TUI AG’s (LON: TUI) share price is up 6% this morning on the back of their trading update. This is interesting and we might want to play in TUI shares dependent upon views of how this share price movement is going to pan out. But it’s the reason the TUI update is so confident that we should perhaps think about. For at least some of the price action has already occurred there and it might be possible to take the same information to make a play elsewhere.
What TUI is actually saying is that their sales and demand are back to above pre-pandemic levels. This answers one of the important questions we’ve had about the entire travel industry.
Think, for a moment, about online shopping. Clearly, this bounced during the lockdown. But equally clearly is the bit we don’t know. How much of that bounce is going to be given up now that lockdowns are over? The more that is the lower the share prices of the online retailers, the better the retail commercial property owners are going to look.
Now transfer the same insight over to travel. Habits were obviously hugely changed by lockdowns and travel bans. The airlines all took massive hits and not all of them (Norwegian for example) really survived. Lockdowns are either over – UK, Denmark – or close to ending – everywhere else.
So, how much of our former habit of travelling is going to return? It could be more than we used to – our desires have been suppressed after all. Or maybe we’ve got out of the habit and Skegness will do us from now on?
What Tui is telling us is that demand has roared back. So much so that prices are rising by 22% – that feeds straight through to the bottom line of course.
This can now inform our view of the airlines themselves which we might expect will be subject to the same market forces. As before, our consideration is going to be IAG (LON: IAG), Easyjet (LON: EZJ) and Wizz Air (LON: WIZZ).
Again as before a reasonable approach is that IAG is an airline, yes, but revenues and profits depend not so much upon tourist travel as upon business. A BA plane is optimised to gain that extra revenue from business and first-class. This is obviously not true of Wizz and Easyjet. What TUI is reporting is a rise in tourism-related travel. It’s also entirely reasonable to think that business travel – now that everyone has discovered Zoom – isn’t going to revive in the same manner as getting cold bodies to warm beaches this summer.
A reasonable speculation is therefore that Wizz and Easyjet are likely to outperform IAG as travel restrictions finally fade away.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.