Travel Stocks Continue To Recover

Even with the broader equity market taking a well-deserved breather for most of last week, travel stocks led the pack during Friday’s session as they continued to come off record lows.

Only two or three months ago, many were expecting to hear of a wave of bankruptcies from cruise ship and airline names, much like what happened in the brick and mortar retail space. However, after an incredible recovery rally from the lows of March, many on Wall Street are kicking themselves for not adding these beleaguered names to their portfolios.

The travel industry was one of the first hit and worst hit sectors during the COVID-19 crash. As countries and governments locked down borders and issued shelter-in-place orders, bookings across the world were canceled en masse. For many, this was the canary in the goldmine for the economic fallout that was about to happen.

But with more restrictions being rolled back every day, we’ve continued to see travel stocks catch strong bids as investors rush to get back in on the long side.

Cruise Ships

Many cruise names had the misfortune of becoming floating hospitals and epicenters for COVID-19 breakouts in January and February. The likes of Royal Caribbean Cruises (NYSE: RCL) and Carnival (NYSE: CCL) were already starting to turn down from their highs in the middle of January. An eventual 80% drop for both stocks made it clear to the market just how vulnerable an entire industry could be to a seismic and rapid shift in demand.

Even as many called out for the government to bail out the industry, others were quick to point out that many of the cruise companies are registered in other countries for unpatriotic tax reasons. With no sign of federal support coming, it looked like some were going to have to throw in the towel. However, for the brave among us, there was serious value to be had at these levels.

When Carnival took the surprisingly bullish step in May of announcing that it would be offering some cruises in August, bookings jumped 600% compared the days previous, and 200% compared to the same period last year. Around the same time, HSBC upgraded the stock to a Buy from Hold, based on future booking trends remaining positive and the additional breathing space Carnival had secured from its lenders.

At the end of May, Wedbush was also stepping up and called Royal Caribbean the best-looking stock in the cruise industry. They gave it an Outperform rating and noted its robust balance sheet, lack of equity dilution, and the fact that it had the best momentum coming into the coronavirus pandemic.

By the close of last week, Carnival was up 163% from its lows and Royal Caribbean was up a solid 200%.

Airlines

Much like cruise ship stocks, the airline names served as the canary in the goldmine for many as the coronavirus pandemic spread but it wasn’t until mid February that they started to dip. But dip they did and the likes of American Airlines (NASDAQ: AAL) and Southwest Airlines (NYSE: LUV) soon found themselves down 70% and 60% respectively.

With TSA security check numbers down 90% year on year at one point, many on Wall Street thought the writing was on the wall. But a combination of bailout promises and funds from the government and a rolling back of travel restrictions has breathed life into the industry.

Reports last week show TSA numbers to already be up 400% from the low point of the pandemic while weekly flight bookings on popular booking app Hopper, are only down 30% from this time last year. To be sure, there’s still a long road ahead for the airlines but that hasn’t stopped many on Wall Street from taking a punt that they’ll be around for many years yet.

Through last week, Southwest was up 60% from the lows while American was up 100%.

For investors considering getting involved in either industry, it’s probably worth considering the longer-term play over a quick scalp at current levels. There are growing concerns over a second coronavirus wave and we’ve seen how quickly travel names can dip on those fears. That being said though if a second wave does come, we’ve also seen how quickly and hard they can bounce.