The stocks set to fly as travel takes off again
With COVID-19 travel restrictions beginning to ease, the Montgomery Small Companies Fund has been adding to its investments in ASX listed travel businesses. In particular, we like the look of Alliance Aviation Services, Corporate Travel Management, Flight Centre and Webjet, which should all do well as travel rebounds.
The skies finally appear to be clearing for the travel sector to take off as restrictions ease around the world after a challenging couple of years for the industry. Both the UK and the European Union have scrapped COVID-19 testing requirements for fully vaccinated travellers while recent commentary from numerous US airlines suggests that North American leisure activity is back at or near pre-pandemic levels with corporate improving to 25-30 per cent behind.
The Montgomery Small Companies Fund has been adding to its travel exposure to benefit from the improving industry outlook, preferring those companies which have materially improved their competitive positioning during the downturn which should see them emerge as market share takers and materially outperform as the cycle recovers. Our travel exposures include
Dominic Rose is the Portfolio Manager of the Montgomery Small Companies Fund. Dominic joined Montgomery in August 2019 after spending thirteen years specialising in smaller companies in portfolio management and equities research. Most recently, Dominic was a Portfolio Manager and Senior Research Analyst at MHOR Asset Management in Sydney for three years. Prior to this, he ran Deutsche Bank’s Small Caps Equity Research Team in Sydney for six years. He was also previously Head of Research at Foster Stockbroking.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Michael_Beckett
:
I think your right. Travel & Tourism stocks should perform nicely in the comming years ahead. I think the government has done an amazing job, steering us through this unprecedented series of catastrophes in recent years. What do you guy think about this resources boom that is going on? Do you think it’s sustainable?
Dominic Rose
:
Hi Michael, thanks for your question. The Montgomery Small Companies Fund has been investing in resources – while we don’t pretend to be macro specialists, we do look for change events in the market that we can easily understand and play without taking too much risk. Electric Vehicles and the decarbonisation theme continues to drive lithium, copper and nickel stocks although we remain cautious on some of the more speculative lithium explorers given their high valuations. The Ukraine war appears to be a catalyst for another change event in global energy security and de-globalisation (decoupling strategic supply chains) – this could be another multi-year thematic supporting resources such as oil & gas, coal, uranium and soft commodities. We prefer to invest in low-cost commodity producers with structural growth drivers – aim small, miss small (to the extent possible with resources which are clearly more volatile investments relative to industrials). Hope this helps.
Sue POLSON
:
With the announcement by QANTAS of a huge drop in commissions paid to agents from 5% (?) to sorry can’t remember the details but maybe down to 1 or 2% revenue will be greatly affected. Does this affect FLT and WEBJET, etc ? or just the smaller travel agents who are already suffering and many closed already. I suppose that the smaller ones forced to leave because of this last (and likely final straw for many) will help the larger players – how much do they depend on these commissions from QANTAS and are other airlines likely to follow if they haven’t already? Thanks as I wondered if this article was written before the announcement by QANTAS – I have FLT and bought into the equity raise in 2020 and also before that as the share price dropped – I have a long term view of this well run company – thank goodness.
Dominic Rose
:
Hi Sue, thanks for your question. You are right, Qantas and a bunch of other airlines have cut base commissions to travel agents from 5% to around 1%. Travel agents like FLT and HLO have said that they expect to offset much of this drop in front-end base commissions by negotiating better volume-based override targets (back end) as well as through doing deals with airlines for discounted tickets which they can then mark up. Some other airlines are apparently offering better front-end commissions in an attempt to take share from those airlines who made cuts. Nevertheless, there looks to be an earnings headwind which the travel agents will look to mitigate through back-end negotiations, wholesale deals, efficiency initiatives and cost-out programs. WEB’s WebJet business shouldn’t be impacted as they charge a flat booking fee to consumers on flights. Hope this helps.