By Anna Peel. Originally published at ValueWalk.
- Fuel prices reach record levels of 151.25p on average per litre of petrol with diesel at 154.72p, spiking much higher at motorway service stations.
- Airlines fly into more turbulence as Ukraine conflict intensifies and oil prices stay elevated.
- Domestic travel stocks fail to recover, with Trainline share price down 63% vs pre-pandemic levels and caterer SSP down 50%.
- Rail fare annual increase of 3.8% takes effect from Tuesday 1st March.
- Transport for London fares will also rise by 4.8% to help TfL reach financial sustainability following a fall in passenger numbers during the pandemic.
Travel Stocks Continue To Struggle
“Airlines have flown into yet more turbulence as fuel costs mount and worries grow about the impact of the Ukraine crisis on traveller sentiment. The closure of airspace around the conflict zone and the ban on flights from Russia over many skies has added to operational difficulties for companies with regular routes around the region. British Airways owner International Consolidated Airlns Grp SA (LON:IAG) has fallen 6%, easyJet plc (LON:EZJ) 5% and Wizz Air Holdings PLC (LON:WIZZ) by more than 7%. Longer term, it’s higher fuel costs that are likely to weigh on the sector once the immediate headache of re-routing flights is eased. The fear is that prices will head up much higher if Russia retaliates to sanctions and weaponises oil, sharply limiting supplies to Europe.
Fresh price hikes for commuters are adding to the cost of living crisis, as the price of oil marches up again and fresh rail fare increases rattle in. In the week that more workers have tramped back into the office following the fresh easing of pandemic restrictions, they are facing more financial pain. The jump in fuel prices means filling the average family car with petrol has leapt to £83 with a full tank of diesel costing £85 and the worst may be yet to come. Oil gained more ground in early trading on Monday, with a barrel of Brent crude still above $100, and worries mount about a disruption to supplies. Travellers on motorways face even higher bills at the pumps with prices climbing way above 175p a litre. At the Moto services at Junction 64 on the A1, diesel hit 177.9p and unleaded 175.9p. These are eye watering prices for motorists already counting the cost of the steep rises in second hand car prices as supply chain issues cause havoc for deliveries of new vehicles.
Turning to public transport and letting the train take the strain won’t offer that much financial relief for commuters with another rise in annual rail fares taking effect. Ticket prices will rise by 3.8% from tomorrow and fares in London will be even steeper. The 4.8% rise in the capital is designed to put Transport for London on a firmer financial footing following the dramatic fall in passenger numbers during the pandemic. Higher commuting costs may do little to encourage workers to ditch virtual habits and spend more time in the office. With costs rising on the roads and the rails, it’s likely to cement hybrid working firmly into schedules and that won’t provide significant relief for domestic travel stocks still struggling to recover from the after effects of Covid.
SSP Group PLC (LON:SSPG), the caterer is highly dependent on the travel network, relying on commuters and tourists to pick up snacks from its Upper Crust kiosks, Ritazza cafes and other franchise outlets in railways and airports. Business was severely hit by lockdowns and restrictions and it’s still in the recovery phase, with progress back to full health still slow, with shares still down 50% compared to pre-pandemic levels, falling by another 1.2% today.
Trainline PLC (LON:TRN) launched a £150 million five year convertible bond to increase its financial buffers. It’s glimpsing light at the end of a very long tunnel, but the working from home revolution has upended Trainline’s business model and it’s becoming clear that many new habits are likely to stick. Shares are still down 63% compared to pre-pandemic levels as investors digest the real possibility the Monday to Friday commute may never return, with many ad hoc face to face business meetings set to continue via video call.”
Article by Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown
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