The FTSE 250 consists of the 101st to the 350th largest companies listed on the London Stock Exchange. The index contains a number of travel stocks, many of which are yet to recover from the pandemic.
However, I think the travel industry is much closer to pre-pandemic levels than their share prices suggest.
So, here are two travel stocks that I’ve bought or am looking to buy more of for my portfolio.
Things haven’t looked too rosy for easyJet (LSE:EZY) in recent weeks as travel chaos hit UK airports. The firm has cancelled hundreds of flights amid a shortage of staff, partially because of Britain’s tight labour market.
The firm has since lowered its initial guidance. The airline now expects third-quarter capacity (the period to June 30) to be around 87% of 2019 levels. It also said that Q4 capacity would be at 90%.
This isn’t what shareholders wanted to hear, but I don’t think it’s particularly bad news.
Demand for travel is clearly very high after two years of Covid-induced disruption. Passengers are also paying a lot more for their tickets too, although figures highlighting the increasing prices vary.
Labour shortages represent one headwind, fuel costs are another. But, easyJet is relatively well prepared for this. The airline said it was 71% hedged for the second half of the year.
Another headwind is interest rates and its impact on debt repayments. Thankfully, easyJet has no further debt maturities until the 2023 financial year. At the end of the first quarter, the net debt position was £600m.
There’s clearly risk here, but I’m willing to buy more easyJet stock at the current 414p. In the long run, I believe the airline will prosper.
Then there’s WH Smith (LSE:SMWH). Yes, that’s right. OK, it isn’t a typical travel stock for sure, but its fortunes are closely tied to the industry. The company is a leading travel retailer with a presence in a wide range of locations including airports and train stations.
JP Morgan recently raised its price target on the group to 1,900p, considerably above the 1,465p it’s trading for today. The bank said that WH Smith was a fundamentally stronger business now than it was before the pandemic and that performance was improving.
It cited three reasons for the upgrade and highlighted “better category opportunities, with the rollout of the ‘one stop Travel shop’ format; better space growth opportunities, with the acquisitions of InMotion/MRG providing both a US rollout story and further expansion into Europe/Asia; [and] better business mix, with a higher [percentage] of group profits coming from Travel.”
This was reflected in WH Smith’s June update. The company said that sales in the 15 weeks to June 11 were up 107% on the same period in 2019, with its travel division surging by 123%.
Some analysts have even suggested the travel chaos may benefit the firm. If flights are cancelled, the shop loses out, but if passengers are transferred to later flights, WH Smith could gain as bored customers look to pass the time by buying £8 Toblerone bars, among other things.
I already own WH Smith stock, but would buy more at the current price.