JOHN’S JOURNAL: A share of your holiday
John Burke looks at investing in travel.
St Peter Port, Guernsey © JOHN BURKE
They like to call it the hospitality industry or the leisure sector, but the people who run hotels or manage transport by land, sea and air are not just there to provide happy holidays. Travel is big business, so much so that global travel bodies claim that it is the world’s No 1 industry worth an annual ten trillion dollars (which would mean £7,960,800,000,000), contributing one-tenth of mankind’s output.
Every time you spend £500 on a long-haul flight or double that for a holiday across the seas, you do more than pay the wages of everyone from reps, chefs and guides to waiters, drivers and captains. You are also making a profit for owners and other investors in what are mainly multinational companies. Is there any way you can cash in on this out of your savings, so that the enormous travel industry actually subsidises your trip to the sun?
In principle, there is a limited opportunity in buying the shares of touristic and transport companies, either for their perks or their dividends or both. For example, DFDS allows 10% off fares between Newcastle and Amsterdam for only ten shares, while a thousand shares in Irish Continental will take 20% off the cost of sailing from Pembroke and Hollyhead or half that on its routes from Rosslare to France.
The same number of shares in Euro Disney qualifies for various discounts at its theme park outside Paris, but offers elsewhere are largely confined to England. A
single Adnam share provides 15% off stays at its hotels in East Anglia, but a 10% discount at Fuller’s thirty hotels requires 500, and the same for 20% in one of the 950 rooms at Marston’s Inns. Shepherd Neame’s 15 hotels, mainly in Kent, allow various discounts based on 100 shares.
There is always a dealing charge, but it is less than £12 on line at Hargreaves Lansdown. Nonetheless, this stockbroker cautions, “You should not buy a share purely for the perk, but it can make owning the share more desirable”. Therefore, unless you are a habitual guest or passenger of one of the above, the strategy would be to pick stocks in the travel industry purely on their comparative prospects.
Intercontinental in Estoril © JOHN BURKE
A score of companies in travel and leisure are quoted on the London stock exchange alone, ranging from Whitbread to Intercontinental Hotels both of whose shares currently stand above £40. Airlines include Whizz (“solid growth”) … Flybe (takeover target) …Ryanair and easyJet (both way down from their peaks) … IAG (onetime British Airways).
Airlines’ shares invariably face turbulance, while tour operators all tend to be volatile. For a start, they are they at the mercy of a fickle public which changes its habits and destinations, according to fashion – and fear. They are also at risk from natural disasters and political risks, including terrorism, as well as from economic trends, especially the oil-price.
Ryanair © JOHN BURKE
Saga has so slumped over the past three years that the yield is 8¾%, which means that buying £1,000 of shares might produce a dividend worth £87. Another example is Thomas Cook whose shares plunged to 16p in 2011, and after rebounding to 180p, lost 82% of that value, thanks latterly to a heatwave at home. Tui too has had its ups and downs, but if you had bought the shares at 1,100p five years ago, you could have sold at1,816p last March before they came back to their previous level.
National Express provides another roller-coaster ride, falling from 426p to 369p over the past year, but stockbrokers see an uptrend, with the next annual dividend above 13.94 pence. By my calculation, laying out £500 on 130 shares would cover the cost of an overnight ticket from London to Edinburgh.
Realistically, you would need to spread at least £20,000 among as many as five shares in order to reckon on a useful total of dividends and/or capital gains at the same time as hedging your bets. On the stockmarket, the best way to spread risks is by buying into an investment trust, a quoted company that is simply a platform for shares in anything from 40 to 400 other companies at home and abroad. Several of them, both general and geographical, may well hold travel and transport stocks, but they all balance their portfolios among various sectors such as insurance, utilities and manufacturing.
Bankers Trust’s holdings include Priceline/Bookings, Japan Air Lines and American Express as well as Union Pacific. This last stock is also held by Mid Wynd whose manager told me recently why he also favours airports as far apart as Paris, Sydney, Tokyo and Bangkok. Yet travel/transport forms only 12% of Mid Wynd’s assets, and other trusts have an even smaller exposure.
Royal Thai © JOHN BURKE
The only ones that really specialise are a handful in venture capital, which is highly speculative. Two examples, both based in Guernsey, are DP Aircraft One, that leases Boeing 787-8s to Thai Airways and Norwegian Air Shuttle, while Doric Nimrod Air Two leases seven Airbuses to Emirates. But even travel itself involves risks!