The recent market slump has hit the share prices of most companies recently, but especially those in the travel industry. Could the shares bounce back?
Losing altitude
easyJet (LSE: EZJ) shares have plummeted by over 20% in the past week. Any ongoing concerns about the coronavirus are likely to keep hitting the shares of the company – and its competitors – hard. Italy, the worst affected European country so far is responsible for 9% of air travel in the European Economic Area.
With a dividend below the FTSE 100 average, investors don’t get a generous income to offset any further share price losses. The easyJet dividend yield is 3.65%, which isn’t particularly high.
Although the share price has fallen and that might tempt investors to buy, I’d stay clear of the shares. I still think the relatively low dividend yield makes the shares risky at this time.
Challenges to the expansion of Heathrow recently will have done little to improve the mood around airlines and air travel. An increased focus on the environment coinciding with a potential pandemic will keep posing a challenging backdrop for the share price.
Fewer holidays
Unsurprisingly, TUI (LSE: TUI) has also been hit hard by fears that fewer people will want to book to travel overseas. Its shares are down by around 18% in the last week.
Particularly affecting TUI has been the very well-publicised lock-down of a four-star hotel in Tenerife, after confirmation of a coronarvirus case. The hotel, H10 Costa Adeje Palace, is part of the high street travel agent’s all-inclusive offering.Â
Given that many people in the UK are probably starting to dream about and book their summer holidays – now is far from an ideal time for consumers to be fearful of going abroad.
Operationally, though, TUI is doing well, benefiting from the demise of Thomas Cook and an up-till-now bounce in positivity following the election. So the shares should bounce back strongly if the coronavirus turns out to be less bad than feared. It was only this month the company reported record bookings that were up 14% year on year. It was also selling at a slightly higher price.
Big in China
Fashion brand Burberry (LSE: BRBY) warned earlier this month that the coronavirus is having a devastating effect on the luxury goods market, as wealthy Chinese consumers stay away from shops and travel restrictions curb overseas shopping sprees.
Burberry has closed 24 of its 64 stores in mainland China, with many other stores operating on reduced hours and seeing far less demand than usual as the government attempts to control the spread of the virus. Â
It has been hit by a double whammy. The violent protests in Hong Kong have also hit the business hard. Now these two headwinds are coinciding and will likely continue to hit the share price. Neither is looking like it will end soon.
All this is very important because China and Hong Kong make up about a quarter of the company’s sales. Chinese consumers overall account for 40% of sales, as many choose to shop overseas.