Current state of the Travel and Leisure industry

Since the recent lows in November the Travel and Leisure industry has been gaining momentum throughout mid-February. This momentum was triggered by the mild version of the omicron variant of covid-19 and attractive valuations. However, as the industry is facing three different risk factors, the market is in a bit of despair:

1. The Covid-19 pandemic has haunted the Travel and Leisure industry throughout the last couple of years resulting in huge financial losses. However, since November the sentiment has accelerated with a very sharp increase in sentiment triggered by the mild version of Covid-19 (Omicron). In other words, the sentiment consensus eyes the end of the pandemic.
2. The high inflation has increased the likelihood of a recession. In the latest earnings season, the current inflation has made traces into company earning statements which further increases the likelihood of a “hard economic” landing. This risk factor also impacted the Travel and Leisure sentiment and resulted in a minor drop from mid-January to late January. In sharp contrast to other industries, the sentiment quickly recovered.
3. The current geopolitical situation and the related increase in oil prices have caused a loss of momentum in the travel and leisure industry. Even with the corporate sentiment still in solidly positive territory, the sentiment's negative direction is concerning. The current situation will most likely increase inflation and as such further increase the likelihood of recession.

From a sentiment perspective the current geopolitical situation is comparable with the ongoing recession concerns which were “brushed off” fast. Both worries are based on recession. In other words, the sharp increase in sentiment from November and up to today is still the dominating factor and a positive one.