Winter is coming. And that could mean a resurgent Covid-19, particularly the fast-spreading Delta variant, which would be devastating to the global travel recovery that is underway but remains fragile.
Business travel is especially vulnerable to any upsurge in the pandemic. A recent Global Corporate Travel Survey by Morgan Stanley found that business travel budgets this year remain 50% lower than in 2019, and are expected to remain below pre-pandemic levels next year as well.
And while airline and other travel stocks have gotten a bump lately from the reopening of the U.S. border to vaccinated international travelers, the global travel recovery could quickly grind to a halt if things take a turn for the worst this winter, leaving many companies in the lurch.
Here are three travel stocks to keep an eye on in coming months.
Stocks to Watch: American Airlines (AAL)
Fort Worth, Texas-based American Airlines isn’t just the biggest carrier in the U.S., it is the largest airline in the world, sending nearly 7,000 flights a day to more than 350 destinations globally. If any company is likely to be hurt by a slowdown in travel, it is American Airlines.
When the Covid-19 pandemic hit in the first quarter of 2020, the carrier immediately lost $2.2 billion as borders closed and international flights ground to a halt. While American Airlines is managing to recover now, it wouldn’t take much to send the company and its stock into another tailspin.
Year-to-date, AAL stock is up 46% at $22.14 a share. However, the company’s share price has risen less than 1% in the past six months, and it remains 62% below its pre-pandemic peak of nearly $60 a share.
At the end of October, American Airlines reported a $169 million profit for the third quarter due in large part to $990 million in federal payroll support.
Revenue for Q3 totaled $8.97 billion, which was more than double the $3.17 billion achieved a year earlier but still down 25% from the same period of 2019 before Covid-19’s impact was felt. Without government payroll support, American Airlines would have reported a third quarter loss of $0.99 per share.
Expedia (EXPE)
When it comes to online travel booking, Expedia Group remains a market leader. The company, which owns brands such as Hotels.com, CarRentals.com and Travelocity, captures a good portion of the $432 billion online travel agent sector.
Currently ranked second by market capitalization in the U.S. behind Booking.com parent Booking Holdings (NASDAQ:BKNG), Expedia’s stock has performed strongly as the economy reopened and people began traveling more this year.
Through nearly 11 months, EXPE stock is up 43% at $188.12 per share. However, like many travel stocks, most of Expedia’s gains came at the start of the year. In the last six months, the company’s share price has risen only 8%.
Expedia’s earnings remain solid. In early November, the company reported Q3 results that showed revenue grew 97% to $2.96 billion. Gross bookings rose 117% in the quarter. Net income came in at $362 million, or $2.26 per share.
The latest results easily topped analysts forecasts for Q3 revenue of $2.73 billion and earnings per share (EPS) of $1.65. However, any further slowdown in travel could be devastating to the company. In the third quarter of 2020, Expedia reported a net loss of $221 million due to the ongoing impacts of the global pandemic.
Stocks to Watch: Airbnb (ABNB)
Airbnb, the online marketplace for homestays and vacation rentals, has felt the effects of the pandemic more acutely than most companies.
A publicly traded company for less than a year, ABNB stock rallied after its December 2020 IPO, rising to a peak of $220 a share before collapsing and falling 40% to $132 a share this past spring as doubts about its ability to recover persisted.
The share price has only begun to recover since the end of August, rising 33% since then to its current price of $194.94. Investor sentiment turned optimistic after the company’s latest financial results showed bookings through its platform growing significantly.
For the third quarter, Airbnb reported that its profits surged 280% from a year earlier when the company was in the pandemic doldrums. Q3 revenue of $2.24 billion trumped the $2.05 billion that analysts had expected.
The total number of bookings made through Airbnb during the July through September period rose nearly 30% from a year earlier. Net income surged 280% to $834 million on a year-over-year basis, which was a quarterly record for the company.
Going forward, Airbnb said it expects revenue of between $1.39 billion and $1.48 billion in this year’s fourth quarter, which is in line with analyst expectations. Any retreat from that outlook will surely cause a reversal in ABNB stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
