The pandemic put the brakes on international travel in early 2020. But now, global travel is on a solid rebound, despite the intermittent resurgence of Covid-19 variants.
According to the United Nations World Tourism Organization (UNWTO), international tourist arrivals worldwide during the first five months of this year recovered to almost half of pre-pandemic 2019 levels, led by solid recoveries in Europe and the Americas, which returned to 60% of 2019 levels.
This recovery is a much-needed respite for the aviation and hospitality industries. A recent report on post-Covid-19 hotels in the Asia Pacific (APAC) region by investment firm DWS found that the recovery in air passenger traffic is underway.
However, the APAC region lags significantly behind the US and Europe primarily due to ongoing China’s strict border controls due to its zero-Covid policy, which continues to keep its borders largely closed, limiting outbound tourism at least until early 2023, say real estate and property researchers Koichiro Obu and Hyunwoo Kim.
In the longer term, they believe the prospects for outbound travellers from China and emerging Asian markets are “generally promising”. “Though the full recovery to 2019 levels is only expected by 2026, it represents a robust increase in outbound travel demand to neighbouring destinations like Japan, South Korea, Singapore and Australia.”
Hilton Asia Pacific President Alan Watts believes the APAC region presents “immense opportunities” for growth, with a growing consumer class and rising spending power located near some of the world’s largest lodging markets. “With hotel investments staging a comeback and operating performance approaching pre-pandemic levels, owners are now looking for the best partners to tap this growth in a post-pandemic era.”
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He adds that Hilton has “huge ambitions” to capture the opportunities in APAC as travel recovers, with a target to exceed 1,000 trading hotels by 2025.
At home, Singapore is anticipating a similar recovery to the tourism sector. With the year drawing to a close, the Singapore Tourism Board (STB) expects up to six million visitor arrivals for 2022. In end-August, Singapore reported about three million international visitor arrivals year-to-date.
Visitor arrivals in August grew for the seventh month, setting a record from the pandemic’s start. Singapore saw 728,744 tourist arrivals for the month, higher than the 726,602 visitors in July. However, this figure is still far from the 1.7 million visitors recorded in August 2019, half a year before Covid-19 struck. STB says that tourism here will still take some time to return to its pre-pandemic heyday and expects a complete statistical recovery only in the mid-2020s.
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Chua Minghan, dealing manager at PhillipCapital, says that although pre-Covid-19 levels of tourism have yet to be re-attained, he believes the recovery is on the horizon. “We have yet to reach pre-Covid levels, but we can expect some recovery. Tourism is improving, and we are all aware of that.”
“The recovery will take some time, and this is when our opportunity [to invest] comes in,” Chua adds during a webinar on Oct 20 hosted by PhillipCapital titled Opportunities and Risks in Singapore’s Tourism Industry that You Need to Know. Chua’s stock picks for the travel-related sector include SIA Engineering and Genting Singapore. For the former, Chua has noticed a strong recovery in the number of planes handled by the group in the last quarter, reaching about 55% of its pre-pandemic reporting, meaning there is more room for growth.
Additionally, the group is buying back shares, which Chua believes shows SIA Engineering’s confidence in its prospects. However, some risks include the current staffing shortage, macroeconomic risks, including inflation and higher interest rates, and potential recession and supply chain disruptions from the Russia and Ukraine conflict.
There are other signs that the industry is on the rebound. On Oct 25, national carrier Singapore Airlines announced plans to redeem $3.5 billion worth of mandatory convertible bonds. DBS was expecting this tranche of bonds to be redeemed only next year. The bonds were issued as part of a massive fundraising exercise in 2020. This “suggests that the management team is optimistic on SIA’s outlook,” says DBS in its Oct 26 report, where it kept its “buy” call and $6.60 target price.
Meanwhile, Chua has noticed earnings recovery in recent quarters for Genting Singapore, which runs the Resorts World Sentosa integrated resort (IR) here. He says the company has also guided that its tourism business is expanding, but Chua notes that this expansion and recovery to pre-pandemic levels could take some time.
On Oct 20, Marina Bay Sands reported an adjusted ebitda of US$343 million ($484 million) for the quarter that ended Sept 30, up 22 times over the US$15 million recorded for the same period last year. Revenue for the period was up from US$249 million to US$756 million.
RHB Group Research analyst Shekhar Jaiswal says the services sector should continue to benefit from reopening borders and easing domestic restrictions, prompting a speedier recovery in the hospitality, F&B, aviation and tourism-related services industries like retail and hospitality REITs. For the latter, Jaiswal says hospitality REITs have retreated since September amid increasing recession fears. “While the near-term outlook remains positive, concerns are mounting over the medium term from a sharp economic slowdown and the sustainability of pent-up demand. Valuations, however, are now at more reasonable levels, but a dimming macroeconomic outlook limits any upside.”
Jaiswal believes some hospitality demand may slow down post the initial surge from the lockdown with increasing inflationary pressures and recessionary risks. “As such, hospitality stocks are likely to be more range-bound in the near term, with risks tilted towards the downside.”
His preferred pick is CDL Hospitality Trusts, which owns 19 properties with more than 4,800 rooms across eight countries. Jaiswal expects City Developments (CDL), which runs 155 hotels worldwide, to see earnings recovery this year with a rebound in the hospitality segment and healthy locked-in sales of its residential projects.
