US travel catch-up boom begins. Australia next

Over the weekend we saw another 1.9tr stimulus package passed in the US. This comes on top of what is an accelerating vaccine rollout and second leg virus recovery. Before long, we can expect US shalers to add a third leg of renewed oil investment to the boom as prices skyrocket.

In short, the US is entering its recovery proper. Some charts from Cornerstone:

We’re expecting the strongest recovery since 1950 – 9% real growth this year. A big pickup in consumer spending going into 2Q is in the cards, particularly for travel & leisure, with 1) an increasingly successful vaccine rollout, 2) states reopening, 3) high-end fiscal stimulus likely ($1.9tvs.our expectation of $1.2t), and 4) tremendous pent-up demand. Indeed, our Daily Consumer Confidence Survey is starting to move back up, and markets are discounting the return to normalcy.

The trigger is growing fast:

As of Wednesday, 16.4% of the U.S. population had at least started the vaccination process. About 8.4% are fully vaccinated. The number of months to vaccinate 75% of the population is down to 6 months:

Who will benefit most? Travel:

Spring Break is in the air, as airlines (and their shares) anticipate an increasing “return to normal” for travel patterns. Up, up and away?There’s been an increase in demand for summer travel. We’re seeing a huge surge in demand specifically for spring and summer travel in the last two weeks alone. We’ve seen more than 100% increase in searches.

Hopper, Mar3—Last week,12.4% of American travelers said they have a Spring Break trip planned. Interestingly, over two-thirds of the se travelers say it’s important to them that they experience a new destination for this trip. Half of these Spring Break period travelers plan to use an airplane for their trip and head more than 500 miles away from home. Destination Analysts, Feb28

Despite relatively flat performance for hotel revpar, the sector’s shares (like airlines) appear to be pricing in more normal travel patterns. Watching The week-over-week decrease was the country’s first since late January. Florida, California, and NewYork reported the largest drops in demand. Texas, on the other hand, led the nation in room nights sold as hotels continued to house residents displaced by winter storm damage.SmithTravelResearch, Mar4

Despite weak theme park foot traffic (Disneyland is closed, Disney World is open), Disney stock has been very strong (both absolute and relative).They were well-positioned for the crisis, thanks to their investment in Disney+ streaming. This illustrates one of our big themes: companies that invest in their businesses (read capex/digitization,etc.), adapt, growing productivity, and profitability. And now, California is starting to reopen. Stay tuned.

The other two big beneficiaries are homeware retail and eating out:

The news on the vaccines is all good, even exciting. I can now foresee a time soon when COVID is effectively history (fingers crossed).

Despite the Australian Nanny State having the slowest vaccine rollout in all developed economies, I think we can expect precisely the same patterns to play out here with a lag:

  • Sell stay at home, buy going out.
  • Buy travel, lodging, and eating out.
  • Buy home improvement as the property bubble swells.
  • Buy consumer services over goods.

Still some great value stocks on the ASX in these categories and, yes, we own them.

Houses and Holes
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  1. karlflowersMEMBER

    Australian travel in very different situation to USA. Risks in this sector much higher here than in the USA for balance of 2021.

    Our State health led traffic light system for travel is a misnomer, it is a red light system, as any destination can become a red zone retrospectively. It takes perhaps a week for someone who is infectious to get tested, results back and have contacts traced. Increasing awareness of this risk among consumers. US state borders did not close as commonly and won’t from now.

    US stimulus increasing as Australia set to withdraw stimulus – many travel related businesses set to go bankrupt with end of JobKeeper increasing unemployment significantly. Australian travel more reliant on inbound visitors than is USA travel.

    Excitement about leisure travel recovery in time here more justified than for business travel as emphasised by McKinseys as a global shift from pre-COVID. Companies in working from home, re-evaluated value of business travel that supports much of the higher end of our travel business here.

    Drive travel here likely to be favoured over airline travel, owing to reduced capacity on airlines and more opportunity to get home in a hurry to avoid more draconian quarantining requirements if you earlier visited a green zone that is retrospectively made a red zone during your period of stay.

    Finally, the likelihood of reinstated operating restrictions on travel businesses in Australia is much higher than in the much faster vaccinating USA.

    For all these reasons, the Australian Government’s current decision on whether or not to selectively extend JobKeeper for the worst affected industry due to Government actions beyond its control will be decisive on how our 90% economic recovery (The Economist) will continue.

  2. Reckon US has gone one more variant-led surge. Texas (2nd largest state by pop.) has gone full-rtard and is opening up mostly before vaccinations (vac rate is quite low there) along with a few other southern states. New base-line of 60,000 day is very high still. I understand and expect vaccines to lead the recovery but i’ll fade the idea that it’s a smooth recovery from here.

    • Peter PanMEMBER

      Probably. A company like Qantas for example…. net equity as at Dec. 2020: $759mn. Burning $40m per week at the moment still. Means they will have negative equity before end of June 2021. But hey…. it’s COVID!!! Party like it is 1969!!
      Does negative equity mean you are insolvent, i.e. liabilities exceeds assets?
      Assets values should also in accounting terms be adjusted to reflect their revenue potential. Little negative revaluation showing up in company accounts that have been hard hit by COVID. Means they expect a rapid return to pre-COVID trading levels.
      QAN trading at the same price now they did when they were profitable.
      This is despite raising about $1.5bn last year(read lots more shares in issue now!!). Means there is no margin for error in their business to survive.
      Given that international borders are closed until at least the 17th of June QAN will have to raise even more/again to survive before June 2021. Shares should be priced at orders of magnitude less than they currently trade to reflect reality. Many travel businesses bust. So not sure what the travellers are going to do on their holidays or where they will stay.
      Most other travel stocks the same. No connection between share price and reality. Most of them don’t even have a business at this time due to no travel.

  3. How are you able to differentiate between well valued stocks in these categories? Any specific stocks you can think of for someone who doesn’t have enough assets to be in the MB fund?