Due to the black swan event of the novel coronavirus shutting down virtually all air travel, companies like Booking Holdings (NASDAQ:BKNG) are in serious trouble.
Prior to this mess, Booking’s core business — owning and operating travel fare aggregators — was on the upswing in 2019. Further, warming ties between the U.S. and China potentially offered additional upside for BKNG stock.
Now, nothing is guaranteed. With nearly 17 million Americans filing for unemployment benefits over the past three weeks, prospects for a quick economic rebound — a so-called V-shaped recovery — appear slim.
Even if people wanted to fly, they just don’t have the discretionary funds. Not surprisingly, competitors to BKNG stock, such as Expedia (NASDAQ:EXPE) and Trivago (NASDAQ:TRVG) have both suffered steep declines this year.
Nevertheless, because these names typically do well during bull markets, contrarians may argue for an unconventional approach. Plus, you’ve got to consider that prior to the coronavirus pandemic, we were headed toward a dramatic, technological paradigm shift. Innovations in 5G, automation, and the Internet of Things, to name but a few, promised growth of high-paying jobs in multiple sectors.
Even in a full-blown bear market, it’s not like the tech race suddenly stops. Nor will planes stop flying. Things will move forward, albeit at a slower pace. Therefore, the present discount in BKNG stock may appeal to adventurous investors.
Admittedly, a contrarian case for the travel industry exists. According to the latest jobs report from the Bureau of Labor Statistics, most of the first wave of the unemployed came from the leisure and hospitality sectors and mainly among food services and drinking places.
While still painful, these workers do not comprise the main target demographic for the travel industry.
This Time May Be Different for BKNG Stock
Another point to consider for contrarians is that the travel industry has previously suffered high-profile tragedies, only to bounce back. Obviously, the biggest and most recent example is the 9/11 terrorist attack. That rocked air travel in the U.S., bringing a dark cloud over both the industry and the nation.
However, it only took a few short years before Americans felt comfortable flying again. And even when the “Great Recession” struck years down the line, the U.S. economic engine proved extremely resilient. Given that we’ve met multiple, consecutive body blows with fierce comebacks, it seems silly to abandon BKNG stock.
Yet this time may be different because of the widely contrasting circumstances involved. Although the 9/11 attack was horrific and paradigm-shattering, anyone would expect the consumer to move beyond that fateful day. After all, the chances of you succumbing to terrorism is very minimal.
But getting the flu? According to Webmd.com, Americans on average have a 5% to 20% chance of getting the flu each year. In addition, between 8,200 to 20,000 will die from it on an annual basis. So, in the consumer’s mind, coming down with a serious disease — even in an advanced nation like the U.S. — is a very real possibility. Unfortunately, that perception can hurt BKNG stock.
To address the other point about unemployment, we’re still in the early stages of this crisis. Over the next few months, all labor sectors could see devastating losses.
Furthermore, we shouldn’t discount the idea that we’re on the cusp of a Great Depression-style downturn. Back then, it took well over two decades for the stock market to regain pre-Depression highs.
Until that point, Americans had to endure what may have seemed like endless series of frustrations in the markets.
Behavioral Shift May Permanently Disrupt Travel
When the coronavirus was still wreaking havoc on China but had yet to significantly impact the U.S., the travel sector worried about one route: demand for Asian destinations. Though China was the main target of flight cancellations, demand for other Asian regions greatly suffered.
But with most of the world infected to some degree by COVID-19, I just don’t see people traveling anywhere. If just one continent’s travel was affected, the industry could mitigate that impact via marketing opportunities for another destination spot. Current circumstances mean that’s off limits for BKNG stock and everyone else.
Plus, the idea of getting stranded or forcibly quarantined by a foreign government has become a painful reality. Though this circumstance most prominently impact the cruise liners, it’s not something that travel aggregators can ignore either. Personally, I believe it will take many years for travelers to get over the events of this year. And with a rough economy over the horizon, I think it’s best to wait out BKNG stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.