Omicron variant: what next for these FTSE 250 travel stocks?

Travel ground to a halt during the Covid-19 pandemic, but does the ‘milder’ Omicron variant suggest these two FTSE 250 travel stocks are closer to normality than ever?

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The rise of the Omicron variant threw the slowly recovering travel industry back into crisis a few weeks back, but could also be good news if it really is the mildest variant yet. Today, I’m wondering whether two FTSE 250 travel stocks that interest me can weather the storm and go on to better things. The two stocks represent the broader travel industry as they operate flights, holiday packages and cruises. Testing infrastructure and closed borders in many countries have prevented people from travelling. But if Omicron is indeed milder, is there a glimmer of hope for this battered industry and these stocks in particular? Let’s take a look.

Wizz Air

Wizz Air (LSE: WIZZ) arguably has the strongest balance sheet of the publicly traded airline stocks. Its half-year report for the six months up to 30 September also contained good news. Wizz Air stated that its passengers carried figure was up 92.7% from the previous year. This is a strong signal that demand for flights was increasing again and that people were generally travelling a lot more. Revenue also grew by almost 87% and losses were narrower.

While Wizz Air was already operating from a relatively strong cash position, those recent results indicate that this stock has rebounded well. It’s also expanding, recently acquiring Norwegian Air’s slots at London’s Gatwick Airport. The Omicron variant led to a 16.5% fall in Wizz Air’s share price in December 2021, however, demonstrating that the Covid pandemic is an ever-present danger to travel stocks. This compares with a 5% increase in share price for the whole of 2021. Citigroup analysts also recently downgraded Wizz Air and expressed a preference for long-haul carriers. Airlines operating on a long-haul basis, Citi said, are already benefiting from the opening of transatlantic routes and uninterrupted cargo operations.  

TUI

Travel firms have faced cash crunches during the pandemic but holidays giant TUI (LSE:TUI) issued convertible bonds in April 2021. This raised €400m to bolster the balance sheet and preceded a €1.1bn capital raise in November 2021. That came after revenue nearly collapsed over the past two years. In 2019, revenue was nearly €19bn. The full-year results up to 30 September 2021 revealed revenue was only €4.7bn.  

Nevertheless, increased European travel resulted in 66% hotel occupancy and 14 out of 16 cruise ships in operation. The underlying loss for the firm’s cruise segment in Q4 2021 was €43m, narrowing significantly from €125m for the same period in 2020. I believe this means TUI is starting to recover. It also reported 4.1m bookings for Winter 2021/22 and Summer 2022, indicating greater consumer confidence in travel. Similar to Wizz Air, TUI’s share price is down 11.2% for the past three months. 

I have reasons to be optimistic about both of these stocks going into 2022. They’ve performed well since markets resumed trading this month. Given the ongoing threat from new Covid variants, however, operations may stall if new measures are introduced by governments and share prices will fall in turn. Nonetheless, I feel that these two stocks should have a much stronger 2022 if the pandemic eases. While I’m not buying any of these shares at the moment, because I want to see more evidence of a short-haul recover yin the near term. I may well add them to my portfolio at a future time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods has not position in any of the companies mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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