Several indicators suggest that the travel sector’s recovery has begun. We believe that large parts of the industry are set to benefit from a significant increase in consumer savings and a pent-up demand to travel. As the worst effects of the COVID-19 pandemic start to ease, mid-cap companies – including key holdings in the JPMorgan Mid Cap Investment Trust (JMF) – are moving quickly to adapt to the new landscape.
As people look to reconnect with friends and family, revisit favourite locations and explore new destinations, travel is back with a vengeance. The coming months should also see stronger trading from pubs, restaurants and other parts of the hospitality sector, from cinemas to casinos and beyond.
With vaccine rollouts across the globe progressing at differing rates, international travel may experience a slower return, as governments seek to insulate their economies from the risk of imported COVID-19 cases and variants. However, having been forced to settle for domestic or regional destinations for so long, consumers are eager for foreign travel to resume and the sector should continue to bounce back as restrictions are eased.
A travel boom is looming
Travellers will feel more and more confident as vaccinations escalate and borders reopen. The most pressing imperative for companies across the travel industry is bringing back capacity or, at the very least, ensuring that they’re able to do so.
Ill-prepared companies may buckle under the pressure of an increased influx of travellers. Those who aren’t ready to increase capacity will miss out on a valuable opportunity to recoup losses incurred during the height of the pandemic.
Companies in the best position to profit will have strong balance sheets. A number of key holdings in JMF have already increased the efficiency of their operations during this period, and are likely to benefit from capacity coming out of their markets, which should mean more resilient and more profitable businesses in the future.
Thanks to a strengthened balance sheet, National Express is already winning new business across the globe. With the easing on international travel restrictions, we expect Wizz Air and Jet2 – both with strong balance sheets – to take market share in the European airline and package holiday space respectively, whilst also continuing to benefit from structural growth in demand for air travel.
Where travel goes from here
Wherever in the world you look, you’ll find people itching to travel. Yet changes in travel habits can be expected. Even seasoned travellers will have to adapt to new protocols, such as digital health certificates and safety measures. Travelers now need more, not less, assistance.
Travel leaders know that preparing their organisations for a surge of passengers is also an opportunity to redefine their value propositions and make their offerings more distinctive.
One current trend is the need to find greater safety in the trip, with flexibility of cancellations, later booking windows, and higher demand for flexible tickets to help travellers take more control of their travel plans. Historical booking curves will no longer be a good indicator of current behaviours. Travel companies will need to use every source of insight they can to anticipate demand and optimise pricing.
The profiles of passengers will also be different. In recent times there has been a clear trend of increasing demand for experiential leisure, which – combined with increasing wealth and the emergence of sizeable middle-class populations in emerging economies – is another positive for the travel sector.
The pandemic has also created a rise in new travel occasions (staycations, short-haul getaways), activities (camper van trips and glamping), destinations (nature parks, health and wellbeing retreats), channels (social media), and experiences.
We believe optimism in the sector is well founded and the outlook for mid-cap stocks in particular is strong. JMF continues to be one of the few closed ended companies which invests in the UK mid cap universe, benefiting from its size, flexibility, and its relatively inexpensive debt structure. The Trust provides a rare opportunity to invest in medium-sized companies with genuine competitive advantages, strong balance sheets and clear strategic direction.
It’s been a long time coming, but several factors are aligning to fuel a travel boom. JMF is primed to profit from a rebound in the travel sector through a disciplined investment process, combined with deep experience, expertise and resource. With adaptability and ambition, travel companies can ensure that travel is not just back, but better.