Travel’s Recovery Has Not Yet Smoothly Landed – and There’s the Opportunity

As we move from social distancing to social proximity — as more Americans are vaccinated — travel is making a solid comeback. I’ve observed this trend firsthand during my frequent flights between southern and northern California.

A photo of a woman in a face mask waiting to board an airplane.
Source: Maridav/

Shortly after the Covid-19 pandemic become front-page news in March of last year, I boarded an Alaska Airlines flight from Orange Country to Sonoma County. Once the cabin doors closed shut for takeoff, I discovered I was one of just three passengers on the entire flight.

Over the ensuing months, the passenger totals on that route crept up into the teens, then to a few dozen, then to more than 100. Finally last week, I took a flight that was not merely full, but overbooked.

The flights’ attendants took to the PA system to offer cash travel vouchers to passengers with “flexible travel plans” who would be willing to give up their seat and take a later flight.

Has travel activity returned to normal? Not quite.

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To be sure, many travel-related stocks are trading as if boom-time conditions have returned to the travel industry.

Southwest Airlines Co. (NYSE:LUV) stock, for example, has climbed all the way back to its pre-Covid-19 levels.

When Southwest reported earnings on Thursday, April 29, it missed revenue estimates by $20 million but beat earnings estimates by $1.84 per share — coming in at $2.05 billion and $0.19 per share, respectively.

After mixed results like that, Southwest has dipped a little. So, at around $61.50, it still has a chance to inch back to its recent high of $64.75 … and its all-time high of $66.99, which it reached in December 2017.

But that’s not that much opportunity. It’s not even a double-digit gain.

Southwest is in this sweet spot because of its domestic focus and enviable balance sheet. Other airlines have overseas exposure — where the coronavirus is still flaring up — or other issues, and so they haven’t recovered as fully as Southwest.

That’s great for Southwest as a corporation … but not so much for investors looking to get in on what I’ve been calling the “Social Proximity Trade.”

Many travel stocks have fully rebounded from the depths of early 2020, even though global travel activity remains depressed.

Because of this disconnect, it’s difficult to find good plays on a global travel recovery.

But I spotted one such play on Thursday … and jumped on it.

When Bad Is Good

This travel company reported quarterly earnings that missed the mark on almost every applicable metric.

Revenues fell well short of what analysts expected. Earnings also missed the mark by a large margin.

Free cash flow slumped to levels even worse than what it reported in each of the two previous quarters.

None of that is good. Covid-19 really put a hurting on the travel industry over the past year, though, so it’s not surprising.

However, I’m confident that a comeback is in the making.

Moreover, this company is a travel industry technology leader. That means it fits perfectly into our Technochasm thesis — i.e., that innovators will perform at much higher levels than old-school companies due to exponential technological progress.

Its technological tentacles reach into almost every facet of the worldwide travel industry. Not surprisingly, therefore, when the Covid-19 pandemic torpedoed travel activity, this company’s revenues tumbled.

The company’s second-quarter 2020 revenues collapsed more than 90% year-over-year … and its share price also collapsed.

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But there’s no mystery here. As the pandemic continues to recede, travel activity will keep increasing … and this company’s revenues will climb. The share price should follow.

The company has not been simply sitting on its hands during the last year, waiting for the inevitable recovery. Instead, it has taken decisive steps to fortify its information technology (IT) infrastructure and artificial intelligence (AI) capabilities.

In other words, it is widening the Technochasm between itself and its competitors.

When I first recommended a bullish play on this company to members of The Speculator in early January, I predicted that, “once travel activity fully recovers to pre-Covid levels, its share price could easily double from current levels.”

That hasn’t happened yet. In fact, that trade has done pretty much nothing but slipped since then.

And then there was that dispiriting earnings report.

However, in that report, the company predicted that cash flow will begin improving throughout the rest of the year.

And that’s where the opportunity lies.

Let’s take a closer look.

A Chance to Double Down

Stock market reaction to the disappointing earnings report was both immediate and ruthless. The company’s stock tumbled 17%.

From my perspective, this first-quarter report does not alter the investment rational in any significant way. It merely delays it somewhat.

The bet here has always been a bet on a travel industry recovery. It still is … and I think that bet is still a good one.

In fact, I think it’s an even better bet now that this company’s shares have been knocked around a bit.

I never expected the global travel recovery to proceed in a neat-and-tidy linear fashion. And it isn’t.

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But travel activity is recovering in fits and starts, buffeted by on-again/off-again Covid-19 restrictions and regional policies. Not surprisingly, travel is recovering most visibly in places where vaccination rates are rising most rapidly.

Hotel bookings are following a similar recovery path, although they are outpacing the air travel recovery.

So, I believe the knee-jerk reaction to the company’s poor earnings report is providing a great opportunity for my Speculator members to not only hold onto their current position in this company … but to add additional positions.

That’s why, on Thursday, I recommended a second bullish play on this company. We doubled down.

Bottom line: I consider this company to be an excellent speculation on recovering travel. To make this play as a Speculator member, click here.


Eric Fry

P.S. Hundreds of thousands of folks saw my “Technochasm” viral video from earlier this year.

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On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls —in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here. 

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