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: Watch these 2 stocks as the U.K. restarts travel

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The U.K. government is set to relax travel restrictions, which could boost some specific stocks.

The announcement, which will include a list of countries that tourists can visit without having to self-isolate upon return, will fuel hopes for a recovery in travel and tourism on a day when two of the biggest companies in the sector posted results.

Shares in International Airlines Group
IAG,
+2.78%
,
 a group that owns British Airways, Iberia, Aer Lingus, and other airlines, traded around 2% higher on Friday ahead of the government’s announcement. Shares in hotels giant InterContinental Hotels Group
IHG,
+1.81%

 similarly ticked up more than 1%. Both stocks were trading around flat through much of the day, after the two groups posted earnings before the open in London.

Transport secretary Grant Shapps is due to announce late on Friday which countries that will be on a COVID-19 travel “green list” as of May 17 — locations that don’t require people to self-isolate upon their return. There will also be an “amber list,” requiring people to self-isolate upon returning to the U.K., and a stricter “red list.” Only U.K. or Irish nationals, or U.K. residents, will be allowed to enter the U.K. from red-list countries, and must quarantine in a government-approved hotel facility at their own cost.

The new travel rules would follow a similar move from the European Union last week. Under a proposal from the European Commission, people who have been fully vaccinated against COVID-19 with an EU-approved vaccine or who come from a country with “a good epidemiological situation” will be welcome to the 27-member bloc. Currently, travelers from only a few countries are allowed into the EU for nonessential reasons.

Plus: Airline stocks gain altitude as Europe plans to welcome more overseas tourists

Two of Europe’s largest travel and tourism companies reported earnings on Friday, ahead of Shapps’ announcement. The travel sector has been hammered by the COVID-19 pandemic since global travel all but ground to a halt more than a year ago, and the results from IAG and InterContinental Hotels Group show that the industry remains under intense pressure.

IAG reported revenues of €968 million ($1.2 billion) in the first three months of 2021, a 79% decline from the same period in the year prior, while the group swung to a €1.1 billion loss after tax.

The situation was slightly better for InterContinental Hotels Group, which saw an improvement in quarter-on-quarter demand. But revenue per available room — RevPAR, a key industry metric — remains 34% lower than 2020 levels and 51% lower than 2019 levels.

Also read: Europe divided on merits of patent waivers for COVID-19 vaccines

Full clarity on Brits’ travel options will come later in the day with Shapps’ announcement, but there is already speculation about which countries will be on the green list. It is expected that a number of smaller countries with low infection rates and/or high vaccination rates will be included, such as Portugal, Israel, Malta, Iceland, Finland, and some Caribbean islands. It has been reported that larger countries — and popular tourist destinations — such as France, Spain, Italy, and Greece are likely to be put on the amber list.

The U.K. government has said that travel rules will be reviewed on June 28, setting up the possibility that more quarantine-free travel options will be available as the summer progresses.

“Airlines seem optimistic that most of Europe could make it on the green list, however that seems a big ask at the moment,” said Michael Hewson, an analyst at CMC Markets, citing the lag among many European countries in effectively rolling out COVID-19 vaccination programs.

“IAG has the added complication of being exposed to the wider international travel markets in Asia and the U.S.,” Hewson added. “While it does have a domestic base, with its Iberia and Aer Lingus brands, which could well benefit from a pickup in short haul flights, long haul is where the bigger margins can be usually found.”

Hewson noted that further delays will only put a further strain on IAG’s finances, with the company likely pinning its hopes on a U.S.-U.K. travel corridor.

Analysts were more positive about InterContinental Hotels Group, and the wider hotels sector, because these operators don’t require international travel to boost earnings and can lean on domestic tourists.

“A continuation of tough travel restrictions would mean domestic travel activity increases this summer and autumn, and hotel operators like InterContinental Hotels are well placed to capitalize on this trend,” said Russ Mould, an analyst at AJ Bell. “Given the difficult times, management probably wouldn’t care if rates don’t recover for a while—it’s all about filling the rooms and its prospects for doing so are picking up.”

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