The stock market crash has taken its toll on many UK shares, particularly those in the travel industry. Companies such as Carnival (LSE: CCL), IAG (LSE: IAG), and TUI (LSE: TUI) have been among the hardest hit and it’s clear to see why. But could now be the right time to buy these stocks in order to realise bumper returns down the line?
Crashing UK shares
Waiting for the right time to buy crashing UK shares could be likened to trying to catch a falling knife. Nobody knows when these companies’ share prices will bottom out, if at all, making them extremely risky investments.
Since the beginning of 2020, all three have watched their share prices plummet. Carnival comes out the worst off, with a 70% drop. IAG closely follows with a 69% fall, then TUI with 67%. Judging by those figures, you could be tempted to think that the only way forward is up.
Nevertheless, fresh panic was caused at the end of last week by the UK’s announcement to add France, the Netherlands, and Malta, among other countries, to its quarantine list, prompting a further sell-off. It seems there are no limits as to how far their respective share prices can fall.
Moreover, the prospect of bankruptcy now remains an ever-present threat looming over each of these companies. In order to stay afloat, many businesses in the travel industry will have no option but to tap into government support. Combine this with a gloomy economic forecast and the future outlook appears as bleak as can be. But is there any hope for these companies?
An end in sight
As losses continue to mount for cruise ship operator Carnival, it’s becoming harder to envisage a happy ending. The industry giant was forced to cancel all operations until November and only a slow return to certain cruises will go ahead. A glimmer of hope comes from the high volume of rescheduled bookings, but, if successful, the road to recovery will be a long and arduous one.
While IAG continues to bleed cash, the company doesn’t expect air travel demand to recover until 2023. With operations grinding to a halt, the company’s cash reserves have been tested. That said, IAG has a stronger liquidity position than most of its peers, which could be pivotal in ensuring survival. In my eyes, the recent proposed capital raise seems necessary, even at the cost of diluting current shareholders.
With TUI on the brink of collapse, the company has been left to scramble for extra funding. With 2020 bookings down 81% and average selling prices 10% lower, the summer period has been utterly dismal. However, customers who have written off this year look set to return in big numbers for 2021. Bookings for next summer are up 145% and prices are higher too.
The final verdict
Ultimately, for those companies able to weather the storm, it’s likely that their competitive position could be strengthened. This would be as a result of the damage caused to rivals. As such, for those prepared to hold for the long term, each of these shares could turn out to be a lucrative investment opportunity. That said, those looking for a safer play would do well to avoid these crashing UK shares and look elsewhere for buying opportunities.
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Matthew Dumigan owns shares of Carnival and International Consolidated Airlines Group SA. The Motley Fool UK has recommended Carnival. 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.