Have These 3 Travel Stocks Bottomed Out?

The coronavirus has sent the travel industry into disarray and many businesses have gone bust, but for those left standing is it still worth investing?

Aug. 3, 2020

It will be some time before many of us take-off on that international holiday we have been saving for, as the world battles to contain the deadly coronavirus. All countries are different when it comes to quarantine periods and exemptions to board a flight, but overall the aviation and travel industry has taken a huge hit. The United States government even offered some bailout money so a number of businesses wouldn’t go bust. 

1. American Airlines

In the current climate, people are only booking essential flights for work or to return home. American Airlines (NASDAQ: AAL) has been reeling from the aftershocks of the pandemic, its stock crashing by nearly 70% between mid-February and early April. There was some positive news on June 8, when the stock went up to a recent high of $20.31, but it has been falling since then. Many investors, particularly millennials, bought American Airlines stocks with the hope it would recover quicker than it has. 

The airline giant, however, did exceed analysts’ expectations at its most recent earnings call, posting $1.6 billion in revenue compared to the predicted $1.4 billion. American Airlines has also done a great job in conserving its cash burn, reporting $30 million per day for the month of June rather than the guidance of $70 million. The company did report a total loss of $3.4 billion, which was also better than initially expected. 

While it seems the airline has hit rock bottom, analysts predict that it will drop close to the lows of $9 per share again. There is no sign of the coronavirus infection rate slowing down in the U.S. and it could be years before this company returns to operating at pre-coronavirus levels. While many experts believe that the longer aircrafts stay parked, the less it will cost the company, it is still burning through plenty of cash. I would wait until the shares drop again if you are wanting to invest, but be prepared to wait years before it gains momentum. 

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2. Carnival Cruise Lines

Another popular way to travel is on a cruise ship, with one recently setting sail in Germany on July 24 to test the waters. As for Carnival Cruise Lines (NYSE: CCL), the waters are looking tumultuous following the industry’s five-month closure. Carnival Cruise Lines reported a record quarterly loss of $4.4 billion and it isn’t looking good for the cruise company, with travel docked until at least the end of September 2020.  

It’s going to take some serious convincing to get people to book a cruise liner holiday again after there were around 3,000 cases of COVID-19 and 34 deaths on cruise ships. This also goes for competitors Royal Caribbean (NYSE: RCL) and Norwegian Cruise Line Holdings (NASDAQ: NCLH) who have also experienced tumbling stock prices. If these companies do follow suit with the German ship in the coming months, they will likely adopt social distancing, health questionnaires for all passengers, and vigorous cleaning regimes. 

While Carnival Cruise Lines is trying to pre-sell tickets for 2021 at highly discounted prices, they are burning through about $650 million per month while it awaits the green light. The company does have $7.6 billion in cash, but this could go very quickly if the government delays the start date again. I would steer clear of this stock until there is certainty the industry is able to navigate the waters again. 

3. MGM Resorts

MGM Resorts (NYSE: MGM) has suffered a huge financial blow after closing operations, reporting a whopping 91% drop in quarterly revenue. The hospitality and entertainment powerhouse made $290 million for the quarter, compared to $3.2 billion at the same time last year. The coronavirus has left the company in shambles, from the closure of many locations to travel restrictions meaning fewer people visiting. 

Nevada has limited casino floors to 50% capacity to align with social distancing guidelines. Since reopening, net revenue is down by 50% compared to the same time last year and hotel rooms are only 43% full, compared to 95% in 2019. Considering MGM Resorts has cash of $4.8 billion and debt up to $11.4 billion, it will be some time before the company will be in the green. While the business may have already bottomed out, there is no sign when the coronavirus situation will improve in America. I would not be investing in this stock anytime soon until there is a clearer plan for reopening and improvements with infection rates.

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