Schroders questions rally in travel stocks

Travel companies are likely to face a “challenging environment” even if travel picks up as they may struggle to cope with the sudden influx of demand. 

Shares in travel stocks rallied on the back of the vaccine announcement in November which meant they were now trading back at pre-pandemic levels but Schroders said it struggled to understand why this was the case. 

While the firm expected travel would return once the borders were open, head of Australian equities, Martin Conlon, said it was likely that firms would be challenged by the immediate uptick in demand. 

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The worst-affected travel stocks included firms such as Helloworld Travel, Flight Centre, Qantas and Sydney Airport which were significantly hit during the first half of 2020 when lockdown restrictions and border closures stopped all non-essential travel. 

Flight Centre fell by 72% while Helloworld Travel fell by 63% but once the vaccine was announced in November, Helloworld saw the biggest rebound with gains of over 50%. 

Many fund managers indicated they were holding onto these type of stocks in expectations of them rising once borders re-opened but Schroders said they were sceptical of how they would perform due to the logistical challenges. 

Conlon said: “Travel stocks are mostly back at the levels where they were pre-pandemic which is a reasonably positive outcome. But the border closures have meant airlines have lost a lot of money and we struggle to understand how they can be back at pre-COVID levels. 

“Once people are unleashed there will be a boom. How easy it is for firms to deal with this, we will see, as they prefer a steady environment but there will be lots of lumpy demand which will be a challenging environment for them. They will go from one extreme to another.” 

Share price performance of airline stocks during 2020 

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