The outlook for global mobility and travel is looking increasingly grim as many countries enter a second or third wave of COVID-19. Has the market already priced in the worst case scenario and now be a time to start picking up ASX travel shares? Or should investors wait for a proper restart of flying or a vaccine before considering ASX travel shares?
Could the worst be over?
There are almost 30 million COVID-19 cases recorded around the world. Countries such as the US, India, Brazil and Russia account for more than 50% of the worlds cases. While COVID-19 will continue to be a trending topic, it appears that the markets have largely shrugged off its near-term impacts. The combination of record monetary stimulus and ultra-low interest rates have been able to buoy the global equity market, and it could be an opportunity to buy ASX travel shares at record low prices.
ASX travel shares are hoarding cash
Household ASX travel shares such as Qantas Airways Limited (ASX: QAN), Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) have all focused on preserving liquidity, reducing costs while maintaining the flexibility to respond to changes in travel restrictions.
Taking a closer look at Qantas, the company experienced a significant drop in operating cash flow due to travel restrictions and border closures. To support the business, the company undertook a $1.36bn institutional placement and raised $1.75bn in new debt. By the end of FY20, the company held a significant $3.52bn in cash and $1.0bn in undrawn credit facilities.
Similarly, Flight Centre saw a 99.4% decrease in Australian outbound travel during Q4 with limited revenue generating opportunities. Like Qantas, the company has more than $1b in cash and liquidity for its survival.
Interestingly, Webjet announced a change in substantial shareholding on Wednesday. Goldman Sachs now holds 5.01 per cent of Webjet as of 11 September. This does show some degree of institutional interest on the challenged sector.
What post COVID-19 could look like
China has been one of the few countries to truly conquer COVID-19. Data from the Civil Aviation Administration of China showed that air passenger traffic rose to 45.35 million passenger trips in August. This represents more than 80% of that in the same period last year, and the highest level this year. China’s figures could be a beacon of hope as to what post COVID-19 could look like for ASX travel shares. The combination of pent up demand and potential travel bubbles could see a broad recovery for travel related businesses.
COVID-19 is still a significant challenge for Australia. Notwithstanding current travel restrictions and challenges, ASX travel shares are sitting on strong balance sheets with a focus on cutting costs. China has shown what a post COVID-19 world could look like, but it is difficult to tell when that world could come for Australians. I believe ASX travel shares have bottomed, but perhaps more time is needed to see business conditions improve.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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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