Troubled tourism, but is Brexit really so terrible?

Shares in Thomas Cook and TUI have been impersonating a plane at the end of a journey, they have been coming down. But will the sun shine on tourists?

Article updated: 1 February 2019 11:00am Author: Michael Baxter

A new swear word has entered the world of polite journalism. I warn you, I am about to say it, but imagine me first filling up the swear box. It is B*****, or Brexit. Of course, when the word was first used it was more of an affront to the sensitive ears of fans of grammar, the anti acronym brigade. Now the word can at once sow deep division between two individuals, while simultaneously making us want to groan and scream, ‘no, not that word again.’

But how is this bleeding B***** affecting tourism.

I guess it could affect it in three ways:

  • In the event of a no deal Brexit, in which there is no arrangement for air-traffic flow between the UK and EU, planes might be as grounded as a car on the M25 on its way to Heathrow.
  • Queues through customs, as we have to join the non-EU passport holders queue. Linked to that a potential requirement for a visa. At it’s most extreme, this may lead to people who have booked holidays finding they can’t get a visa in time.
  • Any hit on the wider economy, affecting household’s disposable income.

Fear mongering

This all begs the question, is it all fear mongering? The answer to that is that no one knows. But if the ‘Leave means Leave’ brigade get their way, at least some of those dangers listed above may pan out.

Used to it

But let’s face it, tourists are used to it. We are used to travel related hassles, whether it is French air-traffic controllers on strike, strikes at Ryanair, flights being cancelled because of bad weather, flights being cancelled because of drones or a cyberattack. Not that the last one has happened yet, but I assure you, it will.

Storms that blow perfection

The travel industry has had enough problems as it is.

Indeed those perfect storms have been blowing their way for years — last year it was the baking hot summer, while fears over terrorism won’t go away.

Then there is online

The problem faced by the likes of Thomas Cook and TUI, is not dissimilar to the problems faced by banks and retailers. Barriers to entry are not what they used to be. When the high street ruled, to be competitive in any kind of retail environment you needed a high street presence with all the overheads that come with it.

Now you just need a cool website — maybe that is an exaggeration, but I am sure you get my point.

Shares

And shares have seen an awful performance. Thomas Cook has fallen by 75 per cent since May last year, and by over 80 per cent over the last five years. Meanwhile, there seems to be one aspect to the company which has taken off — and that is its borrowing. Last year, net debt rose from £40 million to £389 million.

The only good news I can see regarding the share price is that it is still a lot higher than in 2012, when the company nearly went bust. Thomas Cook seems to jump from one crisis to another, like an unlucky tourist, staying in a rubbish hotel, in the midst of a the worst weather seen in years, who loses his/her passport one day, credit card the next, and then gets a nasty mosquito bite, while suffering from a dodgy tummy.

By contrast, TUI is a picture of health. Shares are merely down by about 30 per cent in the last year. Furthermore, shares hit a five year high in 2018, so that 30 per cent fall was from a good level. Then again, shares are still less than a half of the level in the late 1990s.

It is clear, online has been a disaster for the traditional travel companies.

The airlines have not done so well either. easyJet is down by around 30 per cent since last summer and around a third off the all-time high seen in the heady days of 2015.

Ryanair has seen a similarly bad performance. Its share price peaked quite recently, in 2017, but is down by about 40 per cent since then.

I travelled by Ryanair for the first time in my life a few months ago. Was surprised by how un-painful the experience was. I expected to discover I had an outside seat, or for Michael O’Leary to be screaming expletives at me during the flight, whereas in fact it was just like any other flight, the cabin crew were actually very polite.

But can the tourism industry provide investors with a polite piece of good news?

All I would say is that shares are now so low, sentiment so negative, that sooner or later there will be bargains.

Are there any bargains now? Well, maybe there are potential bargains, but they come with high risk, I am yet to hear a compelling reason to think the blood letting is over.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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