Three out of four leaders of ASX-listed travel companies speaking on a panel last week predicted a return to pre-COVID conditions for their sector by 2025, with supply chain problems and capacity constraints proving the main hindrance to recovery as demand remains robust.
This was the timeline estimated by Corporate Travel Management (ASX: CTD) founder and managing director Jamie Pherous, Alliance Aviation (ASX: AQZ) managing director Scott McMillan and Apollo Tourism & Leisure CEO Luke Trouchet at a Queensland Business Breakfast organised by Morgans at the Brisbane Club on Friday.
With his more optimistic prediction, Flight Centre (ASX: FLT) co-founder and CEO Graham Turner was the outlier in the all-Brisbane line-up whose companies are worth a combined $7.9 billion.
"I know in our corporate business we’ll be back to pre-COVID levels by the end of April, so in terms of TTV (total transaction value) and actual demand, certainly for us and I think Jamie’s the same, it’s pretty much back," Turner said.
"The general market, the consensus is probably business travel is up to 80 per cent at the moment globally, and I think I’d be a bit more optimistic.
"I think travel generally will be pretty much back to pre-COVID levels by this Christmas or early next year."
McMillan, who hopes his company's merger with Qantas (ASX: QAN) will still be able to go ahead despite opposition from the competition watchdog, said the best indicator for estimating the speed of recovery in the sector was the speed of deliveries for Boeing and Airbus.
"Just look to what the order backlogs are with the two big manufacturers, and it’s fairly significant, so I think 2025," he said.
He explained the biggest constraint for Alliance was the lack of access to flight simulators, with a shortage of spare parts for planes coming in second.
"We’ve got one E190 simulator in Australia, we’ll soon have three which is brilliant, and we’ve got two Fokker 100 simulators - one in Perth and one here in Brisbane," McMillan said.
"We’re sending pilots to Gatwick and Amsterdam for training - horribly expensive."
"The company that does our auxiliary power units don't have enough spare parts to fix them, and you can’t fly an airplane without an auxiliary power unit, so supply chain issues worldwide are constraining the industry, and there’s a whole range of issues with new aircraft, new engines and so on that are just slowing everything down."
Trouchet from Apollo, a former family company that was listed on the ASX before it merged with New Zealand-based Tourism Holdings (NZX: THL) last year, said there was huge pent-up demand for people to travel again but his industry was also in a state of supply chain recovery.
"Our challenge is that during COVID we de-fleeted because there was no point in having a big fleet of motorhomes hanging around in the yards if we didn’t have the guests to rent them, so our combined fleet has gone from around 12,000 units down to a bit over 6,000. So our job over the next three or so years is to get back to where we were," he said.
"The challenge is getting the supply chain working – Mercedes, IVECO, Renault are really struggling to bring in the chassis into the markets where we operate, for the coachbuilders, ourselves and the big mega-factories in the States to be able to get the product through to the rental dealerships, so that we can expand the fleet again.
"That's also a good natural hedge, because I think demand will be a bit lumpy over the next couple of years."
Trouchet has also noticed that prices have stabilised following a period when the cost of putting a motor home asset in the rental fleet had gone up 30 per cent in some cases.
"We need to get higher prices to be able to get the right return on the capital that we're deploying there," he said.
"We’re really quite bullish on travel because most of our guests are long-haul travellers and they book months in advance...we’ve got this great window into the future and we’re seeing the bookings come through at a rapid rate."
When asked about the impact of virtual meeting platforms like Teams and Zoom, Pherous of Corporate Travel Management highlighted three reasons people travel for business:
"If you think about it, it's really to either win business, to manage the supply chain, or bring your people together," he said.
These three reasons account for 86-88 per cent of travel according to recent surveys conducted by Corporate Travel Management.
"What’s happening with the other 12-14 per cent? Some of that will go away - some things probably are better on Zoom, but clearly not problem solving challenges, how you whiteboard things and so forth," he said.
Pherous described the Australian travel market as unique as there is still "the most lack of supply and the highest prices that haven’t normalised yet".
"That’s just a function of surplus supply and demand, so the Chinese carriers will come out here, and that will happen – it’s happening pretty rapidly," he explained.
"I think we’re about 70 per cent at the moment for capacity internationally, and we think it’ll probably be about 85 to 90 per cent by Christmas with the Chinese carriers obviously being a significant part of that," added Turner.
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