If you’ve been on an aeroplane lately, you’ll know that travel is back in a big way.
National daily cases of COVID-19 topped 42,000 this week, which is a number that would have horrified any of us one year ago.
But with high vaccination rates and low hospitalisations, Australians seem to have regained confidence about flying in a tin can with hundreds of others to go for that long-awaited holiday or work trip.
Just over Easter, Sydney Airport could not handle the number of passengers trying to check in, with queues snaking onto the road outside the terminal.
Through the congestion my family only managed to board our 8:40am flight at 8:38am, thanks to the generosity of the airline crew who held the door open for us.
For Sage Capital portfolio manager Kelli Meagher, all this means is that there is a massive boom underway for ASX travel shares.
“The reason we like the travel sector is that it marches to the beat of its own drum no matter what’s happening from a broad, macro perspective,” she told Switzer TV Investing.
“There’s so much pent-up demand for travel. Here in Australia, there’s a whole lot of excess savings that… they’re really keen to spend.”
There are three specific ASX shares in this industry that Meagher likes at the moment.
‘We don’t even have to see a full rebound’
Most travel businesses were forced to raise capital to stay afloat during the pandemic, as they burned through cash for operations while revenue dried up.
But not Corporate Travel Management Ltd (ASX: CTD).
“Corporate Travel was pretty much the only one that didn’t raise money to survive. They raised money to make some pretty clever acquisitions.”
This sets the company up for huge post-COVID growth, according to Meagher.
“We like Corporate Travel over the longer term just because it is now in a much stronger position to gain market share,” she said.
“We don’t even have to see a full rebound of corporate travel back to [pre-COVID] levels… for Corporate Travel to grow its earnings, because it’s a market share and margin game.”
The Corporate Travel share price has risen more than 14% this year so far, and a tidy 42% over the past 12 months.
Meagher likes Australia’s dominant airline Qantas Airways Limited (ASX: QAN) for entirely different reasons.
Fortunes of aviation businesses heavily depend on how much they have to pay for fuel, which is linked to crude oil prices.
While oil has become very expensive over the past few months, Meagher feels like Qantas has done a great job of shielding itself.
“They’ve got their fuel hedging very well sorted, at least till the end of the year.”
Meagher also loves how its dominant market position gives Qantas extraordinary power to set its own prices.
“Any extra fuel costs should be able to be passed through to the consumer, who’s still pretty keen to travel,” she said.
“Anyone keen to go on a holiday and was going to pay $200 for their tickets probably will be okay to pay $220.”
Qantas shares are up 11.78% so far this year.
Meagher’s third pick requires the business to put in significantly more work than Qantas and Corporate Travel to get its share price climbing back to past glories.
But she suspects Flight Centre Travel Group Ltd (ASX: FLT) shares are on their way up “simply because it’s a well-known name” and is a “go-to stop for many investors who want exposure to travel”.
“They are fighting a lot more headwinds than someone like Corporate Travel, because they’re fighting things like airlines cutting commissions.”
With loss-making airlines trimming their costs and reducing payouts to travel agents, Meagher reckons Flight Centre might have to create new sources of revenue.
“They’re going to have to make their money somewhere else, maybe by charging when you walk into a Flight Centre [store]… to sit down and talk to someone about your itinerary.”
The Flight Centre share price is more than 28% above where it started the year.