What happened
Shares of travel stocks dropped rapidly this week as fresh COVID-19 concerns spread around the world and investors began wondering if the pandemic recovery could be slower than expected. It didn't help that the market overall was down and stocks that have performed well in recent months saw a general sell-off.
Airlines Azul S.A. (AZUL +0.00%) and Hawaiian Holdings (HA +0.00%) have fallen 11.3% and 9.8%, respectively, so far this week; Carnival (CCL 1.95%) (CUK 1.76%) dropped 9%; and Avis Budget Group (CAR +12.12%) was down 10.6%.
Image source: Getty Images.
So what
COVID and the variants spreading around the world were in focus this week. Azul specifically fell because parts of Latin America are seeing a surge in COVID cases that could hurt travel over the next few months. Hawaiian Holdings is a U.S. operator but gets a lot of international travelers, so it could be hurt if global airline travel sinks in the coming year. This is another reminder that the high U.S. vaccination rate isn't common throughout the world, and outbreaks could happen, shutting down travel in some cases.
Avis Budget Group reacted to the growing Delta variant of COVID and is also feeling pressure from chip shortages that are keeping the supply of vehicles low and prices high. If COVID continues to hamper travel, car rental companies will be dealing with low demand and high costs, a terrible trend for the industry.
Carnival could also see demand fall if virus cases grow, but it will be somewhat insulated because it has put vaccine requirements in place in some locations. The company did offer to buy back $2 billion of debt this week, which would reduce the cash on its balance sheet and indicates that management sees a recovery ahead. If that recovery doesn't come, this would be bad timing for buying back debt.
The theme here is that investors are worried that instead of seeing a sharp recovery from the pandemic in the travel industry, we could see customers and businesses pull back travel once again. You can see below that revenue and net income took a huge hit over the past year, so companies don't want to go back to the 2020 level of demand.
AZUL revenue (TTM) data by YCharts. TTM = trailing 12 months.
Now what
It's during weeks like this that investors need to remember what the long-term performance of stocks looks like. You can see below that all four travel companies have beaten the market by a wide margin over the past year, despite the drop in shares this week.
CCL data by YCharts.
As much as investors need to pay attention to disruptions from the pandemic, I don't think this week is a reason to change your investment thesis. But remember that volatility will likely continue as COVID cases ebb and flow.
