Boom Holiday Time for Travel Stocks Is Now Looking at Risk

Tourism Down In French Capital

Soldiers patrol near the Louvre museum in central Paris.

Photographer: Linda Davidson/The Washington Post via Getty Images
  • The shares are falling this month, while the Stoxx 600 is up
  • Hotel operator Accor is among the most hurt after attacks

The holiday season is coming, and for Europe’s travel stocks that has meant market-beating returns for seven straight years. It’s shaping up differently in 2015.

Terrorism scares and geopolitical tensions have left travel and leisure shares in the Stoxx Europe 600 Index trailing the broader gauge in November for the first time since 2007. The retreat is threatening a decade-long run in the equity market during which the industry’ best two months of the year came in November and December, data compiled by Bloomberg show.

Leisure shares led declines in Europe after the terror acts in Paris, an incident that prompted the U.S. to issue a travel alert and that’s likely to decrease airline demand, a Bloomberg Intelligence report shows. The stocks had another setback on Tuesday, when they slumped the most in two months after Turkey shot down a Russian warplane.

“There’s normally a lot of European travel around this time of year, but that’s all been ripped apart,” said Anthony Peters, a strategist at Swiss Investment Corp. in London. “You’re taking your life in your own hands as an investor in this environment. If we get hit with another one of these, it really will cause disruption.”

The Stoxx 600 Travel & Leisure Index has lost 0.7 percent this month, while the broader gauge has advanced 1.8 percent.

Since 2005, the travel measure has outperformed the Stoxx 600 by 2.2 percentage points in November and 1.3 percentage points in December, on average. Last year, the rally was strong enough to spur the industry’s best quarter since 2010. Recent declines have pushed the travel gauge’s valuation to 16.3 times estimated profit, in line with the broader index, after it traded higher for six years.

While terrorism has an immediate impact on markets, declines tend to be short-lived. Tour operator Thomas Cook Group Plc said travel demand is holding up and reported a full-year profit for the first time in five years yesterday.

Even with the year-end jump under threat, leisure shares have rallied 15 percent this year, beating the Stoxx 600. That’s partly thanks to plunging oil prices, which are lowering costs for airlines.

“Oil is cheap, and that has been extremely beneficial for the airlines and to some extent for airports too because that has enabled the price of air travel to come down a bit,” said Douglas McNeill, a transport analyst at Macquarie Group Ltd. “That’s been the big theme that’s driven the whole space.”

For now, the travel stock index is heading for its first monthly drop since August. Daily occupancy rates at hotels in Paris fell in the week following the Nov. 13 attacks, according to preliminary data from the city’s tourism office. French chain Accor SA was one of the most hurt this month, with its shares tumbling 16 percent. Thomas Cook has lost 11 percent.

“Geopolitical uncertainty and recent terrorist attacks certainly won’t help the sector in the short term,” said Michael Ingram, a market strategist at BGC Partners in London. “The recent incident in Syria will further undermine confidence in what was already a low-conviction market.”

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