Summertime blues for travel stocks: Business bounces back but share prices languish
Shares in the travel group Tui hit a record low yesterday despite the travel industry experiencing a profitable summer.
During the months of April and June, Easyjet reported a record quarterly profit of £203 million, while Ryanair achieved its fourth consecutive month of record passenger numbers in August.
Tui’s CEO, Sebastian Ebel, recently expressed optimism for the future, stating that positive trading momentum is continuing and he is confident about the winter and summer seasons.
However, investors were disappointed as share prices in Tui fell to a record low of 436.8p, down 3.5%, or 15.6p. This is in stark contrast to the 3000p share price before the Covid-19 pandemic and the 5600p it was at five years ago.
Tui is not the only company suffering. British Airways owner IAG and Easyjet are down around 66% since the beginning of the pandemic, while cruise operator Carnival has seen a decrease of over 70%.
Victoria Scholar, head of investment at Interactive Investor, commented on the situation, stating that while the travel industry has had a strong summer, this success has not translated into investor returns. She attributes this to the industry’s struggle to regain pre-Covid levels and the perception that it is closely tied to the economic cycle.
Analysts also pointed out that the rising oil prices are impacting the industry, as fuel costs increase for airlines and cruise liners, leading to higher prices for customers.
Russ Mould, investment director at AJ Bell, highlighted Tui’s additional challenges, such as multiple rights issues and a significant debt burden. He also noted that Tui’s expected profits for the year only cover their debt interest bill by just over two times, which may not be enough to provide a sufficient buffer for future uncertainties.
Mould added that markets are concerned about the impact on consumer confidence and spending plans in 2024, particularly in Germany, which is an important market for Tui.
The travel sector continues to face challenges, with recent profit warnings from American Airlines, Spirit Airlines, Southwest, and Alaska further contributing to the overall sense of pessimism.
Despite the struggles faced by the industry, there is still a strong demand for holidays, and families are actively searching for winter sun destinations this Christmas.
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