At the end of November, the announcement that a new variant of COVID-19 was infecting people across the globe generated fear in the capital markets. Travel stocks, including airlines, cruise lines, and hotel chains, were hammered as investors quickly recalled their experience with share trading of the hospitality and travel sector during the first lockdowns. People have been cooped up for an extended period, and over the holiday’s there are expectations that air travel will continue to rise.
Microscopic view of covid-19 omicron variant or B.1.1.529. 3D rendering
https://www.business-standard.com/article/international/omicron-variant-of-covid-unravels-travel-industry-s-plans-for-a-comeback-121120101692_1.html
Air Travel has Nearly Returned to Pre-Pandemic Levels
Share trading of airline stocks was volatile in the wake of the announcement of the Omnicron variant of the COVID-19. For example, the JETS global airline ETF declined 21% in November from its peak to trough. The decline in airline stocks comes despite a return to travel levels that rivals what was experienced in 2019. For example, on December 5, 2019, 2.2-million travelers were screened through the US TSA checkpoint. This number compares to 2.06 million that were scanned through TSA in 2021. In 2020 only 837,137 were checked through TSA. While the TSA checkpoint numbers are still below the numbers experienced at the end of 2019, the global JET ETF stock price is nearly 50% off the levels seen at the end of 2019. The question for investors is whether the sharp decline in the value of many of the travel stocks is an anomaly or if this is the beginning of a new move lower?
Where is the Omnicron Spreading?
The spread of the new variant is global. In early December, the British Health Security Agency confirmed 246 new cases of the Omnicron variant. There seems to be much more focus on this variant and the spread than the most recent spread of the Delta variant. While small, the number is only a fraction of the 44,000 new COVID-19 cases on average that Britain experienced daily. The fear that people are experiencing is whether the available vaccines will impact the new variants. If consumers knew that the current vaccines would protect them against these variants, they would like to continue their business as usual, and the new variant would not impact travel-related stocks.
Additionally, there is the chance that travel restrictions will be put in place to contain any spread of the Omnicron variant. Before announcing a new variant, Austria had placed a lockdown on its citizens. Omnicron has also spread across the United States, and new travel restrictions were put into place in early December.
New U.S. Travel Restrictions and Mandates
On December 6, 2021, there will be new travel restrictions for anyone heading to the United States. Instead of producing a negative COVID test within 72-hours of travel, people arriving at U.S. airports will need to show a negative COVID test taken within 24-hours. This restriction is for everyone reaching the United States from a foreign country regardless of whether you have been vaccinated. Additionally, the White House has extended the order that passengers on airplanes and trains, and buses will need to wear face masks through March 18, 2022. If you are caught without a mask, the fines in place can range from $500 to $3,000. The Administration also released a travel ban from 8-African nations.
On December 6, New York City expanded its vaccine requirements. All private employers in the city will be required to have a vaccine for all of their employees. All children 5-12 will need to show that they have received the vaccine to be allowed to eat indoors. These new mandates will make it less attractive for people who are not vaccinated or have kids who are not vaccinated to come to New York City on vacation. It also will impact the business travel for those coming to the United States for business and need to travel to visit a private firm. Additionally, if a person has recovered from COVID-19 within the past 90-days, they will need to test three to five days after travel.
The Impact on Travel Related Stocks
Fear has gripped the travel industry, which had recently rebounded from anxiety over the spread of the Delta variant of the COVID-19 coronavirus. Not only have airline stocks been hammered, but cruise lines and hotel chains have felt the pain of the fear related to the spread of Omnicron. Marriot shares dropped more than 15% in November.
The Bottom Line
There is an opportunity to purchase travel-related stocks that have recently been hammered. The sharp decline of some airlines and hotel chains is related to the spread of the Omnicron COVID variant. If we find out the current vaccines are protective against the variant, these stocks will likely rebound. While share trading in travel-related stocks should continue to be volatile, the recent declines in the share trading price should provide an opportunity to value investors.
