Yesterday The Motley Fool took a look at the 3 best-performing ASX travel shares from the 2021 financial year. Today we examine the other end of the spectrum to see if there's any value.
With the industry devastated last year after the coronavirus first struck, investors have flocked back to ASX travel shares in the past 12 months as a recovery play.
But these 3 companies, as the worst-returning travel stocks from the All Ordinaries Index (ASX: XAO), still struggled:
- Helloworld Travel Ltd (ASX: HLO): down 29% in the 2021 financial year
- Regional Express Holdings Ltd (ASX: REX): up 3.04%
- Sydney Airport Holdings Pty Ltd (ASX: SYD): up 3.39%
Who knows exactly when, but travel will eventually return. So is there a buying opportunity now for these unloved shares?
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Helloworld can't say hello to anyone at the moment
Bell Direct senior market analyst Jessica Amir told The Motley Fool that closed international and state borders mean travel shares are still doing it tough.
"Plus the extra selling pressure for this cohort of stocks is coming from tax loss selling, where investors sell down assets that underperformed so they can minimise their tax," she said.
"But don't be fooled — selling might not stop come 1 July. These stocks will likely face selling pressure until borders open."
And these are exactly the forces that will likely keep travel agent Helloworld down, added Amir.
"Helloworld Travel shares are trading 38% lower this year. And fell 48% last year."
Rex is struggling to break even
According to Amir, Regional Express shares have plunged 42% this year but that was after an outstanding run in 2020, rising 75%.
"Rex's capacity was 35% of pre-COVID levels and it recently announced it will be entering other monopoly airports and flight paths, after it opened up new routes to Coffs Harbour and Port Macquarie," she said.
"We mustn't forget Rex is not just Australia's largest independent regional airline but also has two pilot academies, which provide income for the group."
But all those upsides apparently aren't enough to help the company turn a profit.
"Rex [was] initially expecting to recover from a loss this year but following recent outbreaks, Rex advised it's now expecting a loss of $15 million," said Amir.
"As cash flow is constrained, its shares are also trending low. From a technical perspective, REX shares are in a technical downtrend, on a daily, weekly and monthly basis."
Sydney Airport could be good value
Amir is not a fan of the shares for Australia's biggest gateway to the world.
"Its shares are down 11% this year. Last year was also a bad year — SYD shares fell 24%," she said.
"From a technical perspective as well, SYD shares are being pressured lower, mimicking its cash flow, which is being squeezed by travel restrictions."
However, other experts are tempted by the current low share price, considering it a bargain buy.
"Well, there's a lot of potential value there, isn't there? It's interesting," Watermark Funds Management chief investment officer Justin Braitling told Livewire.
"International travel will come back. It's an incredibly valuable asset."
Braitling pointed to the listed European airports, which are located in countries that are ahead of Australia on COVID vaccination rates.
"Many of them are not far off their all-time highs. Obviously, they had a much worse experience in Europe than we have here in Australia in terms of travel," he said.
"In 3 to 5 years' time, we'll look back and volumes will have recovered completely. And there's no reason why that asset shouldn't trade where it was before the health crisis. So that's a buy."
Better options to bet on travel recovery
According to Amir, there are plenty of ASX travel shares available for investors willing to show patience.
"There could be some great long-term potential gold mine investments. That being said, it's paramount to pick your investments wisely," she said.
"Look at favouring those companies that have extensive cost reduction programs and have liquidity from capital raisings so they can weather the storm."
Amir picked Qantas Airways Limited (ASX: QAN) and Flight Centre Travel Group Ltd (ASX: FLT) as two examples of businesses that have done this.
"Qantas is also the preferred airline in returning international Australia's back home," she said.
"Plus Qantas' business is complemented by its highly profitable loyalty (frequent flyer) program."
