2 FTSE 100 travel stocks that could take wing in 2022
FTSE 100 travel stocks are amongst the worst affected by the pandemic. However, as fears of the Omicron variant fade, these two could strongly recover into the new year and beyond.
As the covid-19 pandemic began, panic swept the global markets. A third of the FTSE 100's value was wiped out in the space of a month, as it fell from 7,404 points on 21 February, to 5,191 points by 20 March 2020.
Lockdowns saw planes grounded, hotels closed to all but essential visitors, and restaurant shutters locked for months at a time. Arguably, FTSE 100 travel stocks were hardest hit. And it’s not hard to see why. Three lockdowns have seen UK citizens unable to leave their own homes, much less visit the rest of the world.
While fears over the Omicron variant have somewhat receded, there’s a secondary problem brewing for the sector. Rising inflation, interest rates, taxes and energy bills are gradually creating a cost-of-living crisis that could make travel financially impossible for the average earner.
On the other hand, as vaccination rates rise and the UK comes ever closer to herd immunity, travel stocks could be in for a long-awaited revival.
FTSE 100 travel stocks: come fly with me
International Consolidated Airlines (LON: IAG) is the owner of British Airways and Iberia. The travel stock hit a high of 671p in January 2020, before collapsing 86% to 91p by 2 October 2020. But right now, it’s at 147p. And as transatlantic flights to the USA have reopened, this price point could represent great long-term value, especially as many of its competitors have been forced to exit the market.
It’s true that financially, IAG has seen better days. But its Q3 results show glimpses of silver linings. Passenger capacity was 43.4% of Q3 2019, with Q4 capacity planned to be at around 60% of 2019. By summer 2022, it could be flying the same number of passengers as it was pre-pandemic.
And its operating loss halved quarter-over-quarter, while operating cash flow turned positive for the first time since the pandemic began. And with liquidity at €12.1 billion, the company can continue absorbing losses in the short term. However, it does expect a full-year loss of €3 billion for the year. And as remote working becomes the norm, and leisure travellers become wary of being trapped abroad, it could take more time than the company envisions to get back to normal. Of course, if the pandemic fizzles out in 2022, it could benefit from a release of pent-up travel demand.
The Rolls-Royce of travel stocks
In the ancient Greek fable, Daedalus and his son Icarus escaped imprisonment on Crete using wings fashioned out of bird feathers and wax. However, Icarus soared too close to the sun, the wax melted, and he plunged to his death over the Aegean Sea.
Arguably, Rolls-Royce (LON: RR) has suffered from the Icarus factor. Its share price hit its zenith of 1,088p on 3 August 2018, as the business invested in dozens of companies operating outside of its core business of designing, building, and repairing aircraft engines.
Then the pandemic hit like the sun melting wax. Its share price, already sliding in value, collapsed to an unprecedented low of 69p by 6 November 2020.
And since then, it’s been forced to engage in a £2 billion disposals program. To reach this figure, it’s sold off its civil nuclear business to Framatome, ITP Aero to Bain Capital, Bergen Engines to Langley Holdings, and its stake in AirTanker to Equitix. And by the end of 2021, the company expects to have cut 8,500 jobs. But this has repositioned the travel stock, with CEO Warren East commenting that Rolls-Royce is a ‘leaner and more efficient company.’
And it’s recently landed two lucrative new contracts. The first is a $2.6 billion agreement to supply and maintain engines to the US Air Force. But the second is once again outside of its core business; building Small Nuclear Reactors, with backing from the UK government and Qatar’s sovereign wealth fund. Each reactor will power 1.3 million UK homes. And at £2 billion apiece, they’re significantly cheaper than the ageing large-scale reactors that the UK currently relies on for power.
And the company is still world-renowned for its quality. As Rolls-Royce expects a return to profitability in 2022, this could be the year of its comeback.
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