- Latest sector downturns underscore consumer worries regarding tariffs and rising living costs.
- The Webjet Group’s reduced stock market evaluation has caught the attention of a private equity firm making an underwhelming bid.
- Even with the challenges, major travel sector stocks have stronger financial positions compared to those in earlier economic declines.
Similar to how quickly a holiday tan fades away, the surge in pandemic-postponed travels has suddenly come to an end.
Concerns over tariffs and rising living costs have tightened travel budgets, and there are indications that unpredictable U.S. customs policies are putting off potential visitors.
Just like night inevitably follows day – though perhaps not always during an international flight – buyers are now looking into undervalued shares.
This week, the private equity firm BGH submitted a preliminary bid for the flight booking platform.
Webjet Group (ASX:WJL)
which separated from its business-to-business hotel division
Web Travel Group (ASX:WEB)
last October.
BGH’s proposal followed their acquisition of a 10.76% significant stake in Webjet. Interestingly, this move involved assistance from 1980s corporate raiders Ariadne Australia and Gary Weiss.
Adding to the intrigue,
Helloworld Travel (ASX:HLO)
has unexpectedly accumulated a 5% stake in the Webjet Group.
Meanwhile, the unsettled
Kelsian Group (ASX:KLS)
is currently in the process of offloading its traditional Kangaroo Island ferry operations along with other tourism holdings, opting instead to concentrate on commuter transportation.
Losing altitude
The strategic moves occur alongside profit warnings from the major players.
Earlier this month, Flight Centre pointed out “the short-term fluctuations in outcomes caused by unpredictable trading circumstances, which include the recent adjustments to U.S. trade and immigration rules.”
Everything was fine until March, when US “policy alterations” began affecting both business and tourist revenues.
Corporate Travel Management (ASX:CTD)
Then stated that the full-year revenue might come out 4% lower than projected, with the underlying earnings expected to fall short by approximately $30 million compared to what was anticipated during the half-year results.
The firm attributes “the extensive economic and tariff uncertainties in North America and Asia” for causing a decline in client activities, which has resulted in growth being slower than anticipated during what typically marks the most active phase of the year.
Helloworld last week trimmed its full year guidance to underlying earnings of $52-56 million, down from the previously indicated $56-62 million.
HelloWorld’s reservations for trips departing to the US are slightly lower, but there is robust interest specifically for higher-class seating overall.
It’s clear not everybody is experiencing the burden of rising living costs.
Discounted ticket prices reveal the tale.
Based on UBS data from March, domestic airfares have dropped by approximately 9% on average, which reverses the trend observed in 2024.
Global ticket prices dropped by an average of 4%, with Virgin experiencing a decrease of 11%.
On the surface, lower airfare prices seem beneficial for demand; however, this isn’t the case if people refrain from traveling due to geopolitical and economic uncertainties.
The current patterns indicate that travelers are avoiding lengthy overseas journeys in favor of closer alternatives like Bali, Fiji, Hawaii, and Japan.
This aligns with the strain from living costs along with accounts of persistent overcrowding in popular European destinations.
Merger mania
If last year’s Webjet split into two parts was intended to make the companies simpler to acquire, it has achieved its purpose.
Although BGH proposed an 80-cent-per-share offer which was a 40% increase from Webjet’s undisturbed share price, the stock value has been trading higher than this amount.
According to RBC Capital Markets, Webjet holds $100 million in net cash, which equates to 26.7 cents per share—this represents just one-third of BGH’s offer price at 80 cents per share.
The company believes that even without considering a takeover premium, Webjet shares could be valued between $1.05 and $1.30 each. However, with an appropriate control premium, discussions might begin around $1.26 to $1.50 per share.
Not even close!
Stay calm, we’re not heading down just yet.
The decline doesn’t imply that travel stocks should be shunned.
Rather, they often exaggerate their responses to both positive and negative situations.
Given that Australians are inclined towards taking holidays within their own country, the circumstances are favorable for promoting local productions like
Experience Co (ASX:EXP)
, which operates skydiving centers and treetop walkways.
This week, Experience Co noted dampened performance due to wet conditions, however, they also see “an opportunity to leverage the mood created by recent U.S. tariff adjustments.”
HelloWorld is benefiting from the lasting appeal of cruising, with projections indicating that reservations could increase by 40% this year.
Similar to a worn-out hotel room, it could use a fresh coat of paint.
Part of an essential ‘rebranding initiative’, the Webbot Group aims to increase its ticket revenue twofold to reach $3.2 billion by 2030. This includes expanding into hotels and packages as new areas for growth.
The players have stronger financial resilience compared to the period of the 2007 Global Financial Crisis or during the pandemic.
During the initial stages of the pandemic, Flight Centre carried out an urgent $700 million capital raise. Currently, the firm is repurchasing $200 million worth of its own stock.
There’s no need to adopt the brace position – however, anticipate additional turbulence and ensure your seatbelt remains fastened just in case.
This narrative does not serve as financial advice. Consider seeking independent counsel prior to making any financial decisions.
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Criteria: With the travel industry losing momentum, buyers swoop in for acquisition opportunities.
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