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Is it time to buy into ASX tourism companies like Qantas and Webjet?

The ASX tourism sector was hammered hard in the early stages of the coronavirus pandemic. As countries closed their borders and went into lockdowns, airlines grounded entire fleets. Australia’s second-largest airline, Virgin Australia Holdings Ltd (ASX: VAH), found the conditions especially difficult to navigate and suspended its shares after going into voluntary administration.   

Australian rival, Qantas Airways Limited (ASX: QAN), hasn’t fared much better, although has kept its head above water. Qantas has cancelled a planned off-market share buyback, slashed costs, and increased borrowings by more than $1.05 billion to sure up liquidity.

A suspension of trading may have been what Qantas shareholders preferred. Considering Qantas shares have plunged close to 40% so far this year.

Travel carnage 

The carnage wasn’t limited to just the airlines. Travel booking agents Webjet Limited (ASX: WEB), Flight Centre Travel Group Ltd (ASX: FLT) and Corporate Travel Management Limited (ASX: CTD) also saw massive selloffs. Flight Centre was hit hard by having a large brick and mortar presence; its shares almost 70% down year-to-date.

But with social restrictions in the early stages of relaxing, interstate borders potentially reopening for tourism in the coming weeks. And with talk of a trans-Tasman travel bubble, could the ASX tourism sector rebound in the near future?

Qantas seems to be taking a balanced perspective. In a May update, the company announced it had sufficient liquidity to support operations if market conditions continued to December 2021. It could also ramp up capacity within roughly a week if demand increased from easing social restrictions.

Even if domestic tourism rates increase, international travel (outside of the potential for New Zealand travel) could stay suppressed for years. It’s very uncertain how countries will manage international travel in the era of coronavirus. Plus, many of us may be unable to afford travel in the short-term with unemployment set to surge. 

I will admit that an investment in any of these companies is a pretty enticing option for contrarian investors. Their shares are trading at historic lows just when some tentative green shoots are beginning to emerge. However, we are still comparing their current valuations against their pre-coronavirus highs and that isn’t a like-for-like comparison. The COVID-19 pandemic has fundamentally changed the ASX tourism sector for possibly years to come.

Foolish takeaway

So, while it’s tempting to have a punt on Qantas or Webjet, a better option might be to strengthen your portfolio with companies in the technology and healthcare space that can continue to generate dependable sources of revenue throughout the crisis.

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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. 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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