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The Year of the Rat has brought a new challenge to China’s air travel market: the Wuhan coronavirus.
The deadly respiratory illness is already in Macau, Hong Kong, and many parts of Mainland China, and — just like SARS before it — will likely harm China’s travel industry in the short term
In this article, I’ll look at one company that will likely be heavily impacted by the new coronavirus. But I’ll also take a look at a company poised to be a better long-term hold.
Cathay Pacific to be coronavirus victim
It’s no secret that Cathay Pacific Airways Ltd (SEHK: 293) had a challenging 2019. The airline started the year strong, closing out the first half of the year with impressive earnings and a new set out international routes. Then the Hong Kong protests hit, causing tourism to fall sharply.
Cathay Pacific saw November 2019 traffic fall by 9% compared to the previous year. Its September and October traffic fell by 7%. Overall inbound traffic fell by 46%. Now with the new coronavirus, the company’s operating environment will be even more challenging.
During the 2003 SARS epidemic, Cathay Pacific took massive losses, suffering its largest half-year loss in six decades of business.
Using history as a guide, investors can expect Cathay Pacific to struggle as long as the coronavirus drives away customers. For investors wanting to hedge their bets, there are other more diversified travel stocks likely to grow alongside the Asia travel market.
Trip.com poised to be better long-term hold
The 2003 SARS epidemic demonstrated just how badly domestic airlines can be affected by fear. Yet a short-term problem should not distract investors from the fact that the global air travel industry is growing.
The International Air Transport Association (IATA) estimates the number of people traveling by air will nearly double by 2035, with a lot of that growth stemming from the Asia-Pacific market. Short-term conditions won’t affect this growth since it’s being driven by larger forces, such as China’s rising middle class.
Considering this, smart investors who want to play it safe should invest in diversified travel companies set up to weather short-term storms. One such company is Chinese travel giant, Trip.com Group Ltd (NASDAQ: TCOM) (formerly- and better-known as Ctrip (NASDAQ: CTRP) before its name change).
Trip.com already has a good foothold in the Chinese travel market, holding 50% of the market when it comes to selling first-class tickets. The company is also better hedged against fluctuations in Chinese travel because it is already established abroad through its travel website, Skyscanner.
This site has surpassed many of its competitors and it allows Trip.com to interact with a range of markets outside of Asia.
Still struggling amid the ongoing protests and confronted with the new challenge of the Wuhan coronavirus, it’s likely that Cathay Pacific will continue to struggle in 2020.
For investors who want to capitalise on Asia’s fast-growing travel market, Trip.com is likely the better long-term bet. Its diversified business holdings help protect it against short-term hiccups, and it stands to grow alongside the global travel market.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alex Perry doesn't own shares in any companies mentioned.