The S&P/ASX 200 Index (ASX: XJO) has seen strong share price gains across the board today. In fact, the index was up by a very healthy 2.5% at the close. This follows strong share price gains yesterday, as general market sentiment continues to lift. These gains are largely being driven by hopes the Australian economy can start recovering from the coronavirus pandemic more quickly than anticipated.
Easing restrictions bring hope to the travel sector
ASX 200 travel shares have been punished harshly in recent months. With severe lockdown restrictions coming into effect in March, both local and international travel has virtually ground to a halt since then.
However, it is now looking increasingly likely that domestic travel will gradually start to pick up in the months ahead. As the Australian government begins to ease lockdown restrictions, renewed hope is starting to flow through to the travel sector. Increased optimism surrounding a possible coronavirus vaccine is also boosting spirits amongst ASX 200 investors.
It’s true that the possibility of international travel resuming to any significant degree before the end of this year is still highly unlikely. There is, however, the possibility of a trans-Tasman bubble that will open up travel between Australia and New Zealand later in the year.
This good news is helping spur on a partial rebound amongst heavily sold off shares within the ASX 200 travel sector. Corporate Travel Management Ltd (ASX: CTD) is up 3.8% today whilst Webjet Limited (ASX: WEB) climbed by 5.5%. Likewise, Flight Centre Travel Group Ltd (ASX: FLT) is up by 8.8% and Qantas Airways Limited (ASX: QAN) surged by 4.9%.
Travel bookings segment hit particularly hard
In the travel bookings segment, Flight Centre has been hit particularly hard by the economic fallout from COVID-19. This is primarily related to the company’s high fixed overhead costs. These are necessary to support the company’s nationwide chain of retail outlets. Despite its strong rally today, Flight Centre’s share price is still down by over 60% since January. In a recent capital raising, Flight Centre successfully raised $700 million from institutional and retail shareholders. The company has also undertaken a range of cost reduction initiatives in order to make it through these unprecedented market conditions.
Due to its online only business model, Webjet may have less overheads than its main rival, Flight Centre. However with bookings drying up, the company has also been forced to enter survival mode in recent months. The Webjet share price has also been hit hard by a highly dilutive equity raising back in April. It would seem though that investors are now feeling a bit more optimistic that domestic flight bookings may begin again soon. Likewise, Corporate Travel Management will be hoping that some corporate travel in Australia will begin to resume in the months ahead. This should continue providing renewed optimism to its investors.
Meanwhile, our national airline carrier, Qantas, has seen its fleet of planes largely grounded over the past few months. However, the company secured additional debt funding of $550 million in early May. It’s strong cash position makes it relatively well placed to ride out the remainder of the coronavirus crisis, before domestic travel starts to resume. This has helped to see its share price rise higher today as news surrounding the sector continues to look more optimistic.
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More reading
- ASX 200 rallies hard, no longer in bear territory
- Latest spending data could drive the ASX retail sector higher
- Up another 5%: Is the Webjet share price a buy?
- The latest ASX shares that brokers have just upgraded to “buy”
- Why these 3 ASX 200 tech shares offer great value
Motley Fool contributor Phil Harpur owns shares of Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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