Last week saw the struggling regional airline Flybe go into administration. This left many travellers stranded and put a large number of jobs at risk. The Exeter-based company collapsed after a bid for fresh financial support failed. Many of our readers would likely remember the high-profile bankruptcy of Thomas Cook in 2019.
Now investors are wondering whether they should be concerned about the future of travel and tourism shares, especially of airline stocks. Today I’d like to discuss the segment more in detail so that you can make a better informed decision about your holdings.
Industry Headwinds
As Flybe was independently owned by several groups, portfolios of retail investors were not directly affected by the collapse of the airline.
Many issues such as currency headwinds since the Brexit referendum of 2016, increased volatility in oil prices, and weaker customer demand especially since the coronavirus, or COVID-19, outbreak have added to the difficulties faced by Flybe.
Such problems have also been affecting other large travel and tourism companies. These include Carnival, easyJet, InterContinental Hotels, International Consolidated Airlines (the owner of British Airways and Iberia), Ryanair Holdings, Whitbread, and Wizz Air.
As a result shares of these companies have been quite choppy in the past few months. Especially over the past several weeks, their prices have been tumbling as coronavirus fears continue to ripple through the markets.
Falling prices, higher dividend yields
A lower share price obviously boosts the prospective dividend yield, assuming the company does not cut the dividend. The good news is that most high-quality dividend stocks continue paying and even raising dividends during bear markets. In other words, as long as companies do not reduce their dividends, income keeps rolling in regardless of how the market behaves.
Here is a summary of how share prices of travel and tourism companies have fared year-to-date (YTD) and where their dividend yields stand:
- Carnival – YTD down about 41.4%; current dividend yield of 7.7%
- easyJet – YTD down about 29.8%; current dividend yield of 4.1%
- InterContinental Hotels – YTD down about 22.5%; current dividend yield of 2.4%
- IAG – YTD down about 32.3%; current dividend yield of 6.3%
- Ryanair Holdings – YTD down about 23.1%; does not pay out dividends
- Whitbread – YTD down about 25.1%; current dividend yield of 2.7%
- Wizz Air – YTD down about 13.9%; does not pay out dividends
Time to buy, sell or hold?
Until we have more clarity on the global fight against the virus, there will likely be more turbulence ahead for travel and transport shares.
In recent days it has been widely reported in the media that many travellers worldwide are backing out of travel plans. And cancellations especially threaten the cruise industry.
Buying when markets are in a free-fall takes courage. But if you liked a given stock several weeks ago for solid fundamental reasons, you would probably like it more when the price is lower.
Many analysts indeed believe the recent crash gives investors a buying opportunity as markets tend to bounce back, usually in matter of months. Nonetheless, prices may go even lower after you buy into the shares.
Therefore, any decision regarding your portfolio holdings should be made within your own risk/return profile. You may also want to talk to a financial advisor regarding your own circumstances.
