The pandemic lockdowns have forced the tourism industry to a grinding halt. Not only are we feeling the restrictions of where to shop and eat, but many vacations and business trips have also been avoided.
The global travel industry recorded over a billion trips a year before the pandemic and the International Air Transport Association (IATA) expected 2019 to show growth of 4.1% in global air traffic. Unfortunately, COVID-19 has reversed those expectations as the travel industry has seen some of the largest declines in revenues in history. The two largest online travel agencies experienced a 90% year-over-year decline by June 2020 and a 90% decline in the number of airline passengers in Canada by end of July. How will global tourism recover and bounce back and will it be reshaped forever?
The UN World Tourism Organization has estimated a $320 billion loss in tourism dollars between January and May 2020, which is 3 times greater than the impact caused by the 2009 global financial crisis. The industry currently believes the recovery in global tourism is inevitable, however, the pace of the recovery will differ depending on the service offered. For example, travel agencies that create customized experiences for small groups may fare better than those that appeal to the masses. Similarly, a change in travel behaviours may favour local tourism, RV travel and road trips over international and air travel. This is apparent as more budget-friendly hotels have rebounded higher than luxury hotels with more people exploring their own backyards through economically friendly accommodations.
Travelers will slowly go back to travelling, but it will take time. Thus far, airline travel in the US has improved when looking at TSA Checkpoint travel numbers. The lowest traveler throughput was recorded on April 14th at 87,534 travelers and as of Oct 12th it has climbed back to 958,440. However, there is still much room for improvement as that figure 1 year ago (2019) was 2,616,771. As for the accommodations industry, RBC’s Portfolio Advisory Group expects budget-friendly hotel chains to recover the quickest, back to pre-COVID level by 2021. On the other hand, it could take luxury hotel chains until 2022 to reach the same levels of recovery. Cruise lines and casinos may even need to wait until 2023 as their business models do not thrive within social distancing guidelines
This is not the first time the travel industry has been negatively impacted by an external event. According to the US Department of Transportation, it took nearly 3 years (July 2004) for the airline industry to surpass the pre 9/11 levels. This time around, we also believe travel will eventually surpass their pre-covid levels. With that said, this does not mean every travel stock can be purchased. Much of the recovery hinges on the binary event of a successful vaccine. Moreover, there are great uncertainties surrounding government stimulus packages for the tourism industry and many companies continue to operate with a negative cash burn and steepening quarterly losses. It will take time to feel comfortable travelling again and it should take time to feel comfortable investing in these stocks. Those who look to invest in these companies should refrain from building a full position at the onset. Speak to your advisor regarding the suitability of owning travel stocks in your portfolio.