Investors going nowhere but these travel stocks may go somewhere

Travellers may continue their journey on non-designated ATB flights but must be subject to the prevailing border control and health requirements of both places. Singapore residents returning from Hong Kong will be subject to a seven-day Stay-Home Notice upon entry into Singapore.

“Singapore and Hong Kong will closely monitor the public health situation in both places and review the new launch date of the ATB flights towards the end of Phase 2 (Heightened Alert) in Singapore,” says Singapore’s Ministry of Transport.

Indeed, the travel and tourism industry is at the mercy of the Covid-19 pandemic with international travel being the hardest hit, having been halted for over a year. Even as populations are being progressively inoculated worldwide, international travel will never be the same again.

Staying afloat

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No one knows for sure when international travelling will be open and safe again. Market watchers and analysts can only predict so much but with several different new strains of the Covid-19 virus and countries frequently catching new waves of the infection, the outlook is bleak.

According to Expedia’s 2020 Vacation Deprivation Study, 44% of Singaporeans are waiting to be vaccinated before making travel plans and with so much uncertainty at the moment, 33% of Singaporeans will only book a fully refundable trip.

Across various markets, growing the domestic tourism pie will be how the industry can stay alive. However, local hospitality and tourism operators must get creative as they are wooing jaded locals, not clueless tourists.

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Shiv Singh, senior vice-president and general manager of Expedia, tells The Edge Singapore, “We have observed a growing demand for new and interesting experiences. Whether it is a staycation in the countryside, within an animal sanctuary or a yacht, unconventional travel options have risen in popularity.”

“In addition, we have also seen positive take-up of staycation packages, with domestic travellers looking for a more complete experience at the hotels they stay at. Local hotels responded quickly to this demand by pushing out staycation deals bundled with breakfast, activities, F&B credits, or special experiences such as mobile cocktail bars or family picnic baskets,” adds Singh.

Staycations are now growing more popular as locals strive to get a piece of the “travel experience” in their home country, which, in this case, would be staying in a hotel. According to data from travel platform Traveloka, 55% of people are now more likely to go on a staycation than they did before the pandemic.

They are willing to spend too with half booking five-star hotels and 37% booking four-star hotels. According to Pascal Gekko, Traveloka’s head of international accommodation, outdoor activities are getting more popular too, with 41% of customers preferring activities such as visiting the zoo or gardens while 25% of customers enjoy outdoor theme parks.

“Looking at the current trends, tapping into staycation trends could be one of the ways to address the customers’ needs while at the same time providing innovative offers that are relevant with the current situation … We believe that collaboration and joint effort among businesses/stakeholders for new programmes, products, and offerings will not only increase the customers’ demands but also invigorate the tourism industry amid the pandemic,” adds Gekko.

William Francois, a lecturer at Ecole hôtelière de Lausanne (EHL), tells that businesses have to be more attuned with how they woo customers. Specifically, they have to be more “visual” when showcasing their offerings and engage with potential visitors in social media. “A digital-first approach is now necessary to showcase offerings within the new normal,” he says.

Francois also realises there has been a shift in consumer desires and demands like health and safety, sustainability, wellness as well as connectivity. “These levers will change the way consumers approach certain trips, and in particular business trips that are made over a longer time, when digital technology alone will no longer be sufficient,” he adds.

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According to Francois, “Resilience has become the buzzword of the Covid-19 pandemic and it will remain important when travel returns. The ability to be nimble — adapting quickly to challenges and changes — will be integral to stay ahead of the curve.”

“Throughout Singapore’s circuit breaker, consumers continued to order in from their favourite haunts. Singapore’s ‘Support Local’ scheme made waves in the community and it has continued to excel since entering phase three, with new establishments opening throughout the city showing the importance of the hospitality industry,” says Francois.

Travel picks

Already, the Singapore government has extended the Job Support Scheme (JSS) until September for Tier-1 sectors such as aviation, aerospace and tourism. This should benefit companies such as Singapore Airlines (SIA), SATS, SIA Engineering, Genting Singapore and ST Engineering. Under the extension, firms in Tier1 sectors will receive 30% of support for wages from April to June and another 10% from July to September. Although this should prevent the companies from going bust, if borders do not open up by the time the JSS ends, they could still be in trouble.

For now, several analysts recommend buying the dips as they get a boost from domestic visitors. One of them is Genting Singapore, which CGS-CIMB Research, OCBC Investment Research and UOB Kay Hian have a “buy” with target prices of $1.00, 96 cents and $1.08 respectively.

Genting Singapore’s Resort World Sentosa (RWS) is currently focusing on reinventing its integrated resort offerings. Facility redesigns under the $4.5 billion proposed mega expansion plan (RWS 2.0) are ongoing, including relevant health and safety protocols. TOP for the remodelled Resorts World Theatre for a new experiential dining attraction has also been obtained. RWS will soon embark on show production and performer recruitment for the attraction. According to CGS-CIMB’s Cezzane See, this move could help support revenue.

OCBC analyst Chu Peng believes that Genting Singapore is a beneficiary of the global rollout of vaccines. While the government’s latest move to tighten social distancing measures may weigh on the group’s recovery trajectory, she believes the recovery in international travel demand in 2H2021 remains intact and expects a sequential recovery in the company’s performance.

Despite an unexciting 1QFY2021 ended March that saw Genting Singapore report a 26% y-o-y drop in net profit, UOB Kay Hian’s Vincent Khoo believes the market will eventually price in meaningful recoveries for the sector in 2022. “The tourism sector is a major direct beneficiary of the Covid-19 vaccine dispensation and re-opening of the economy. With hopes riding high on the WHO-endorsed Covid-19 vaccines with the efficacy extending to the recent virus mutations, and on the global dispensation of the vaccines in 2021, valuations will partially factor in the gaming sector’s return to pre-pandemic earnings dynamics,” says Khoo.

“While the containment of Covid-19 in Singapore is relatively more successful than other countries, the wide dispensation of vaccines is crucial for authorities to initiate more travel arrangements and meaningful border relaxations,” adds Khoo, who remains cautious about the outlook for 2QFY2021 as infections are resurging in the community.

Whatever the situation, analysts say investors should widen their perspective beyond the domestic names. For instance, China’s economy is bouncing back up as the pandemic remains under control and there is little fear of a resurgence of the virus. Domestic travelling has opened up and RHB Group Research believes China Aviation Oil (CAO) stands to benefit from the demand in local tourism.

Analyst Shekhar Jaiswal has a “buy” recommendation on CAO with a target price of $1.30 because, since early March, domestic flights in China have surpassed levels in both 2020 and 2019.

While potential sporadic outbreaks of Covid-19 cases could cause fluctuations in aviation travel demand, Jaiswal says he remains “optimistic on a sustained air traffic recovery in China for the rest of 2021” which could drive a 20% rebound in jet fuel supply and trading volumes in 2021.

RHB is also optimistic about Straco Corp, the developer, operator and investor in tourist attractions and activities. Besides Singapore Flyer, most of its attractions are in China: the Shanghai Ocean Aquarium, Underwater World Xiamen, Lintong Lixing Cable Car and Chao Yuan Ge, a restoration site holding a historical monument.

Perversely, the limitation on international travel is benefitting Straco, whose attractions largely cater to local visitors. “People in China may just want to travel more within the country since there are fewer restrictions compared to going overseas,” says Jarick Seet, who heads the small and mid-cap research division for RHB. While capacity caps are in place, Seet believes that the assets in China will have a stronger contribution to Straco’s performance this year.