Please ensure Javascript is enabled for purposes of website accessibility

Why Travel Stocks Were Falling Today

By Jeremy Bowman – May 1, 2020 at 3:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Industry stocks fell alongside the broader market on fears that the effects of the pandemic will last longer than hoped.

What happened

Shares of travel stocks, including Eldorado Resorts (ERI)OneSpaWorld Holdings (OSW 2.40%)Tripadvisor (TRIP 2.06%), and Expedia (EXPE 2.38%), were falling today as the sector got swept up in the broader market sell-off. 

Though there was no specific news out on these stocks today, markets were rattled as Amazon.com and Apple, two of the most valuable and powerful companies in the world, indicated in their earnings reports last night that the impact of the coronavirus may be greater than anticipated. Amazon said it expected to have just break-even profit in the second quarter as it plans to invest $4 billion in coronavirus-related costs in the period. Apple, meanwhile, declined to provide guidance for the first time since 2003, citing "a lack of visibility and certainty in the near term." 

Meanwhile, President Donald Trump also threatened to slap a new round of tariffs on China as retaliation for the coronavirus, which could further destabilize the global economy at a vulnerable time.

The travel industry has been one of the most directly impacted by the coronavirus pandemic, and sector stocks have adopted a "risk-on/risk-off" behavior in recent weeks, swinging higher on good news and lower on bad news. Today, investors ran from the sector again.

As of 12:01 p.m. EDT, Eldorado was down 12.9%, OneSpaWorld shares were off 11.4%, Tripadvisor had given up 7.9%, and Expedia had slipped 5.3%. At the same time, the S&P 500 was down 2.9%.

A woman sticking her head out of a moving train

Image source: Getty Images.

So what

Reno-based casino operator Eldorado Resorts has been clobbered by the coronavirus-related shutdowns, much like the rest of the gambling industry as the stock has fallen more than 70% since the sell-off began in February. Eldorado may be particularly vulnerable to the disruption as it is in the middle of a $17.3 billion merger with Caesars Entertainment, which is looking increasingly strained with casinos shut down and the effects of the pandemic lasting longer than many had hoped. Last night, VICI Properties, another stakeholder in the deal, said in its earnings release that Eldorado continues to move forward to get regulatory approval for the deal. Shareholders, on the other hand, may be getting cold feet. 

It's hard think of a company that's worse-positioned for the coronavirus pandemic than OneSpaWorld Holdings. The company operates health and wellness centers on cruise ships, meaning it's not only exposed to the risk in the cruise industry, but also the risk of personal contact in activities like massage, hair care, and personal fitness. Even if the cruise industry sets sail again, customers may be reluctant to use its services. Yesterday, the stock surged as the company got a $75 million investment from Steiner Leisure, its biggest shareholder. While that infusion solves its liquidity problems for now, the future still looks bleak for the company.

Tripadvisor shares have been volatile in recent days as the company said earlier in the week that it would lay off a quarter of its staff as CEO Steve Kaufer said that the business had been severely impacted by the pandemic. The travel-recommendation site depends on advertisers and with much of the travel industry shut down, hotels and tourism companies aren't buying ads. The company was already struggling to grow before COVID-19 hit, and the pandemic will only make its turnaround plans more difficult.  

Finally, Expedia, one of the two biggest online travel agencies in the world along with Booking Holdings, slid along with the macro news. Last week, Expedia raised $3.2 billion in private equity investments and offered another $2 billion in debt, giving it sufficient cash to stay afloat during the crisis, but CEO Barry Diller has been blunt about the pandemic, saying that the company's revenue has gone to virtually zero in recent weeks and that its goal was to conserve cash and survive. 

Now what

Today, President Trump's stay-at-home guidelines expire, and a number of states, including Texas, took steps to reopen their economies, allowing non-essential businesses to open their doors. That would appear to be a step in the right direction for the travel industry, but the threat of the virus isn't going away anytime soon, and the economic impact of the pandemic is likely to weigh on travel even when it does. Leaders from companies like Delta and Boeing in the airline industry expect it to take two to three years for air travel to recover, meaning losses for travel operators are likely in the interim.

A number of these companies will report earnings next week, giving investors their first look at the impact of the coronavirus. The numbers are likely to be eye-opening.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Apple, Booking Holdings, Delta Air Lines, and TripAdvisor and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Expedia, Inc. Stock Quote
Expedia, Inc.
EXPE
$91.82 (2.38%) $2.13
TripAdvisor, Inc. Stock Quote
TripAdvisor, Inc.
TRIP
$22.29 (2.06%) $0.45
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.
ERI
OneSpaWorld Holdings Limited Stock Quote
OneSpaWorld Holdings Limited
OSW
$8.96 (2.40%) $0.21
Apple Inc. Stock Quote
Apple Inc.
AAPL
$151.76 (0.66%) $0.99
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$114.41 (-0.64%) $0.74
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$28.50 (1.71%) $0.48
The Boeing Company Stock Quote
The Boeing Company
BA
$127.51 (0.13%) $0.17
Booking Holdings Stock Quote
Booking Holdings
BKNG
$1,669.16 (-0.01%) $0.09
Caesars Entertainment Corporation Stock Quote
Caesars Entertainment Corporation
CZR
VICI Properties Inc. Stock Quote
VICI Properties Inc.
VICI
$30.65 (0.53%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.