Investing in Travel in Uncertain Times
Demand has been hindered but not permanently impaired by COVID-19.
We believe now is an opportune time to review investment opportunities in the travel industry, given that demand and share prices have been disproportionately affected by the global spread of COVID-19, which we see as largely transitory. In fact, as of July 31, shares of our cruise line, hotel, online travel, global distribution system, and gaming coverage were down 35% on average year to date versus a 2.5% increase in the Morningstar Total U.S. Market Index. This has left investors questioning when demand will return for travel operators and, importantly, which companies have the financial health to weather the storm.
In building out our travel and leisure coverage forecast, we’ve reviewed decades of historical travel demand and overlaid that analysis with Morningstar’s near-term and long-term GDP forecasts. The result is our bifurcated outlook, which incorporates a more difficult near-term prognosis with a relatively sanguine long-term outlook. We assume that travel demand will normalize over an extended time horizon, once either the COVID-19 outbreak is managed at a global level or a vaccine is proved effective at stemming the spread.
Dan Wasiolek has a position in the following securities mentioned above: NCLH. Find out about Morningstar’s editorial policies.