Investing in ASX travel shares

Investing in ASX travel shares

With reopened borders and ‘regular’ domestic and international travel resuming after years of COVID-19 pandemic restrictions, now might be a good time to consider investing in ASX travel shares. 

In this article, we’ll look at how to invest in ASX travel stocks and why they may be worth considering for your share portfolio.

a young man rests back into his hands behind his head with a wide smile and his eyes closed as he sits with two large suitcases in what looks to be an airport or transit destination.
Image source: Getty Images

What are ASX travel shares?

‘Travel shares’ is an umbrella term for stocks in companies that operate in the leisure, travel, or tourism sectors. Fundamentally, travel companies sell the types of goods and services that help people get from one place to another – be it for business or pleasure. 

But this broad market sector does much more than just sell plane tickets. It also includes companies that help people get the most out of their holidays and business trips by offering tourist packages, luxury hotel stays, unique experiences, and other add-ons. As you can imagine, this is an extensive group of companies, ranging from major airlines and travel agents to entities such as caravan and motorhome company Apollo Tourism & Leisure Ltd (ASX: ATL).

Why invest in ASX travel stocks?

In 2019, before the coronavirus pandemic, tourism contributed $60 billion to the overall Australian economy and made up more than 3% of the total national Gross Domestic Product (GDP). However, the sector was hit especially hard by COVID-19, and through 2020-2021, tourism’s contribution to the Australian economy dropped to just $32 billion, the lowest level in at least 17 years.

So, it’s no wonder that investors sold off travel shares so heavily during the pandemic. However, as life returns to some semblance of normality following years of COVID-19 restrictions and border closures, there could be a significant investment opportunity in the beaten-down travel sector.

But there are risks to weigh up, too. It remains a particularly uncertain time for travel companies, even if some of the more immediate impacts of the global pandemic have started to lessen.

The travel sector tends to do especially well when consumer confidence is high, and people have lots of disposable income lying around that they can spend on luxury items like holidays.

But if inflation starts to bite and households need to spend more on everyday items like food and petrol, they will have less left over to splurge on fancy holidays. Unfortunately, this might mean that the travel and tourism sectors continue to struggle, even without pandemic restrictions holding them back.

The travel sector also relies heavily on corporate customers who frequently travel for business to generate their sales. However, with many more people now accustomed to telecommuting and working (often entirely) remotely, demand from business travellers may have permanently reduced following the pandemic.

5 top travel share performers in FY22

(based on market capitalisation from high to low)

Company Market capitalisation Description
Auckland International
Airport Limited
(ASX: AIA)
$10.5 billion Operates the largest airport in New Zealand
Qantas Airways Limited
(ASX: QAN)
$10.3 billion Australia’s flagship carrier and largest airline
Flight Centre Travel
Group Ltd
(ASX: FLT)
$4.4 billion

Travel agency with a large brick-and-mortar presence

Corporate Travel
Management Ltd
(ASX: CTD)

$3.7 billion Travel agency targeting the corporate market

Webjet Limited (ASX: WEB)

$2.2 billion Digital travel agency operating entirely online

Empty heading

Auckland International Airport

A major international travel hub and the largest airport in New Zealand, passenger numbers at Auckland International Airport have decreased significantly since the start of the pandemic and continue to remain persistently low. In March 2022, a little more than 425,000 passengers passed through the airport. This was a decrease of almost 15% compared to March 2021 and close to 80% lower than March 2019, before the pandemic.

However, New Zealand was still in the midst of its Omicron outbreak in March 2022, with case numbers only starting to fall during April. The country has now also begun to roll back many of its isolation requirements for vaccinated international travellers, which could mean tourist numbers may start to pick up over the next few months.

Key metrics:

  • Market cap: $10.5 billion (as of 30 April 2022)
  • Average daily volume: 856,000
  • Headquarters: Auckland, New Zealand 

Qantas

Qantas Airways is Australia’s flagship carrier and one of the oldest airlines still in operation anywhere in the world.

Its business was hit especially hard by border closures early in the pandemic, and shares were sold off heavily. And while the Qantas share price has made significant gains since then, it is still wallowing well short of pre-pandemic levels. 

However, Qantas believes it is well-positioned to benefit from a recovery in travel demand as border restrictions start to ease. The company has significantly cut its costs, reduced its net debt, and announced 41 new routes since the beginning of FY21. 

Key metrics

  • Market cap: $10.3 billion (as of 30 April 2022)
  • Average daily volume: 4.7 million
  • Headquarters: Sydney, New South Wales

Flight Centre

This ASX share is an Australian travel agency with an extensive network of brick-and-mortar retail outlets. The company’s focus on face-to-face customer service was one of its strengths before the pandemic, but Flight Centre’s extensive network of physical stores became a cost burden when lockdowns hit.

Like Qantas, investors sold off Flight Centre shares heavily early in the pandemic, and they are still trading at roughly half of their pre-pandemic prices. However, Flight Centre has grown into a global company, and it could stand to benefit as more locations around the world reopen for travel and tourism.

Key metrics:

  • Market cap: $4.4 billion (as of 30 April 2022)
  • Average daily volume: 2.2 million
  • Headquarters: Brisbane, Queensland

Corporate Travel Management

Corporate Travel helps corporate clients manage their business travel needs. It has kept itself busy during the pandemic, making two major strategic acquisitions in the hopes that the company’s recovery can be fast-tracked once travel rates pick up.

In 2020, Corporate Travel Management purchased Nebraska-based company Travel & Transport in a deal worth $282 million. Then, the following year, it snapped up the business division of rival ASX travel agency Helloworld Travel Ltd (ASX: HLO) for $175 million.

The market likes Corporate Travel Management’s aggressive mergers and acquisitions strategy and appears to think its gamble will pay off. It is one of the few ASX travel stocks whose shares are trading above their pre-pandemic prices.

Key metrics:

  • Market cap: $3.7 billion (as of 30 April 2022)
  • Average daily volume: 811,000 
  • Headquarters: Brisbane, Queensland

Webjet

The final travel share on our list is digital travel agency Webjet. The company has two key operations – one is a business-to-business (B2B) service called WebBeds, which aggregates content from travel suppliers and provides this data to its distribution partners. The other is the Webjet online travel agency (OTA), which sells travel packages direct to consumers.

Webjet has noticed some possible signs of recovery in its B2B operations, but results from its OTA business have remained mixed, with border closures still impacting travel. However, the company is emerging from the pandemic with a reasonably healthy balance sheet and quite a lot of cash, so it could be well-positioned to take advantage of the expected uptick in demand.

Key metrics

  • Market cap: $2.2 billion (as of 30 April 2022)
  • Average daily volume: 2.8 million 
  • Headquarters: Melbourne, Victoria

Are ASX travel shares right for you?

After suffering through two horrible years during the pandemic, the travel and tourism sectors are among those with the most to gain as countries around the world start to open up. However, significant risks remain, with inflation and rising interest rates likely harming consumer confidence and reducing household discretionary spending.

Before investing in ASX travel shares, you should understand the risks and weigh them against potential returns. Consider whether an investment in travel shares aligns with your investing goals. If you do invest, always maintain a well-diversified portfolio with exposure to multiple sectors of the economy.

Article last updated 12 May 2022. Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Helloworld Limited. The Motley Fool Australia has positions in and has recommended Helloworld Limited. The Motley Fool Australia has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet Ltd. 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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