Hedge funds make US$1b from bets against travel companies

[LONDON] Hedge funds betting against travel stocks this year made profits of US$1.01 billion to end-July, and have US$2.98 billion in short positions outstanding in the industry, regulatory filings and investment bank stock lending data shows.

The coronavirus pandemic has inflicted huge losses and share price falls on airlines, hotels and cruise ship companies as lockdowns, travel bans and quarantines disrupted summer holiday plans for millions across the world.

Europe's travel and tourism share index has fallen 30 per cent so far this year, and on Thursday the world's largest tourism firm TUI posted second-quarter losses of 1.1 billion euros (S$1.78 billion).

Big hedge funds such as Citadel, Sandbar Asset Management and Marshall Wace homed in on the tourism industry to take short positions, filings show.

The hedge funds declined to comment.

Calculations by data provider Ortex Analytics showed short sellers earned 853.6 million euros in the first seven months of the year, up from 174.1 million euros over the same period in 2019 from shorting tourism related stocks.

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Hedge funds profit when they borrow a stock from an institutional investor and sell it back when the price falls, pocketing the difference, a practice known as short-selling.

Airline Deutsche Lufthansa proved one of the most profitable, making short-sellers more than 150.3 million euros in profit over the period, according to the Ortex data.

Other heavily shorted stocks were French hotel company Accor , TUI and cruise line Carnival Corp, based on Ortex data.

Some hedge funds ramped up short positions during strict lockdowns between March and May, before easing them as Europe seemed to become successful at reducing infections. But fresh localised outbreaks and new lockdowns induced them to renew the shorts.

Sandbar, for example, steadily upped its Deutsche Lufthansa short position to 0.7 per cent between April and July, then lowered it to 0.57 per cent on July 2. It then increased it again from July 24, filings showed.

Travel and tourism companies currently have US$2.978 billion shorts currently outstanding against them, up US$200 million in the past month, Ortex data shows.

The stocks have staged a modest rally since early August, but that has largely attracted more short-sellers, Peter Hillerberg, co-founder of Ortex, said.

"This isn't the end of the story; already in recent days we've seen new positions open as investors seek to take advantage of higher share prices," he said.

REUTERS