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Travel stocks lose steam as FTSE rally slows

Kumutha Ramanathan
·Contributor
·2-min read
A passenger airplane from TUI Airways. Photo: Getty
A passenger airplane from TUI Airways. Photo: Getty

Travel stocks on London’s FTSE (FTSE) are seeing a reversal in gains on Tuesday after Monday’s rally, which was led by Moderna’s (MRNA) successful trial of COVID-19 vaccine.

The FTSE (FTSE) was down 0.8% at around 11:30am in London. TUI (TUI.L) was also down 1.6% and Trainline (TRN.L) declined 0.04%.

“Investors know that the vaccine news is good for the industry but this isn’t going to change the dynamics this year,” said Naeem Aslam, chief market analyst at AvaTrade. “In the short term, there are still significant challenges. Hence, we are seeing this lower move.”

Travel stocks have been among the biggest losers since the COVID-19 pandemic hit, with many in the sector being forced to cut jobs and make further spending cuts just to survive quarter after quarter as demand slumped.

As such, news of another coronavirus vaccine candidate from Moderna (MRNA), in addition to Pfizer (PFE) and BioNTech’s (BNTX), gave the industry the initial boost it needed to see signs of a global economic recovery earlier in the week.

TUI shares were sliding in early trading on Tuesday.
TUI shares were sliding in early trading on Tuesday. Source: Yahoo Finance

“Nothing goes up in a straight line and that includes airline stocks, where turbulence is commonplace at the best of times,” said Russ Mould, AJ Bell investment director. “They have had a stunning run over the past week or so and although they are still trading well below their year or all-time highs, there are still good reasons for that.”

READ MORE: European market momentum slows following a second COVID-19 vaccine rally

Tuesday’s slowdown in the face of “substantial gains over the past few days on the back of the positive vaccine news” makes sense, added Michael Hewson, chief market analyst at CMC Market.

He said “travel stocks appear to be succumbing to some profit taking after hitting four month highs on Monday.”

Yet, in a note published on Tuesday, Morgan said that in the face of more positive vaccine news, “even fewer shares looking good value” exist among travel and leisure stocks.

Trainline stock movement on Tuesday. Source: Yahoo Finance
Trainline stock movement on Tuesday. Source: Yahoo Finance

“We think many stocks have run too far too fast, and the only cheap cyclicals left seem to be those with stretched balance sheets, where investors might find they are investing more cash than they expected if the share price rally triggers an equity raise.”

“In general, we prefer stocks with exposure to domestic rather than international revenue, and those with strong balance sheets,” Morgan Stanley said.

WATCH: Moderna plans to distribute 1 billion vaccine doses globally by 2021