Interactive Investor

Travel stocks dive after government’s Balearic U-turn

15th July 2021 14:32

Graeme Evans from interactive investor

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Our stocks watcher updates investors on how the beleaguered, pandemic-hit travel sector is faring.

Schools are almost out for the summer, but instead of a surge in holiday getaways the peak period is mired in uncertainty, to the despair of families, travel bosses and investors.

The latest setback for the industry's comeback hopes arrived yesterday when transport secretary Grant Shapps revealed that hotspots in the Balearic Islands are to be removed from the green list just two weeks after being classified among the safest destinations.

The move brought a furious response from easyJet boss Johan Lundgren, who complained the industry has been unfairly treated compared with the domestic economy.

He pointed out that from next Monday, it will be possible to visit a nightclub without a mask or social distancing but those still not fully vaccinated won't be able to visit European beaches without quarantining, even though Covid-19 rates are higher in the UK.

As Ibiza is popular with young travellers, the latest move is a significant blow to the industry as most won't be able to afford to spend 10 days at home once they return to the UK.

Coming a few weeks after Portugal was added and then suddenly removed from the green list, the latest change to guidance highlights the lack of certainty for holidaymakers thinking about booking their first overseas holiday in two years.

This ongoing confusion was reflected in today's share price performances for the major airlines and travel companies, with TUI AG (LSE:TUI) 4% lower and easyJet (LSE:EZJ)down 2% in the FTSE 250 index.

The picture over the past 10 days is even more disappointing for investors, particularly for those who bought in recent weeks believing that the worst of the turbulence is over.

With the real prospect of another lost summer for the travel industry, TUI shares are down 18% since 5 July and Jet2 has fallen 15%.

Low-cost airline easyJet is 13% cheaper while British Airways owner International Consolidated Airlines Group SA (LSE:IAG) has been more resilient, falling 8% amid ongoing hopes for a travel corridor on the company's lucrative transatlantic routes.

It was only a week ago that easyJet had sounded far more upbeat after quarantining rules for fully vaccinated holidaymakers were removed for amber-list countries from Monday.

The airline said bookings to destinations including Alicante, Malaga, Faro, Nice and Corfu were up 400% as it laid on 145,000 extra seats in anticipation of a surge in demand.

Jet2 Ordinary Shares (LSE:JET2)is already looking ahead to summer 2022 as a “considerable improvement” on this year, having criticised the government's traffic light system, which it said only “served to confuse rather than clarify for customers”.

Chairman Philip Meeson added last week: “Given the continuing short-term uncertainty, customers are booking significantly closer to departure for Summer 2021.

“And, although bookings to date for winter 21/22 are satisfactory, they have slowed more recently given the ongoing speculation around international travel.”

Jet2 reported annual losses of £341.3 million but the airline and package holiday company's cash position remains strong amid continued support from lenders and shareholders.

Its shares are trading at 1,068.5p, down from 1,897p prior to the pandemic but better than 472p in May 2020.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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