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Another ASX industry to avoid in 2020

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Yesterday, we looked at the oil and gas industry as the first industry to approach with caution in 2020.

Oil prices have tumbled due to weak demand and the Russia versus Saudi Arabia supply war. Parts of my second industry to avoid are generally a strong beneficiary of weaker oil prices, as fuel is one of its greatest inputs. However, with the one-two punch of COVID-19, this industry has an uncertain short term.

Travel

The travel industry is very broad. There are online aggregators like Booking Holdings Inc (NASDAQ: BKNG); cruise lines like Carnival Corp. (NYSE: CCL); corporate and consumer-facing travel agents like Corporate Travel Management Ltd (ASX: CTD) or Webjet Limited (ASX: WEB); hotels; and, airlines like Qantas Airways Limited (ASX: QAN) among other parts of the sector.

Each part of the travel industry has been severely impacted by the COVID-19 pandemic, but this article will focus on the ASX airlines.

Airlines

There is no doubt that air travel will exist in the future. But right now is an extremely tough time for the industry. Qantas has slashed services for the next 6 months. As a result, Qantas and Jetstar have temporarily stood down two-thirds of their 30,000 employees from late March until at least the end of May. During this time, the company has announced that stood down workers cannot get sick leave. International flights are changing and the company is deferring the payment of its interim dividend from 9 April until 1 September.

This is a stunning example of the impact that COVID-19 and the containment measures put in place to slow the spread of the virus are having on both domestic and international travel. Even if the spread of the virus is contained in the next few months, airlines could lose out on some international travel associated with the Northern Hemisphere summer.

Similar to the previously discussed oil companies, a strong balance sheet is imperative to surviving this rut and thriving on the other side.

Additionally, with so many people and organisations experiencing working remotely for the first time, I don’t expect our ways of working to completely return to how they were. Improvements in technology are allowing for quality work to be performed from across the globe, and this could see a long term reduction in business travel.

A Foolish thought

If the valuations in the travel industry are too attractive for you to ignore, make sure you have a long time horizon, diversify and invest with cash you won’t need for the next few years.

The quicker we beat COVID-19, the quicker our lives go back to normal. Following the government’s directives for social isolation and the like not only helps health outcomes, but will help the economy and your businesses get back on the path to growth.

Tomorrow I’ll be sharing my final industry to avoid in 2020.

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Lloyd Prout owns shares in Corporate Travel Management Limited and Webjet Limited and expresses his own opinions. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Booking Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Carnival. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Booking Holdings. 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 Scott Phillips.

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