It has been a tough year for travel stocks. While they are still a long way from getting back to pre-pandemic financial health, they are on their way. Earlier today, two such FTSE 100 stocks released updates.
The first of these is British Airways owner International Consolidated Airlines Group (LSE: IAG), which is out with its first quarter (Q1) results. The other is Holiday Inn owner Intercontinental Hotels Group (LSE: IHG), which just released a trading update.
IAG’s losses shrink but outlook subdued
IAG’s losses have subsided sharply. They are now at €1,067m, down 36.6% from Q1 2020. Its liquidity position is strong, at €10.5bn, which is a slight increase from the same time last year because of bond issuances, revolving credit facilities, and reduced costs among others.
While these are positives, I think there is a flip side that just cannot be ignored, either. The company’s revenues are down too, as it operated at only 22% of passenger capacity in Q1 2020. While improvement in cargo revenues softened the blow a bit, the fact is that they form a small part of the total. As a result, overall revenue was down 79% in the latest quarter.
IAG is not particularly positive in its forward looking statements either. While it mentions pent-up demand for travel, it also mentions “uncertainty over the timing of the lifting of government travel restrictions and the continued impact and duration of COVID-19” as a reason for not providing profit guidance.
IHG sees improved revenues, upbeat outlook
IHG, on the other hand, is relatively upbeat in its trading update. Its preferred revenue measure, RevPAR, which is revenue per available room, is still subdued at less than half the levels seen in Q1 2019. But it is down only 33.7% from Q1 2020.
The group also notes a pickup in demand from the US and China, whose economies have also bounced back fast from the pandemic. IHG’s CEO, Keith Barr, says that “we’re confident that IHG is well positioned for sustained growth”.
While these are positives, the fact is that demand is still slow, the pandemic is still under way, and more coronavirus variants are still possible. These could get in the way of IHG’s recovery.
Which FTSE 100 stock would I buy?
Still, I think there is a strong chance that there are better days ahead for both IAG and IHG. Vaccinations are progressing. And lockdowns are easing in many parts of the world. Travel may open up cautiously, but it is returning.
Both stocks’ prices have picked up in the current stock market rally. And I reckon that they can rise more. The IHG share price is at its 2019 levels already, so it is harder to predict how much farther it will go in the foreseeable future. But IAG is at a fraction of its pre-crash levels. Over time, I think it has a lot of potential to rally but it is one for the patient investor in me. I would consider both as long-term investments, however.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.