Why travel industry shares like Webjet (WEB) are soaring

Shares within the travel industry are soaring this week. COVID-19 knocked travel industries for six, but they are coming roaring back now.

The backdrop for the travel sector

COVID-19 caused the Australian federal government to initially put up travel restrictions for passengers from certain countries. Eventually all international passengers were required to quarantine for 14 days.

In April 2020 Sydney Airport (ASX: SYD) reported that, compared to April 2019, domestic passengers dropped 97.9% to 49,000 and international passengers slumped 96.9% to 43,000. No wonder Virgin Australia (ASX: VAH) has gotten into financial strife.

This complete drop off of tourism is happening all over the world. It’s why the share prices of Flight Centre (ASX: FLT) and Webjet (ASX: WEB) fell so much and they had to do heavily discounted capital raisings.

What’s happening now?

The Webjet share price has risen 165% from the capital raising price. That’s an enormous return in just a couple of months. Webjet has gone up 9% today alone and it’s up 26% this week. Other travel shares are also rising with the Sydney Airport share price up almost 3% today, the Qantas (ASX: QAN) share price is up 5% and the Flight Centre share price is up 10%.

One of the biggest boosts this week is that Treasurer Josh Frydenberg said that jobkeeper could be extended for industries that are being heavily impacted like tourism.

Global travel restrictions are lifting. Countries and regions are encouraging their citizens to travel again. NSW wants people to go to regional areas of the state. Travel restrictions between states are getting closer to being lifted. Spain has lifted travel restrictions into the country. Indeed the EU would like there to be a holiday season to help some economies.

This is great news for shares like Webjet and Flight Centre. They don’t need flights between Australia and Europe to make money. They are global businesses, so just having customers book a hotel within their own country can make the travel agent businesses money.

Time to jump on travel shares?

Momentum is a powerful force. I’m not sure how much further the travel shares can run. Tourism will probably be reduced for some time. Webjet would probably be the one to watch over the next decade, though Auckland International Airport (ASX: AIA) could also be an idea with how low interest rates are right now.

However, I believe that a share like Bubs (ASX: BUB) could be an easier choice for long term success.

Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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