Key points
- A lower Aussie dollar makes travel for international guests cheaper.
- Sydney Airport clips the ticket on flights coming and going and Flight Centre is one of the world’s largest travel companies.
- Webjet is an internet disrupter and Corporate Travel Management and Cover-More are also well positioned.
It’s a long way from the Australian dollar’s peak of US$1.10 in 2011 to the current level of 87.5 cents, but it’s a welcome sight for the Australian tourism industry.
While the Aussie dollar’s extended sojourn above US dollar parity brought unprecedented value-for-money for Australians travelling abroad – coupled as it was with multi-decade highs against the pound, and the best exchange rates against the euro and the yen in several years – it was not a pleasant sight for the inbound tourism industry.
To a large extent, Australians’ new-found appetite for overseas travel is likely to be fairly resilient – unless the dollar were to really fall out of bed – but a weaker Australian dollar is likely to make some travellers choose domestic, as well as increase the spending power of foreigners coming to Australia.
Australia’s “destination appeal,” tourism industry spending and promotion, strong marketing activity, increasing airline capacity to Australia and the competitive fares that come with that, had all worked to bolster inbound tourism during the high-dollar period – now the weaker A$ should bring a bonus to the industry.
On the stock market, there is a contingent of travel stocks that could benefit from these trends.
Sydney Airport (SYD)
The premier travel stock is Sydney Airport (SYD), for the excellent reason that it ‘clips the ticket’ on every airplane coming and going at the nation’s busiest airport, and inbound travel hub. Passenger numbers are the main driver for most of Sydney Airport’s revenue streams, but Sydney Airport investors also pick up on the spending of the VFRs – visiting friends and relatives – that come to the airport to welcome people or see them off.
Sydney Airport (SYD)

Source: Yahoo!7 Finance, 20 October 2014
Aeronautical revenue represents 49% of Sydney Airport’s revenue (as at the June 2014 half-year), followed by retail (22%), property leasing (17%) and car parking (12%).
International passengers are more profitable than domestic for Sydney Airport. At the June 2014 half-year, the 4.7% growth in international passengers – mainly from China and other Asian nations, driven by growth in flights from Asian low-cost airlines – helped aeronautical revenue rise by 5.7%. The beauty of Sydney Airport’s “non-aeronautical” revenue streams could be seen by a 7.4% lift in retail revenue, a 5.7% rise in car parking revenue and a 6.8% boost in property revenue.
Sydney Airport has been a strong performer on the stock market, delivering investors total return (capital growth plus dividends) of 22.4% a year over the past five years, and 25.7% a year over three years. In the last 12 months, it has generated 11.1%. At $4.22, Sydney Airport is forecast (on analysts’ consensus) to yield 5.7%, unfranked, for the full year (to December 2014), although the capital growth picture looks constrained: the analysts’ consensus price target for the stock is $4.40.
Flight Centre (FLT)
Travel agency Flight Centre (FLT) is also an excellent exposure to travel: it is one of the world’s largest travel agency groups, with company-owned operations in 11 countries and a corporate travel management network spanning more than 75 countries.
Flight Centre (FLT)

Source: Yahoo!7 Finance, 20 October 2014
In FY14, Flight Centre lifted revenue by 13% to $2.2 billion, on the back of a 13% increase in total transaction value, or TTV – the gross annual turnover of travel products and services – to a record $16 billion. The company’s underlying profit before tax by 9.7% to $376.5 million, which was at the upper end of the $375 million – $377 million range projected in the company’s earlier guidance, but net profit fell 16% to $206.9 million, after being hit by one-off write-downs and $11 million in fines from the Australian Competition and Consumer Commission.
Flight Centre told the market to expect growth of 5%–8% in underlying profit in FY15, with operating momentum expected to improve in the second half of the year, as domestic and international flight offers become cheaper. At $41.03, Flight Centre is forecast to pay a grossed-up dividend yield of 5.8% next year, but the real attraction of the stock could be in its capital growth outlook: broking analysts have a consensus price target of $50.87 on the stock, more than 19% above the current share price.
Webjet (WEB)
Online travel booking site Webjet (WEB) has been one of the classic internet “disruptors” on the Australian stock market, along with jobs website operator SEEK (SEK), real estate sales website realestate.com.au (operated by REA Group, REA), auto sales website Carsales.com (CRZ). Over the past five years, WEB has grown sales at a compound annual rate of 28% and net profit at 20%. For the June 2014 full-year, Webjet lifted its revenue by 32%, to $98.6 million, while net profit almost tripled, to $19.1 million.
Webjet (WEB)

Source: Yahoo!7 Finance, 20 October 2014
Webjet is expanding rapidly. Over the past three years, Webjet has bought-out a significant competitor, Zuji, and established an entirely new business-to-business hotels business in the Middle East and Europe, Lots of Hotels. While small, the Lots of Hotels business is growing fast, with total transaction volume doubling in the last full-year results.
The company is churning out the profit, with gross profit margin running at a whopping 78%, and the net profit margin a respectable 19.4% in 2014. At $3.24, Webjet is forecast to pay a grossed-up dividend yield of 6.5% in FY15, and trades on 13.5 times expected earnings. The major caveat, however, is that analysts see Webjet as fully valued.
Corporate Travel Management (CTD)
Specialist business travel services provider Corporate Travel Management (CTD) had an excellent year in FY14, boosting revenue by 42% to $110.5 million, on the back of a 57% surge in total transaction value, to $1.4 billion. Net profit rose 41% to $15.8 million.
Corporate Travel Management (CTD)

Source: Yahoo!7 Finance, 20 October 2014
The really promising sign was that the Australia-New Zealand region’s contribution to earnings fell from 87% to 66%, as Corporate Travel Management’s Asian and North American businesses powered up. The company told the stock market that overseas operations would contribute half of its FY15 profit.
On consensus estimates, Corporate Travel Management is expected to pay a dividend of 16.5 cents in FY15, putting it on a forecast yield of 3%, and a price/earnings (P/E) ratio of 29.7 times earnings. The stock certainly provides good leverage to any improvement in travel activity, but like Webjet, it is seen as very close to its consensus price target.
Cover-More Group (CVO)
Lastly, another potentially interesting travel investment is insurer Cover-More Group (CVO), which offers a good niche exposure to travel insurance. Cover-More has a 40% share of the travel insurance market in Australia, but the big attraction is that it is expanding into China, the world’s fastest growing travel market.
Cover-More Group (CVO)

Source: Yahoo!7 Finance, 20 October 2014
Listed in December 2013, Cover-More delivered a fairly good June 2014 result, posting a 26% rise in revenue, to $190.2 million, and a 130% surge in net profit, to $15.7 million. Gross travel insurance sales were up 20% to $369.1 million. The fully franked dividend was 7.2 cents per share.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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