Travel companies subject to negative investor sentiment

Who recently landed in London with no fewer than 97 pieces of Louis Vuitton luggage? The luggage may or may not have been bedecked in brown and gold, but it is true that the son of Egypt’s ruler (and possible successor) has fled the country on the back of civil unrest. Our focus will instead be on the ramifications for winter travel with Egypt’s Red Sea resorts being so popular for European tourists. Stocks covered include: Thomas Cook (LON: TCG), Tui Travel (TUI1), Expedia (NASDAQ: EXPE), Universal Travel (NYSE:UTA) and Ctrip.com (NASDAQ:CTRP).

There are very serious macro ramifications for trade, Israel and oil, if the Suez Canal goes into the control of Islamic extremists. Travel companies could also be said to be in for a tough year with people fighting food and fuel inflation.

I asked my local shop assistant how things were going last night, “Not good at all. Prices are going up and people are complaining.” If this is the case, surely a winter break is at risk while a summer holiday could turn into a “staycation” to save money. The backdrop is a flat lining economy and inflation close to 4% while UK wages have not increased since 2005. Is this why Thomas Cook shows 7% of its total shares are outstanding on loan? This is more than three times the average for the FTSE.

Thomas Cook bears all the hallmarks of short selling on behalf of so called “value investors” who believe the company is in an industry in strategic decline. I say this because the stock on loan has been gradually increasing for some time and is at a 52 week high. The UK has an ageing population who like the package holidays Thomas Cook offers but this is not a long term positive for the company as younger generations express their preference for online bookings via firms like Expedia. This company has rising short interest with a recent spike to 5% of its shares on loan. Perhaps it is not immune to the slow emergence from recession either?

“Last minute Egypt” is a familiar refrain from unimaginative and cash conscious travel companies at this time of year. I would imagine this is under threat with the recent news of revolution. Even if there is no regime change in Cairo, the roaring oil price is not good news for the travel industry. Airlines clearly need to raise prices if they are not hedged above $80 per barrel and package holiday firms like Tui and Thomas Cook operate their own planes. Tui Travel has a large short position but it is partly for technical reasons, due to its convertible bond debt. At 20% of all shares outstanding on loan, there must be some directional shorting in here too. It also stands at a 10 month high.

I did not aim to get back on China again, but with 9% of a particular China travel operator being shorted it is hard not to. This is a new high for the company in question: Universal Travel. The same can be said for another online travel servicing company, Ctrip.com. While the percentage of shares out on loan is at a record high of 5%, so is the level of institutional ownership from funds who lend – and we love it when people disagree.