Macro Intelligence: Australians return to the skies, overseas departures surge

Article by Juliette Saly (ausbiz)

In this week’s edition of IG Macro Intelligence, we take a look at the recovery of the tourism sector and where to capitalise on market opportunities.

Departure gate - Aussies take flight

Data from the ABS shows Australians have returned to the skies, with overseas departures clawing back toward pre-pandemic highs. In September 2023, more than 1.5 million people departed Australia, an annual increase of 548,950.

The bureau also reported 939,060 short-term resident returns in the month; that is, Australians returning after a short trip overseas. That’s an increase of 48.2% on the prior year’s numbers, and is only 54,000 fewer returns than in September 2019, showing Australians are returning to the skies after the pandemic despite higher airfares.

Overseas arrivals and departures September 2013 - October 2023

Say G’Day: international visitors on the rise

Australia welcomed close to 585,000 short-term overseas visitors in September, more than 200,000 from a year ago. That’s an increase of more than 57% from September 2022, thanks in part to the return of Chinese tourists.

Most people who came to say G’Day hailed from New Zealand, which accounted for 22% of total visitor arrivals. China and the United States rounded out the top two and three nations of visitors.

However, the number of overseas arrivals into Australia is still down on pre-covid levels as we welcomed almost 16% fewer visitors than we did in September 2019.

Overseas short-term visitor arrivals September 2013 - September 2023

Stocks to watch

• Qantas

Shares in travel-related companies were among the hardest hit by the pandemic.

Qantas was trading above $7 per share at the beginning of 2020, before losing half its value when borders were closed in March. It’s a company many analysts are excited about as travel returns towards pre-pandemic levels.

Morgan Stanley has an overweight rating on the stock with a price target of $9, suggesting a more than 68% upside from current levels, and surpassing pre-COVID highs.

Stocks Down Under also favors the airline, citing its broad exposure to the travel sector. SDU argues Qantas’s Loyalty Division - which contains its Frequent Flyer program - kept the airline afloat during the pandemic as it engaged customers through the earning and burning of points from activities outside of flying, such as online shopping.

Stocks Down Under also likes Qantas’s current valuations and says it has the added advantage of market share, dominating 70% of the domestic travel market.

Craig James, CommSec Chief Economist, recently told ausbiz it will take time for customer loyalty to return to Qantas after a string of bad news, but maintained the stock and company will recover. Martin Crabb from Shaw and Partners also likes Qantas. And in the small caps space, he favors Hello World.

Qantas weekly chart

• Helloworld

Helloworld is trading at about half its pre-Covid levels and Martin Crabb from Shaw and Partners told ausbiz revenge travel could see demand return to pre-Covid levels, with a further upside of 30% in travel volumes likely.

“Helloworld is really attractive to us,” he told me on air recently. Online travel agent Webjet also has a raft of positive broker recommendations. It’s down around 23% over the last five years but most analysts see a further 30% upside.

Hello World weekly chart

• Siteminder

Shaw and Partners also likes Siteminder, a hotel booking software firm which went public after the pandemic in 2021.

Shaw and Partners has a BUY rating on the stock with a price target of $5.68. Of the 5 brokerages who cover Flight Centre, four have a buy / outperform or add recommendation. UBS is neutral on the stock with a $23.45 price target. There are no reduce or sell ratings on the stock.

Siteminder chart

Global industry body IATA maintains a complete return to pre-pandemic travel won’t occur until next year, but after that, it could average annual return growth of 3% per annum. Currently, total passenger traffic is at 95.7% of pre-COVID levels, driven by the North American market.

But there are still headwinds ahead. Rising inflation, the Middle East conflict, supply chain issues, and increasing fuel costs could all cloud the outlook for the travel industry.