TUI Travel (LSE: TUI) has benefited greatly from the early progress in lifting Covid-19 lockdown restrictions. Since the easing on Monday, the TUI share price has climbed by 67%. That’s in less than a week. And if you’d managed to get in at the bottom, that’s already a brilliant result.
If you didn’t, it doesn’t necessarily mean you’ve missed the chance of benefiting from a depressed share price. No, thanks to the devastating effect of the coronavirus, the TUI share price is still down 47% so far in 2020.
The TUI share price isn’t the only travel-related one to rise this week. Shares in easyJet are up 32% since the end of last week. It seems appropriate that they’re priced at 737p at the time I write, as the company has a fleet of Boeing aircraft of that very number. An omen? Probably not.
It’s not all plain sailing for easyJet, mind, as the company says it intends to cut around 30% of its workforce. It also doesn’t expect demand for flights to get back to prior levels until 2023.
International Consolidated Airlines shares have also bounced, by 29%, though airline shares still have a long way to go. The share price is down a massive 60% since the start of the year. The easyJet price looks a little better, but it’s still down 48%. That’s almost bang in line with the TUI share price.
Better than an airline
I like the TUI share price a lot better than those of the airlines themselves. But why? I’ve never bought airline shares and never will. And that resolve has been strengthened recently now that Warren Buffett has dumped his airline shares. Airlines are driven by many factors that are totally beyond their own control. Mr Buffett said there’s no joy in being an airline CEO, and I can understand what he means.
TUI Travel also faces stiff competition, along with the airlines. That competition has eased off a little since the sad demise of Thomas Cook. I see a significant difference, though. A travel company like TUI is in some ways more of a ‘picks and shovels’ company, in that it acts as a sort of middleman. Whichever destinations are most popular, TUI can offer what people want, and switch quickly. Which airline is best value? Again, TUI can choose when it’s putting together its packages. If one airline struggles and its shareholders suffer, a travel agent can switch. And I see that as a defensive characteristic of the share price.
TUI share price
Over the longer term, I’d expect the share price to be less risky than those of companies at the sharp end. As well as airlines, that includes hotel chains, catering companies, local ground travel operatives, and more.
I have been very wary of any company in the travel business in the past. And TUI is definitely not without any risk. In fact, I think it’s still a bit riskier than my usual investing strategy would allow. But on a trailing P/E now of only 3.5, I see TUI as priced to go bust. And I don’t see any realistic chance of that happening.
I think the TUI share price is attractively low, and I rate the stock a buy.
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Alan Oscroft has no position in any of the shares 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.