The Covid-19 pandemic hit the travel industry hard. Warren Buffett’s Berkshire Hathaway sold all its airline stocks amidst a market firesale of airline stocks and Airbnb’s private valuation halved, as shares of hotels and shared lodging firms plummeted. Some travel companies even went bankrupt. Although the reopening of the economy has revived the fortunes of travel firms, according to a story in Barron’s, many travel companies still haven’t recovered from the pandemic.
The Pandemic Bloodbath
Even at the height of the pandemic, some investors advised that there would be a return to normal and so, it made sense to buy airline stocks while the rest of the market was in a sell-off mood. In the year following Buffett’s May 2020 decision to sell his airline holdings, Delta Air Lines and United Airline rose by 70%, and American Airlines and Southwest Airlines rose by 80%. From the worst troughs of May 25, 2020, to the following year, United Airlines went up more than 200% and American Airlines up 190%, as airlines posted rising earnings and returned to profitability.
The Post-Pandemic Revival
As the economy reopened, demand for air tickets rose, bookings in hotels, lodges, and sharing platforms such as Airbnb shot up, wildlife resorts enjoyed an uptick in demand along with wildlife management service companies such as The Outdoors Group, and the travel industry as a whole revived.
Yet, these gains, spectacular as they are, were in some cases not big enough to compensate for the losses made by shareholders at the time. Between December 2019 and April 2020, American Airlines declined by 62.9%, Delta Air Lines was down 58.7%, Southwest Airlines was down 45.8% and United Airlines fell 69.7%. Now, consider that a 70% decline in value demands a 333% gain just for an investment to breakeven, and it becomes clear that as spectacular as the gains have been, they just haven’t been enough. In fact, airline stocks have been declining despite rising expectations for earnings and share prices. Since the beginning of the year, the Dow Jones U.S. Travel & Tourism index has fallen by more than 29% and the S&P 500 Hotel Resorts & Cruise Lines Index has declined by over 16%.
Investors who bought at the bottom have been rewarded, but for long-term investors who held on through the worst, travel stocks have failed to go up high enough for those investors to breakeven.
Airbnb, whose valuation halved as a result of the pandemic, had its best-ever year in 2021, with revenue and profits blowing past analyst predictions. Yet, the stock is down from its IPO price of $144.71, with shares trading at nearly $116 per share. The Expedia Group, Hilton Worldwide Holdings, and Marriott International have all experienced dramatic improvements in financial results without a corresponding improvement in share prices. However, shares of Booking Holdings are up, as investors bet that the company is uniquely positioned to do well and grow market share even with the prospect of inflation and economic turbulence.
Investors Are Worried About the Future
Despite the bounce that travel stocks have enjoyed, investors remain skeptical about the strength of the post-pandemic recovery. As fears of inflation mount, investors worry that demand will soften.