News & Analysis

Are travel stocks a good investment?

02 Sep 2021 | by: Patricia Miller

Are travel stocks a good investment?

Along with hospitality, the travel industry has been one of the biggest hit industries during the COVID-19 pandemic. Despite it coming more or less came to a grinding halt overnight, the travel industry is now beginning to bounce back.

Easing of travel restrictions and a growth in consumer confidence in travelling are leading this growth. Companies that 12 months ago were close to near-total collapse are now starting to return to some kind of normality, although it may take considerable time for them to reach pre-pandemic levels.

While the travel industry still has a way to go, many investors are looking at travel stocks as a good investment opportunity. Which is leaving many asking: should I invest in travel stocks?

Fundamentals of travel stocks

Back in May 2020 UK airline stocks looked utterly wrecked. Ryanair (LSE:RYA) admitted a 99.5% drop in passenger numbers. British Airways owner International Consolidated Airlines Group (LSE:IAG) revealed its fleet of planes was haemorrhaging cash at the rate of £178 million a week just parked on the ground.

That said, the numbers for anyone brave enough to take a punt at the peak of the pandemic crisis are clear to see. Today, these stocks along with budget airline easyJet (LSE:EZJ) are showing encouraging signs of bouncing back.

In May 2020, Ryanair’s share price fell to €8.45, today it has grown back to a little over €16 an 89% growth. Equally, easyJet’s share price plummeted to £475 in April 2020 and now sits at £815.

Given that the road to recovery for travel companies, and airlines in particular, has not been an entirely smooth one, and with many restrictions still in place combined with more passenger travel checks and requirements needed, the growth both easyJet and Ryanair have shown is encouraging for investors.

Looking ahead to when travel restrictions are behind us and consumer confidence to travel continues to grow, the future could be very bright for travel companies and for investors in travel stocks.

What is the bull case for travel stocks?

The growth shown following the pandemic is certainly promising and shows little sign of slowing down. In fact, many believe that any dips in share prices are only short term and the long term growth could have the potential to exceed pre-pandemic levels.

As the world reopens and lives return to normal, foreign holidays are high on the list of things people missed during the pandemic and while some may be reluctant to travel this year, 2022 is expected to be a big year for travel companies.

The increase in staycations we’ve seen this year are expected to be short lived and the return to foreign holidays is on the horizon. In addition to travel for holidays, business travel is also expected to return to normal levels as more workers return to the office and normal business practices.

Another factor to consider is the return of sporting events around the world. Some spectators may still be reluctant to travel at present but as we adapt to having the freedom to travel and as confidence increases this type of travel will increase too. Which will only spell good news for travel companies.

What is the bear case for travel stocks?

While everything is moving in the right direction, some investors will remain cautious about investing in the travel industry and other industries that were severely impacted by the pandemic.

The travel industry has shown positive signs of a good recovery over the summer, but as autumn and winter approach it is not known whether travel restrictions will make a return. It is hoped that they are behind us but rising COVID-19 infections or new variants could soon change things very quickly.

Typically, the winter months are less popular for holidays. Combine this with poor passenger confidence and it could be a recipe for disaster for travel companies.

Should I invest in travel stocks?

Travel stocks as part of a diverse portfolio could be beneficial for investors. The returns over the coming years could reach new heights, but as we have seen over the last 18 months, the pandemic could once again bring the travel industry to its knees.

If there were a drop in share prices, it could offer investors an attractive opening position and be a lower risk option for them to add travel stocks to their portfolio. The travel industry is going to be an interesting one to watch in the months and years that follow.

As with all investments, it is imperative that investors do their research to ensure they understand their exposure to risk before making the decision to invest in travel stocks.

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

  • Patricia Miller does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.
  • Patricia Miller has not been paid to produce this piece by the company or companies mentioned above.

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