Key Takeaways
- Hospitalisations and deaths have fallen around the world, worst of ‘winter wave’ appears to be over.
- Vaccination news and declining hospitalisations and deaths have triggered stock rally in global equities, but airline and hotel stocks continue to lag.
- Government restrictions on inbound/outbound travel the largest obstacle to recovery in international travel, fallout greatest for countries with small or non-existent domestic travel markets.
1) Positive Vaccination News and Declining Hospitalisations: Reason for Optimism?
COVID-19 infections around the world are declining and most countries appear to have weathered the peak of ‘second-wave’ winter infections. In the US, infections are down about 70% from their peak in December 2020 and deaths by around 40%. In Japan, which entered a nationwide State of Emergency from 7 Jan 2021, daily new infections have dropped 90% from a peak of 7,800 cases a day in early January, hospitalisations have declined by 76% from its mid-January peak, while deaths (which have a time-lag) finally appeared to slow in mid-February.
The decline in hospitalization and deaths is despite mobility data showing that the second State of Emergency has had less impact than the first one in April-May last year. (Source: Agoop Corp)
Japan began vaccinating healthcare workers on 17 Feb, with vaccination rollouts to the elderly (>65 years old) expected to commence in April. Initial evidence from Israel, which has vaccinated an estimated one-third of its population, demonstrate that mRNA vaccines lower hospitalisations and deaths significantly while studies on the extent which they stop transmission and effectiveness of the vaccine against new variants are currently underway.
2) Equity Markets Are Back to Pre-Pandemic Highs, Except for Hotels & Travel
Positive vaccine news and declining hospitalisations and deaths have sent stock markets rallying, with most global indices returning to pre-pandemic highs. The Nikkei is at levels not last seen since 1990, when the asset bubble burst. (Source: Macrotrends.com, PCG)
But hotel and airline stocks continue to lag major stock indices by 20-30%, suggesting markets think tourism will take longer to recover. Interestingly, general travel and tourism stocks (DWCTTR: Expedia, Avis, etc) as well as hotel management companies (DJUSLG: Marriott, Hyatt, etc) posted a strong recovery in early 2021, with Marriott up almost 20% YTD with strong revenue from overseas markets especially China, where occupancy returned to 60% by July 2020 and remained above that level for the rest of the year.
3) The Future of International Travel: Vaccine Passports & Testing Regimes?
Is international air travel safe? “Long quarantines are as much of a deterrent to travel as a ban,” says Andrew Charlton of Aviation Advocacy in The Economist’s report on international travel. “The public are not scared of flying, they are scared of arriving.” Based on IATA data, the risk of infection onboard seems low—in 2020, only 50 cases were recorded, or 1 in 27 million passengers.
IATA is working with immigration authorities and airlines to come up with digital systems that provide proof of vaccination/testing, with Singapore Airlines trialing digital app that verifies COVID testing status (SingaporeAir.com). Japan’s vaccine rollout chief Taro Kono, on the other hand, has cast doubt on vaccine passports, saying it would discriminate against those who cannot be inoculated because of allergies or other reasons, and that Japan has “no plans to do something like that.” (Kyodo News)
Travel demand, during previous economic crises returned within 3-6 months. But COVID-19 is expected to have a longer tail due to government restrictions on inbound/outbound travel. Governments thus far have been highly risk averse to removing restrictions, even in countries like Australia and New Zealand which have had extremely low rates of infections. In IATA’s view, the recovery in international travel is likely to take years, rather than a few months. For countries with large domestic markets, governments can afford to take their time to relax restrictions, but the risk and economic damage is far greater for countries with small or non-existent domestic markets, which have traditionally been highly dependent on tourism, e.g. Singapore and Hong Kong.
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PCG Research Strategy Update – 1 Mar 2021