Is travel finally back?
Who knows. But we now have the best chance we've had in more than two years.
The world is a different place from early 2020 when the COVID-19 pandemic first started.
The medical experts now know a lot more about how to treat the deadly disease. The majority of Australians are vaccinated. Governments are no longer resorting to lockdowns, regardless of daily infection numbers.
Even unrestricted international travel is back on the cards, according to Montgomery Small Companies Fund portfolio manager Dominic Rose.
"Both the UK and the European Union have scrapped COVID-19 testing requirements for fully vaccinated travellers," he said on the Montgomery blog.
"While recent commentary from numerous US airlines suggests that North American leisure activity is back at or near pre-pandemic levels with corporate improving to 25% to 30% behind."
With this in mind, Rose's team has picked 4 ASX travel shares they love the look of right now:
Acquisition spree takes earnings higher than pre-COVID
Corporate Travel Management Ltd (ASX: CTD) took advantage of lockdown disruptions by raising fresh equity to acquire other businesses.
This ASX share bought out US corporate travel agent Travel & Transport, and the Helloworld Corporate arm of fellow ASX-listed player Helloworld Travel Ltd (ASX: HLO).
"While competitors were scrambling to cut operating costs during the depths of the downturn, mainly headcount which negatively impacts customer service levels and therefore client retention, Corporate Travel Management was strategically expanding through opportunistic M&A," said Rose.
"The company is now estimated to be the fourth largest global corporate travel manager worldwide with fully recovered EBITDA [earnings before interest, taxes, depreciation. and amortisation] of around $265 million, some 77% higher than pre-COVID levels."
While Rose acknowledged that post-pandemic work habits may be more home-based, he feels Corporate Travel Management is well-placed to outperform the competition.
"Being predominantly a northern hemisphere business, the trans-Atlantic route remains a key catalyst for the company, along with workers returning to offices — at least partially."
Corporate Travel Management shares have actually risen more than 4% for the year so far.
This airline is 3.5 times bigger now than before COVID
Alliance Aviation Services Ltd (ASX: AQZ), remarkably, was a rare company in the travel sector that profited from the pandemic.
"Alliance Aviation Services seized the moment when global airline fleets were grounded and airlines offloaded assets at distressed prices to stay liquid," said Rose.
"In June 2020, the company raised $122 million in equity to purchase a fleet of 32 Embraer E190 aircraft from various vendors, paying just cents in the dollar."
Then it just waited for other airlines to lease those planes. Indeed, Qantas Airways Limited (ASX: QAN) has taken options on 18 of them already.
The new fleet has increased Alliance's capacity by a whopping 3.5 times compared to the pre-COVID era.
"In addition to being a much larger business once the expansion assets are fully deployed, we view the company as more diversified with expanded leisure exposure (complementing the FIFO business)," Rose said.
"And we also expect improved unit economics given the higher asset utilisation of the new E190s compared to the older Fokker aircraft."
The Alliance share price has dipped 10% this year.
Tale of two travel agents
Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) might have different strengths in physical stores and online sales respectively, but both these ASX travel shares raised huge money during the pandemic just to "keep the lights on".
"Flight Centre is arguably the most levered play to a rebound in travel activity," said Rose.
"Management's response to the initial demand shock was to stand down staff and raise equity capital at deeply discounted prices ($700 million equity raise in April 2020 plus a number of subsequent convertible bond issues) to strengthen the balance sheet and fund the significant working capital unwind (ticket refunds)."
Rose's team sees a brighter post-COVID era for this ASX share though, as smaller competitors have died out or shrunk even further over the past two years.
"Despite having half the number of shop fronts, management still expects to retain 95% customer reach," said Rose.
"As such, Flight Centre should retain its dominant market position in the Australian leisure travel market with potential to take further share from weakened competitors as conditions improve."
Flight Centre shares have gained more than 6% so far in 2022, although they are still 19% down from their October high.
Meanwhile, Webjet turned its focus to its wholesale WebBeds division during the pandemic.
"WebBeds is looking to take advantage of the changed competitive landscape and become the No. 1 travel wholesaler globally (currently No. 2)," said Rose.
"Additionally, Webjet, which commanded a 50% share of domestic online bookings pre-pandemic, is aiming to outperform the market recovery by 1.5x as the structural migration towards online accelerates and underpinned by superior technology."
The Webjet share price has headed up almost 4% for the year, although it's still almost 15% below its November peak.
