The ASX travel share industry has been through a very difficult 12 months. Could it be time to look at some of the travel stocks?
COVID-19 is still making it a very difficult industry for many of them to make a profit, or even generate much revenue.
Reporting season has now finished and investors can pick through the pieces of the sector.
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Qantas Airways Limited (ASX: QAN)
The airline is keen for domestic borders and flights to get back to normal as soon as possible. It's still at less than 10% activity of its international flying, although the freight division is seeing a very strong level of demand at the moment.
Qantas said that the domestic airlines are generating positive underlying cash flow. It made underlying operating cashflow of $1.05 billion for the period.
Management are working on lowering costs. In the half-year result it said that the interim target of $600 million in permanent savings for FY21 is on track. It's looking to save at least $1 billion in permanent annual savings from FY23 onwards. At least 8,500 people will be leaving, with 5,000 having already gone, with the rest leaving by the end of FY21.
Right now a total of 14,500 full time equivalent roles are now stood up while around 11,000 full time equivalent roles remain stood down, most of which are associated with international flying.
The ASX travel share said its recovery has been delayed by three months due to border closures, but it thinks international travel could restart by November.
The company continues to receive assistance from the federal government which has helped many employees in the form of jobkeeper. Qantas also said that there has also been support for regional and domestic passenger flights and for some international flight routes, that would not otherwise have been commercially viable, helped to keep key transport links active.
Qantas is also expecting domestic capacity to increase to 60% in the third quarter of FY21 and 80% in the fourth quarter of FY21.
The airline is focused on getting the business back to positive net free cashflow (excluding one-offs). Net debt is expected to peak in the second half of FY21, with balance sheet repair to begin in the fourth quarter of FY21.
UBS rates Qantas as a buy and has a share price target of $6.20. However, Credit Suisse has a share price target of $4.15.
Webjet Limited (ASX: WEB)
In the FY21 half-year result, Webjet said that its online travel agency has returned to profitability as domestic borders started to reopen, driven by its market position in the domestic leisure market, as well as benefiting from its variable cost base.
HY21 total transaction volume (TTV) was down 89% to $267 million. Revenue declined 90% to $22.6 million, whilst expenses dropped 52% to $62.7 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 146% to $40.1 million.
Webjet said that WebBeds is focused on transforming its business so that it can emerge as the number one global business to business (B2B) player in the world. Management said that initiatives are on track to deliver at least 20% greater cost efficiencies when at scale.
Webjet is not at a point where it's cashflow positive yet. Webjet has managed to get the monthly cash burn down to $4.8 million. It had a cash balance of $283 million. Management said that its cash position allows it to withstand a protracted market recovery should it extend into 2022. The bank waivers have been extended through to 31 March 2022.
Morgan Stanley has a share price target of $4.50 for Webjet, whilst Ord Minnett has a share price target of $5.85.
