects first-quarter revenue to be 17% off 2019 levels and United Airlines expects the 2020 schedule to be down around high single digits compared to 2019. 

Implications for local travel stocks

The optimistic outlook is in-line with Qantas' view that Group domestic capacity should return to 90-100% of pre-covid levels by the fourth quarter of FY22.

International travel was a lessor contributor to Qantas' overall earnings, accounting for 19.2% of Group earnings in FY19.

A strong recovery in US travel is arguably more important for travel booking companies like Flight Centre (ASX: FLT), Webjet (ASX: WEB) and Corporate Travel Management.

In FY19, the Americas region contributed roughly one third of Flight Centre's profit before tax.

What brokers think

Brokers consensus views for major ASX-travel stocks (upside based on today's open)

  • Corporate Travel Management has a Buy rating with a $28.10 target price (26.5% upside)

  • Qantas has a Buy rating with a $5.86 target price (15.3% upside)

  • Webjet has a Buy rating with a $6.15 target price (8.9% upside)

  • Flight Centre has a Sell rating with a $17.5 target price (-8.8% downside)

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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