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Travel stocks are strong all at once. This is due to rising expectations for earnings improvement next year as overseas travel begins in earnest. The atmosphere is quite different from when it rose again in late May due to anticipation of a COVID-19 vaccine and then fell again. This is because travel companies are busy moving. As the travel trend has changed rapidly due to COVID-19, it is necessary for investors to take a good look at the differentiating strategies and business structures of each company.
Strong resumption of overseas travel
5th Lotte Tourism Development(21,650 +5.87%)Silver finished trading at 21,650 won, up 5.87%. All day tour(28,050 +2.75%)(2.75%), yellow balloon(17,700 +2.61%)(2.61%), Hana Tour(89,400 +2.41%)(2.41%) and other travel-related stocks rose all at once. It performed well even in a market where the KOSPI index broke the 3000 line.
Recently, as overseas travel has gradually resumed, expectations for earnings recovery in next year are rising. On the same day, Lotte Tourism said, “The recently sold Saipan travel product made a reservation for 2,000 people.” According to the Mariana Tourism Authority, which is in charge of the Saipan region, all Saipan travel bubble (travel agreement) products are sold out by the end of this year.
Europe is also open. very good trip(15,600 +0.97%)announced that the European package tour, which had been suspended since January 2020, will start on the 8th. Some European countries are exempt from self-quarantine when traveling to Koreans. A travel industry official said, “It is not the holiday season and the industry is also encouraged that overseas travel demand has been in full swing despite the inconvenience of having to undergo a COVID-19 test before and after departure. done,” he explained.
Major travel agencies expect a turnaround next year
Travel stocks were strong in mid-May based on hopes for a COVID-19 vaccine. However, in reality, the share price was not supported by earnings. This is the reason why the stock price, which had risen for a short time, quickly fell.
This time the atmosphere is different. Major travel stocks were in the red until this year, but they are expected to turn to profit next year. The faster-than-expected confirmation of overseas travel demand could further boost earnings.
The point to watch is the strategic change that each travel agency offers. Even before COVID-19, individual travel styles have changed rapidly. The preference for package products has gradually decreased. With COVID-19, this phenomenon is likely to be exacerbated. This means that there is no guarantee that the market dominance of the existing 1st and 2nd companies will continue.
Based on this, the stock price moved differently. Yellow Balloon (26.43%) was the travel week with the largest increase in the past month (September 6th – October 5th). It was followed by Mode Tour (12.65%), Lotte Tourism Development (11.31%), and Hana Tour (10.92%). Red cap tour with a large proportion of rental car sales(25,600 +1.99%)(-3.21%) did not step on the uptrend.
Yellow Balloon is the only company whose direct sales account for nearly 80%. There is little to no fee charged to the dealer. We prepared an online travel agency (OTA) platform to prepare for the COVID-19 era. Stock prices tend to fluctuate significantly in response to changes in travel demand.
Hana Tour, which is considered a travel leader, started its employees normal work this month. The consensus for operating profit this year (average estimates of securities companies) was a loss of 121.6 billion won, but it is expected to turn black next year to 56.5 billion won. We are planning to develop and launch new travel products suitable for COVID-19.
Modetour is also expected to lose 27 billion won this year, but it is expected to turn to black next year at 25 billion won. Modetour is applying changes such as accompanying quarantine assistants and small group tours to sales products. A relatively stable financial structure is a strength. Yoon Hyuk-jin, a researcher at SK Securities, said, “As of the end of the first quarter, the available funds stood at about 120 billion won, and the financial risk is low until next year.”
Lotte Tourism Development and Red Cap Tour have diversified profit structures. Lotte Tourism Development operates ‘Jeju Dream Tower’, a complex casino resort on Jeju Island. Even amid the COVID-19 pandemic, sales are exceeding expectations.
As of the first half of this year, Red Cap Tour accounted for 95.8% of rental car sales. It has become a de facto rental car company as it has soared compared to the end of 2018 (83%). An official from Red Cap Tour explained, “As the demand for business trips increases, the number of related contracts is increasing.
Reporter Yoon-sang Ko kys@hankyung.com
