The low oil price and the rise of the Chinese middle class are the big drivers.
“I am no oil forecasting guru, but the original golden age of travel dates back to the 1950s, when airlines such as PanAm and BOAC began to offer non-stop transatlantic flights using jetliners such as the Boeing 707 and the Douglas DC-8,” Davies said. “Today, a combination of much lower jet fuel prices and the rapid growth in Chinese and tourism is ushering in a new golden age and creating some exciting opportunities for stock market investors.”
“It seems likely to me, given the current supply glut and the rapid productivity improvements being made by the US shale industry, that the oil price could be stuck below $60-65 for some years to come. Although it is now more than a year since the oil price started to collapse, the hedging programmes of airlines and travel companies take some time to unwind so we are just starting to see the benefits of lower fuel prices coming through,” Davies added.
Thomas Cook is one example worth a look according to Davies. “[Thomas Cook] spent about £900m a year on jet fuel in FY14, paying just under $1,000 per tonne. That figure has dropped to $917 for the year to September 2015, but the really sharp improvement should come in FY16 where they are now almost 90% hedged at $707 per tonne according to their Q3 trading update. With forward prices now well below $600, I estimate that the company could ultimately reduce its fuel bill by as much as 45% by 2017 in dollar terms, albeit the sterling saving will be lower given the stronger dollar.”