Why travel stocks are dropping this week
Shares of travel stocks fell rapidly this week as new concerns over COVID-19 spread around the world and investors began to wonder if the pandemic recovery could be slower than expected. It didn’t help that the market as a whole was down and stocks that have performed well in recent months have seen a general sell-off.
Airlines companies Azul SA (NYSE: AZUL) and Hawaiian Holdings (NASDAQ: HA) have fallen 11.3% and 9.8%, respectively, so far this week; Carnival (NYSE: CCL) (NYSE: CUK) fell 9%; and Budget Opinion Group (NASDAQ: RCA) was down 10.6%.
Image source: Getty Images.
COVID and the variants that are spreading around the world were the focus of attention this week. Azul specifically fell because parts of Latin America are experiencing an increase in COVID cases that could hamper travel in the coming months. Hawaiian Holdings is an American operator but receives a lot of international travelers, so this could be penalized if global air travel collapses in the coming year. This is another reminder that the high vaccination rate in the United States is not common around the world and epidemics could occur, preventing travel in some cases.
Avis Budget Group has responded to Delta’s growing variant of COVID and is also feeling the pressure of chip shortages that keep vehicle supply low and prices high. If COVID continues to hamper travel, car rental companies will face low demand and high costs, a terrible trend for the industry.
Carnival could also see demand drop if cases of the virus increase, but it will be somewhat isolated as it has vaccine requirements in place in some places. The company offered to buy back $ 2 billion in debt this week, which would reduce liquidity on its balance sheet and indicates that management expects a recovery to come. If that recovery doesn’t come, it would be a bad time to buy out debt.
The theme here is that investors are concerned that instead of seeing a strong resumption of the pandemic in the travel industry, we may see customers and businesses withdraw their travel again. You can see below that revenue and bottom line have been hit hard over the past year, so companies don’t want to return to the demand level of 2020.
AZUL Revenue Data (TTM) by YCharts. TTM = 12 rolling months.
It’s during weeks like this that investors need to remember what the long-term performance of stocks looks like. You can see below that all four travel companies have largely beaten the market over the past year, despite the stock falling this week.
CCL data by YCharts.
As much as investors need to be careful of disruption from the pandemic, I don’t think this week is a reason to change your investment thesis. But remember that volatility will likely continue as cases of COVID come and go.
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Travis Hoium has no position in the stocks mentioned. The Motley Fool recommends Carnival and Hawaiian Holdings. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.