UK travel stocks have suffered quite a bit over the last year. With the impact of travel restrictions from the pandemic hitting hard, profits have tumbled.
Flights have been grounded, hotels have had their capacities significantly reduced and most of us have been confined to our homes for large parts of the last year.
As such travel stocks have seen their share prices decline for the most part. Despite that, the TUI (LSE:TUI) share price performance is pretty much flat over the last 12 months. The shares have been quite volatile during that time however.
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The TUI share price has been closely aligned with the news of lockdowns and travel restrictions in the last few months. Last week for example, the company’s stock jumped after PM Boris Johnson announced a tentative plan for reopening the country. The shares are trading 24% higher than they were a week ago.
So where do I think the TUI share price is headed over the short and long term?
Disappearing profits
As with many other FTSE 250 companies, profits at the travel operator have severely declined over the last year. This has significantly impacted TUI’s bottom line.
Group revenue fell by 58% when the company reported its annual results in December. TUI reported an annual loss of more than £3bn as a result of Covid-19 restrictions.
City analysts are projecting that TUI will not return to profit until at least 2022. Even that forecast is based on the company returning to favourable trading conditions this year, which isn’t guaranteed.
But despite that catastrophic performance in 2020, I’m still cautiously optimistic about the TUI share price in both the short and long term.
As the UK’s impressive vaccination programme edges towards having 40% of the population provided with their first jab, I think we’ll start to emerge from the pandemic and away from lockdowns over the next few months.
But mainland Europe has been slower in its rollout of Covid vaccines. That may still weigh on TUI shares in the short-term. However, holiday bookings in the UK have surged in recent days following the PM’s announcement.
Summer travel still possible
TUI CEO Fritz Joussen has insisted travel to Europe “will be possible” this summer, as government leaders debate the issue of vaccination certification. PM Johnson has said the UK government is reviewing the idea, having previously dismissed it.
I think the idea of ‘vaccine passports’ will be absolutely crucial to the performance of UK travel stocks, particularly TUI, due to its reliance on European travel destinations. I’m confident governments have the will reach an agreement on this as to stall or deny travel for longer than necessary would be hugely detrimental to certain EU economies.
With that all said, further setbacks to the vaccine rollout could be very damaging to the TUI share price. Any further mutations of the virus that could evade the vaccines we have available. This would also put a major dent in 2021 travel plans.
Given the current situation however and the current optimism around the vaccine rollout and easing of restrictions, I would buy TUI shares today.
