European Vacation is a 1985 comedy starring Chevy Chase. It features an American family called the Griswolds that have won an all-expense-paid trip to Europe.
The Griswolds are middle-class and well-heeled. They have Reebok sunglasses and video camcorders. In the pre-iPhone era, video camcorders were expensive luxuries.
The Griswolds are involved in episodes that expose the differences between America and Europe. Mr Griswold (played by Chevy Chase) drives on the wrong side of the road.
The strength of the US dollar in those days meant that the Griswolds stood out. It was not just because of their clothes and accent. The family had goods that were scarce in Europe.
The US dollar was at a peak versus Europe’s currencies. The wealth of the Americans contrasted with Europe’s austerity. In Paris, the Griswolds hand over their video camera to a passer-by as they pose for a photo. The Frenchman runs off with the video camera instead of filming. In Rome, the family rents a car. They later learn that the car was stolen property.
Travellers in Singapore may take inspiration from the film. In 1985, the US dollar was at a high against the pound sterling, French franc and Deutsche mark. The Singapore dollar is now at an all-time high against the euro.
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At $1.42 to the euro, the Singdollar is 58% higher than in 2004. Singapore was then ravaged by the Sars crisis. A Big Mac in 2004 in Paris cost US$3.29 ($5.57), which was 71% higher than a Big Mac in Singapore. Today, it is $4.50, which is roughly the same as the cost in Singapore.
The collapse of the euro is perfectly timed. European tourism is in full swing this summer. Despite the sweltering heat, travellers are thronging the airports and resorts of Europe.
The lines to visit the Roman Colosseum are packed with tourists boiling in the sun. The Greek island of Samos has run out of wine. The throngs of travellers have depleted its coffers.
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Investors in Singapore can enjoy the European sites without a trip to Changi. The best deal may be in the stock market. If you can afford $3,000 for a trip to Italy, it is better to put it in European travel stocks.
Tourist arrivals in Europe dropped 70% in 2020. This summer could see the first recovery since the pandemic.
One stock that stands as a proxy for the European tourist recovery is Fraport, which is listed in Germany. Fraport operates Frankfurt Airport, Europe’s busiest. It also operates in 31 airports which are mostly in Europe. It has investments in top hotels.
More than half of the revenue is from Frankfurt Airport. It serves as the hub of Central Europe. Over 100 airlines use Frankfurt as their centre. In pre-pandemic FY2019, 71 million passengers used the airport. The numbers dropped by 67% in FY2020. Traffic in 1Q22 was still 50% below the level three years ago.
The market is expecting passenger numbers to recover to FY2019 level by 2024. The stock is trading at almost half its January 2020 level. If it replicates its FY2019 net earnings, it is at just 9x. This is 30% below its historic average.
Other European vacation plays include Norwegian Cruise Line. Its revenue was obliterated by Covid. The virus spread like wildfire in the confines of a cruise ship. With mass vaccination, there is pent-up demand for cruises. The stock is 78% below its January 2020 level.
Hotel stocks such as Hilton Hotels Corp and InterContinental Hotels Group were also battered by Covid. They are worth checking in to. Hilton’s revenue per available room in the last quarter was almost 2019 levels. Ryan Air, Europe’s leading lowcost carrier, may take off.
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Ryan Air is an Irish airline that serves Europe. It has lost 2 billion euros (about 40% of its NAV) since Covid. It in the throes of a serious bounceback. Its bookings in March were equal to pre-Covid levels. Analysts are bracing for a blowout summer. The stock is still a third below its January 2020 level.
The sequel to European Vacation may feature a Singaporean family. Like the Griswolds, that family may face petty theft in a region with a bombed-out currency. It is better to bet on European travel stocks.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column
