ASX tourism shares on watch as government flags easing of coronavirus restrictions

ASX tourism shares Flight Centre Travel Group Limited (ASX: FLT) and Webjet Limited (ASX: WEB) both rebounded strongly after the Federal Government announced social restrictions would soon be easing. But is it still too early to think about a sector-wide recovery?

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The share prices of a number of ASX companies that were hit hardest by the coronavirus lockdown leapt higher on Friday afternoon after the Federal Government laid out its plans for the gradual easing of social restrictions. Travel agent Flight Centre Travel Group Limited (ASX: FLT) jumped over 8% to $10.76, while online flight comparison website Webjet Limited (ASX: WEB) ended the day up 9% at $2.93. 

Friday's performance is little consolation to long-term shareholders, with both ASX tourism shares still well short of their pre-coronavirus highs. Flight Centre had begun the year hovering around $40 a share and is still down close to 75% year-to-date. Webjet has seen a similar percentage decline in its share price so far in 2020, after it opened the year trading at roughly $10, although it has rocketed out of the gates this morning and is currently up another 11.95% on Friday's close.

However, the short-term rise does show that in investors are seeing glimmers of hope for both companies in the Australian Government's "3 Step Framework for a COVIDSafe Australia". While the future for global travel is still uncertain, the government has laid out a roadmap towards states reopening their borders for domestic recreational travel in the coming months. There are even whispers of a trans-Tasman bubble for some international travel between Australia and New Zealand by summer.

These are the first positive signs for a tourism industry which has been effectively destroyed by the coronavirus pandemic. Apart from some repatriation services, just about all international flights have been grounded as countries lock down their borders to halt the spread of the virus. Domestic tourism has all but ceased too, with states similarly closing their borders to outsiders and most people urged to stay indoors. An entire school holiday period has come and gone with most families confined to their houses.

Should you invest in ASX tourism shares?

Despite their recent gains, the share prices of both Webjet and Flight Centre are trading at historic lows. But the 2 companies are now operating in an economic environment which is fundamentally – and potentially even permanently – changed by the coronavirus. And while these most recent announcements by the government could lay the foundations for a slow path back to profitability for the failing tourism industry, business-as-usual is still a long way off.

Unfortunately for Webjet, it has invested heavily in expanded its international operations. In its first half FY20 results, Webjet reported a 43% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to $86.3 million. But over 60% of group EBITDA was contributed by its WebBeds business, which provides international accommodation booking services. Domestic bookings were actually flat for the half.

It could easily be argued that in a new "COVIDSafe" economy where people are only able to travel domestically – or at best, to New Zealand – local travel bookings will increase. But whether they can increase to such a degree that they can offset the enormous losses in higher margin international bookings is very doubtful.

The steps back towards some degree of normality flagged by the Federal Government are a welcome sign for an economy crippled by coronavirus. But with so much uncertainty still on the horizon, it might be just too risky to think about investing in the tourism sector right now.

However, it's also true that at these bargain-basement prices both companies offer significant upside potential for early movers. So, it will still definitely be worth watching Webjet and Flight Centre over the coming months as social restrictions ease to get a sense of what consumer behaviour will be like in our new "Covidsafe" economy.

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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