The ASX travel share industry has been through a lot over the last three years. After all this pain, could the clouds finally be lifting?
Demand for travel was decimated when borders were shut, lockdowns imposed, and Zoom became the way (business) people interacted.
But, lockdowns are no more. Borders are open.
This seems like a timely article considering that Qantas Airways Limited (ASX: QAN) just released an update, which could also give positive implications for names like Webjet Limited (ASX: WEB), Flight Centre Travel Group Ltd (ASX: FLT), and Corporate Travel Management Ltd (ASX: CTD).
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Promising update for ASX travel shares
The airline said it's expecting to generate underlying profit before tax of between $1.2 billion and $1.3 billion in the first half of FY23. This is based on "forward bookings, current fuel prices and latest assumptions about the second quarter".
Qantas revealed that travel demand remains "strong" across all categories. This sounds good for the wider ASX travel share sector. Revenue intake for business purposes is more than 100% of pre-COVID levels and leisure revenue intake has "further strengthened" to more than 130%.
A warning about the economic outlook
While demand is strong, Qantas noted that the broader operating environment remains "complex" with high fuel prices and high inflation, as well as higher interest rates hitting consumer confidence.
Even so, the airline believes that "robust demand indicates that people are prioritising spending on travel above other categories", allowing it to recover higher fuel costs through fares.
Fuel prices are now around 75% higher than in pre-COVID times.
What to make of this for ASX travel shares
Webjet, Flight Centre and Corporate Travel don't generate all of their earnings from Australia, and don't exclusively deal with Qantas. But, I think this is a very promising sign considering Qantas is saying that demand remains at least as strong as pre-COVID times, despite the higher fuel costs situation.
The Qantas share price is up more than 11% today. But, I do think the others could be short-to-medium-term (and perhaps long-term) opportunities because some investors may not yet be factoring in a strong recovery of earnings for them.
Corporate Travel Management shares are down 28% over the past six months, while the Webjet share price is down 6% in the last month.
Webjet has done a lot of work on reducing its cost base so that its earnings before interest, tax, depreciation and amortisation (EBITDA) margin is strong when travel demand recovers to pre-COVID levels.
Corporate Travel has worked hard to increase its market share, including with smart and well-timed acquisitions.
Final thoughts
Travel is not exactly a highly defensive sector. But I believe, with the worst of COVID impacts now long behind us, proof of a return to profitability will be a useful boost to investor sentiment about ASX travel shares.
