The share prices of travel and leisure firms easyJet (LON: EZJ) and Whitbread (LON: WTB) have declined by 40% and 19%, respectively, since the start of the year.
Understandably, investors have become increasingly concerned about their future prospects in an era of heightened economic uncertainty that could prompt lower demand for their services.
While further short-term share price pain cannot be ruled out, their financial positions and growth strategies suggest they offer long-term investment potential at the present time.
easyJet
easyJet’s shares have been negatively impacted by ongoing operational challenges within the airline sector. However, the firm’s latest quarterly update showed that it carried seven times more passengers than in the same period of the previous year. It also operated 95% of its planned schedule and continued to experience rising demand for future services. Indeed, it expects capacity in the final quarter of the year to rise to 90% of 2019 levels.
Clearly, the path to a return to pre-Covid capacity is unlikely to be smooth. But it seems likely that the airline industry will fully recover from the pandemic. And while an economic downturn could lead to softer demand for holidays in the short run, it could equally be argued that annual or bi-annual holidays are akin to a staple, rather than discretionary, item. This could mean easyJet is less affected by the cost-of-living crisis than is currently being anticipated by investors.
With access to £4.4bn of liquidity as at the end of March, the firm appears to have the financial means to continue to overcome short-term challenges. Following its share price fall, it could offer long-term recovery potential as the airline industry gradually returns to pre-pandemic performance. In the meantime, though, further share price volatility seems highly likely.
Whitbread
Whitbread’s shares continue to trade around 38% down on their pre-pandemic level. However, the firm’s recent quarterly update showed its UK hotels are performing ahead of their pre-Covid levels. For example, total UK accommodation sales were 31% higher than 2020 levels, with them 21% up on a like-for-like basis. And while food and beverage sales are still 4% down on 2020 levels, the long-term prospects for the company appear to be sound.
Indeed, Whitbread now has 40 open hotels in Germany, with a further 38 hotels in its pipeline. They provide a strong growth opportunity due to the fragmented nature of the country’s budget hotel market. This could mean the company’s size, scale and financial strength relative to smaller peers provides a competitive advantage.
Certainly, a cost-of-living crisis and higher costs may squeeze the firm’s financial performance in the short run. But its value focus may equally enable it to better survive a period where consumers become increasingly price conscious than most of its peers.
The company will have a new CEO in place in January 2023. This could prompt a refreshed strategy, which may lead to further share price volatility. But with a solid market position and international growth potential, the firm’s shares could deliver a recovery over the coming years.