Energy shares such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) are flying higher today after oil prices rose strongly during overnight trade.
Unfortunately, the same cannot be said for many of Australia's leading travel shares. At the time of writing the travel industry is acting as a major drag on the market.
Here is the state of play in late morning trade:
- The Air New Zealand Limited (ASX: AIZ) share price is down 0.7% to $2.83.
- The Corporate Travel Management Ltd (ASX: CTD) share price has dropped 1.1% to $30.04.
- The Flight Centre Travel Group Ltd (ASX: FLT) share price down 2.5% to $53.00.
- The Qantas Airways Limited (ASX: QAN) share price has fallen 1.5% to $5.86.
- The Webjet Limited (ASX: WEB) share price is lower by 4.5% to $15.80.
Why are travel shares sinking lower?
Overnight oil prices stormed higher after Saudi Arabia and Russia ruled out an increase in production in the near term.
This sent the Brent crude oil price above the US$80 a barrel mark for the first time in four years and has some experts tipping even more gains in the months ahead.
In fact, according to Bloomberg, many major oil traders are predicting a Brent crude oil price above US$100 a barrel in the near future due to OPEC and its allies struggling to fill the gap caused by U.S. sanctions on Iran's oil exports.
If oil prices do continue to rise then it is likely to lead to higher fuel costs for airlines. After which, the likes of Qantas and Air New Zealand will almost certainly look to pass on these costs to the consumer through higher ticket prices.
While higher ticket prices would ordinarily be a positive for travel agents like Flight Centre and Webjet, I suspect the market is concerned that a combination of falling house prices, weak consumer confidence, and higher ticket prices could result in a sizeable drop in travel demand.
Should you buy the dip?
While I'm confident that travel demand will remain strong even if ticket prices do rise notably higher, if there is a reduction in sales volume I believe the higher ticket prices will more than offset this.
As a result, I wouldn't let rising oil prices put you off the travel industry and would suggest you consider looking at buying Webjet's shares on this latest share price weakness.
