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Why Travel Stocks Were Soaring Today

By Jeremy Bowman – May 26, 2020 at 2:46PM

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Good news on multiple fronts lifted sector stocks.

What happened

Travel stocks, including Expedia (EXPE -3.05%)Tripadvisor (TRIP -1.31%)Hyatt Hotels (H -0.37%), and Marriott International (MAR -0.26%), were climbing today on enthusiasm about a broader economic recovery and new entrants in the race toward a vaccine. 

A number of states continued to take steps to reopen their economies and Americans seemed eager to resume their normal lives as many were out and about during the holiday weekend. Internationally, major economies like Japan and the U.K. also moved toward reopening, showing that the global economy appears to be emerging from the worst of the COVID-19 pandemic. 

A woman watches a plane take off from an airport terminal

Image source: Getty Images.

Hopes also increased on the vaccine front as Novavax is starting a combined phase 1/2 trial for a highly touted coronavirus vaccine, while Merck announced several moves in the fight against COVID-19. The pharma giant said it would collaborate with IAVI, a non-profit scientific research organization, to develop a vaccine. It also acquired Themis Bioscience, a company focused on vaccines and therapies for infectious diseases, including COVID-19, and it is teaming up with Ridgeback Bio to develop on an oral antiviral remedy for the novel coronavirus. 

Though there was no specific news out on the travel stocks above, the sector is highly sensitive to the macroeconomic climate around the coronavirus as well as economic reopenings, so shares bounced on the progress.

As of 11:47 a.m. EDT, Expedia was up 8.3%, TripAdvisor had gained 12.2%, Hyatt shares were 6.9% higher, and Marriott had increased 4.3%. At the same time, the S&P 500 was trading 1.7% higher.

So what

Travel data has started to show that the industry is beginning to recover from the deep bottom it hit during the shutdowns. 

Total air travelers in the U.S., according to the TSA, hit a nadir of 87,534 passengers on April 14. By May 22, the Friday before Memorial Day weekend, it was up to nearly 350,000, though that number is still significantly below the level of travelers a year ago, which generally fluctuated between 2 million and 2.5 million. Still, the trend offers some hope to the battered industry even though air travel is down by more than 80%.

Additionally, some major travel destinations have taken steps to reopen their doors. Disney opened the shopping area of Disney World in Florida, known as Disney Springs, and Six Flags, the world's largest theme park operator, said it would reopen a theme park in Oklahoma City, though at lower capacity than normal and with safety protocols including social distancing enforced. 

Now what

In recent earnings reports, travel companies including those above were blunt in assessing the severity of the impact on the industry. Tripadvisor laid off 700 employees, furloughed 850, and cut pay by 20% for the remainder of its workforce, as bookings and revenue plunged by more than 90% in late March and April, which CEO Steve Kaufer called the "darkest days." 

However, these stocks had fallen so sharply in the initial crash that any good news is likely to lift them even if the recovery is likely to be a long one. Airline CEOs have warned that previous demand may not return until 2022 or 2023, and there is also a longer-term risk if the pandemic causes a significant shift to work-from-home practices, which could permanently hurt demand for business travel. The global recession that's just beginning is also likely to have a negative impact on travel demand.

Of the group above, online travel agents (OTAs) like TripAdvisor and Expedia are probably better-suited to weather the crisis than Marriott and Hyatt, as hotel operators have high fixed costs while OTAs spend most of their revenue on marketing, which is easier to scale back during tough times.

Still, with air travel at just a fraction of its normal level, business at these companies will be down significantly for the foreseeable future. Investors should keep their eyes on the vaccine race and related developments as it may take such a solution for travelers to feel safe and for the industry return to normal.

 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool recommends Hyatt Hotels and Marriott International. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Marriott International Stock Quote
Marriott International
MAR
$147.18 (-0.26%) $0.38
Expedia Stock Quote
Expedia
EXPE
$98.99 (-3.05%) $-3.11
TripAdvisor Stock Quote
TripAdvisor
TRIP
$23.31 (-1.31%) $0.31
Hyatt Hotels Stock Quote
Hyatt Hotels
H
$85.75 (-0.37%) $0.32
Merck & Co. Stock Quote
Merck & Co.
MRK
$88.39 (%)
Novavax Stock Quote
Novavax
NVAX
$18.70 (-3.61%) $0.70

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

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