Qantas Airways Limited: A warning sign for ASX investors?

Qantas Airways Limited (ASX: QAN) would not usually be regarded as the canary in a coal mine for the Australian economy, but its most recent update did provide some potentially worrying signs for investors.

In the update released last Monday, the airline revised down its planned capacity growth as a result of weaker-than-expected demand from domestic travellers.

The reason behind this weaker demand?

The upcoming federal election and a drop in consumer confidence.

Although there is the possibility that travellers are just choosing to fly with cheaper airlines, there could be some merit behind Qantas’ reasoning and this could have wider implications on the wider economy.

In fact, a number of travel related companies have already been affected by Qantas’ update which has soured sentiment in the sector.

For example, Flight Centre Travel Group Ltd (ASX: FLT) shares have lost around 6% since the announcement was released by Qantas. The travel agent has been suffering from weak domestic demand for the past couple of years and this has seen its share price come under significant pressure. Although the company is showing excellent growth from its international operations, the Australian business still makes up the biggest contribution to the group’s overall profit. The latest news from Qantas is clearly unhelpful for Flight Centre and it will be interesting to see just how much demand has been affected when the company next reports.

Another stock that has been punished since Qantas’ update has been accommodation provider Mantra Group Ltd (ASX: MTR). Its shares have lost around 14% of their value since last week and are now trading at $3.70. Mantra is dependent on both domestic and inbound tourism to keep its hotel rooms filled and with the majority of its 126 hotel portfolio located within Australia, the news of weaker domestic demand would be a concern to some investors. Despite this, the company has benefited greatly from a surge in tourists from Asia and this is likely to balance out any short-term weakness domestically.

The other company that seems to have been hit hard by Qantas’ update is travel insurance provider Cover-More Group Ltd (ASX: CVO). Its shares had already been struggling on the back of a weaker-than-expected first half profit result, but this news looks to have taken another 8% off the share price.

Other stocks that could be expected to be negatively impacted by falling consumer confidence are entertainment providers and casino operators such as Crown Resorts Ltd (ASX: CWN), Star Entertainment Group Ltd (ASX: SGR), Ardent Leisure Group (ASX: AAD) and Event Hospitality and Entertainment Ltd (ASX: EVT). Their share prices, however, have either increased or remained relatively flat since Qantas’ update.

Consumer discretionary retailers would also be expected to be negatively impacted by weaker consumer sentiment although this hasn’t been clear in the recent share price movement of some companies. Shares of Super Retail Group Ltd (ASX: SUL) have increased, Harvey Norman Holdings Limited (ASX: HVN) has remained flat, while shares of Myer Holdings Ltd (ASX: MYR) have fallen by around 7.5%.

Foolish takeaway

Qantas’ reasoning for weaker domestic demand hasn’t really impacted the broader market yet, but that doesn’t mean it won’t in the future.

There is the possibility that the upcoming election could have an impact on sentiment and investors should factor this in over the next couple of months.

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Motley Fool contributor Christopher Georges owns shares of Mantra Group. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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