Cash Chronicles is coming to you this week from Mexico, my first trip outside of the US in over a year. The last one was a trip to Nicaragua weeks before the lockdowns started. Combining this with a trip to California that I took last week, which included the obligatory visit to Disneyland for my son and I am starting to get a better on the ground sense of the state of the travel industry and the uneven recovery it’s currently experiencing.
If you have travelled in the US and needed a rental car recently, you know that it is a nightmare trying to navigate the situation. As I was covering the country in the last few months implementing my real estate strategy, I was caught up in the situation first hand. The first error I made was to try and book the cheapest rental I could at the Sacramento airport through Thrifty car rentals. I ended up waiting over an hour in a line that didn’t move at all and eventually canceled my rental and walked over to another company to secure a much more expensive rental with the only thing they had left: a pickup truck.
On a second trip to California, I did what many visitors in Hawaii are now resorting to, which is turning to U-Haul to secure a means of transport for their stay. This wasn’t exactly practical (I had to go to a location 20 minutes from the airport) or economical, but it secured a truck in the limited time I had.
This is all part of a nationwide shortage of rental cars that the country is experiencing after the bounce back from Covid. Many of those companies saw their revenues plummet during the pandemic and they subsequently sold off much of their rental car fleets to be able to service their debts. In the case of Hertz, as I have written about before, they were forced to declare bankruptcy. 60,000 employees of the car rental industry were laid off in the process as well, which represents about a third of the industry’s workforce.
If you had enough foresight or luck to invest in rental car companies and not get hosed like in the case of Hertz, the returns since the pandemic lows were astronomical. Avis Budget Rental Cars (CAR) returned 469% since it’s pandemic low. Yet that return has come down from a high of over 600% since early June as the next phase of the pandemic and the recovery becomes more uncertain. Although the average price of a rental car is expected to be over $100 per day by August (see below) rental companies are dealing with the wake effects of other issues that pandemic has created such as a shortage in semiconductors that is weighing on the availability of new cars that these companies could use to replenish their fleet.
Yet these are minor interruptions that will likely not last through to next summer for many renters so they will have to deal with this short term pain for now. The question looming over the travel industry at the moment is how it will deal with the Covid situation in the rest of the world.
Uneven Response and Vaccinations
My initial plan was to go to Italy for a week as I enjoy southern Italy and the unique sites it has to offer. However once again, Europe has managed to bungle an opportunity to bring back tourists and the important income source they provide for Southern Europe.
Although Italy had approved “Covid safe” flights for tourists about 8 weeks ago, this was only for flights that were direct to Italy. There was a question as to how requirements would be enforced if tourists were passing through third countries in transit such as the UK or Switzerland. Add to that the fact that the government had not provided any guidance for people like me that had already been vaccinated on what will be required of them upon arrival in Italy. It was enough to make me give up which I’m sure many others did as well.
By the time Italy announced that vaccinated tourists would not be required to quarantine, it was already too late for many Americans making summer plans and they had already made domestic plans. It took protests by business owners in Italy to move the government to action in finally opening up the country for tourists, especially American tourists, who spend the most of any nationality that visits the region.
Just like the variation in responses and vaccinations between states in the US, vaccination roll out has been slow and uneven in much of Europe which has further hampered efforts to reopen the continent. The anti- vaccine propaganda is showing to have significant sway in much of the developed world, not just the US. Places like France and the UK now have significant minorities which refuse to take the vaccine. One researcher even found that access to the internet is positively correlated with vaccine skepticism. Ironically across the rich world this has fueled an over production of the vaccine while the developing world has little access, desperate need and a population much more willing to take it.
The limiting of foreign travel options for Americans is what is likely driving not only a car rental shortage but a surge in visits to national parks all over the US as people flock to natural wonders such as Yosemite National Park which was fully booked up when I tried to reserve a time to go there a few weeks ago.
Here in Mexico, although most things are now open, there is still a curfew in place which dampens any nightlife. I’m addition the lockdown here in Mexico as well as in much of the rest of Latin America was much more severe and strict than even in the US. For example in Mexico all domestic flights were banned and highways closed for a period of time. Only in last November did these things start to open up and even now the capacity is described as “70%” by our driver. Covid tests are still being required to return to the US, even if you have received the vaccine which seems to make little sense to me but it’s what we have to abide by.
It’s now becoming apparent that the recovery in the hospitality industry as well as many other industries is going to be spotty, plagued with shortages and taking a touch and go pace as we move through the new year. This could be one reason why travel stocks like Avis and others have fallen from their recent high as investors reassess the cloudy outlook for these shares as a global bounce back becomes less certain.
Yet the summer months are notorious for low volumes in the stock market and choppy returns. The S&P fell by over 1% on Thursday only to see a broad based bounce back on Friday after some commentary that the rally may be over. It just goes to show how staying invested is really what counts.
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