ASX travel shares are making tough decisions as coronavirus threatens their survival. The last month has been brutal for ASX travel shares with businesses virtually evaporating overnight. The Federal Government has banned international travel and state governments are progressively instituting border control measures.
Airlines have cut international flights to practically zero while domestic flights have also been severely pared back. Theme parks and casinos that normally draw travellers have closed.
So, here we take a look at how four ASX travel shares are performing in these unprecedented conditions.
Helloworld Travel Ltd (ASX: HLO)
Helloworld shares have plummeted 80% from a February high of $4.26 to just 80 cents at the time of writing. Yesterday, the travel provider announced the stand-down of approximately 65% of its workforce, with remaining personnel to work reduced hours.
Helloworld said the rapid de-escalation of international and domestic travel has caused a decline in demand for its services. It believes it is unlikely there will be any signs of recovery in the next four to six months. The company does not anticipate any change until the rate of infection declines or a vaccine is available or on its way with some degree of certainty.
As a result of the downturn, Helloworld announced 275 redundancies in various countries with an estimated cost to the business of $1.4 million. The company will also stand down approximately 1,300 staff or 65% of its workforce across all countries in which it operates. The stand-down will commence on 24 March for an initial period of 10 weeks to 31 May.
Remaining personnel will be offered reduced working hours, effective immediately, which will be further assessed depending on work volumes in the weeks and months ahead. The CEO and Executive Director will take no salary until 30 June, effectively immediately. Direct reports to the CEO will have wages reduced by 40% for the same period.
Helloworld is in the process of renegotiating rents with major landlords and advises they have agreed to more favourable terms over the next six to nine months. The company advised that all discretionary expenditure has ceased, marketing and advertising activity will cease until further notice, and material project expenditure has been materially curtailed or put on hold.
Helloworld says that its cost reduction activities, current liquidity, and existing facilities will enable the company to withstand the significant reduction in trading activity while preserving the capability to ramp up operations when travel demand rebounds.
Flight Centre Travel Group Ltd (ASX: FLT)
Flight Centre shares have been in a trading halt since late last week but before that had lost 75% of their value from February highs. On 21 February 2020, Flight Centre shares closed at $39.48. Last Thursday, when the trading halt was called, shares were trading at $9.91.
Yesterday, Flight Centre cancelled its interim dividend payment in order to preserve some $40.1 million in cash. The company is bringing forward the scheduled closure of some 100 shops in Australia. To lower costs, the senior leadership team has given up 50% of their salaries.
Flight Centre has also warned of inevitable job losses throughout the industry and within its company. The company is holding discussions with landlords, suppliers, vendors, investors, and banks on ways to manage the financial impact of the precipitous drop in travel activity in the near term.
The company is also engaged with the Federal Government to discuss broader assistance packages to companies and employees that have been significantly impacted. Management says it is determined to ensure the business overcomes the significant challenges it currently faces and is ready to prosper when conditions normalise.
Webjet Limited (ASX: WEB)
Webjet shares have fallen more than 70% from February highs and are currently suspended from quotation. The travel agent requested a trading halt on 19 March flagging a proposed capital raising. The capital raising has not yet been concluded, and markets are awaiting an announcement on details.
Webjet withdrew its FY20 earnings guidance a fortnight ago, citing a material escalation in cancellation rates and reduction in overall travel booking activity. At that stage, forward booking beyond 3 months remained in line with previous expectations. The situation has no doubt deteriorated in the interim. Cancellations were occurring at short notice prior to travel, reducing earnings visibility.
A company-wide cost reduction program was implemented to minimise operating expenditure. Savings of $10 million were expected for the remainder of FY20. The Managing Director and Board of Directors have reduced salary and directors fees by 20%.
A fortnight ago, Webjet advised that it had a strong balance sheet and low debt levels, saying it was well placed to weather this event. But yesterday, the Australian Financial Review (AFR) reported private equity firm KKR was in talks to take a significant stake in the company in order to provide it with funds to survive the pandemic.
The AFR reported KKR offered to provide a near term financial lifeline in return for a non-controlling equity stake in Webjet. Cash flow has become a problem for Webjet with receipts evaporating as borders close. There is no way to predict how long the situation will last or when traveller sentiment will improve.
Corporate Travel Management Ltd (ASX: CTD)
Corporate Travel Management shares have bounced over 17% today at the time of writing but are still down more than 60% from where they were trading in February. Late last week, the company advised that its liquidity position remains strong and it had no current need to raise equity.
Corporate Travel Management said it was experiencing a significant impact on its business following major reductions in domestic airline capacity. The company, however, said it had implemented comprehensive cost reduction actions which would enable it to withstand an extended period of reduced activity.
Despite government-imposed travel restrictions, Corporate Travel Management said its clients were continuing to travel, albeit at low levels. Over half of Corporate Travel Management's total transaction value is domestic in nature, occurring within a country's borders. Yet even this income stream may be under threat with a number of states in Australia closing their borders.
Corporate Travel Management said a high proportion of its costs were variable, aided by its focus on the corporate market and lack of a retail footprint. The company has commenced a round of cost reductions of at least $10 million per month from March, including a number of redundancies.
Corporate Travel Management has also deferred payment of its interim dividend. The dividend of 18 cents per share is now scheduled to be paid on 2 October 2020, with the decision reviewed closer to this time.
