ASIA-PACIFIC airline stocks have been top performers in the aviation play owing to the pandemic-recovery theme this year. Yet, there is still more runway for the stocks to rally, says analysts, as the region’s tourism industry has been a laggard.

As the industry gains more momentum next year, BNP Paribas said the main beneficiaries in marginal terms are likely to be found in Asia.

“With tourism not far off its usual levels across Europe and much of the Americas, the next obvious region to benefit is Asia,” BNP said in its report, dated Nov 17. The bank expects travel and tourism to account for 10 per cent of global GDP this year – not far off pre-Covid figures.

Asia’s travel and tourism numbers are still lagging as the region was slower to reopen its doors to international visitors.

Statistics from global travel data provider OAG show overall capacity in South-east Asia is still 29 per cent below levels back in November 2019.

Domestic capacity, boosted by a strong recovery in Indonesia and Vietnam’s domestic markets, is 19 per cent below 2019 levels. But international capacity still has a long way to go, at 43 per cent below 2019 pre-pandemic levels.

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A look at the share price performance of the world’s largest carriers, however, might suggest some of that upside is already priced in.

All Nippon Airways, for example, has recorded a near 20 per cent return this year. Investors were perhaps encouraged by the Japanese carrier’s H1 results, which showed a reversal into the black as it posted a profit of 19.5 billion yen (S$194.7 million) for the half-year ended Sep 30.

These results come despite Japan only having fully opened up to individual tourists on Oct 11, when most of the world had already been open for at least half the year.

Carriers based in the United States, however, have done quite poorly, despite international visitors being welcome in the US as early as November last year.

United Airlines Holdings has returned a negative 2.4 per cent, while Delta Air Lines has returned a negative 12.9 per cent, according to data from Google Finance as at Nov 28.

Mohshin Aziz, director of the Pangolin Aviation Recovery Fund, which invests in aviation-related businesses, said the disparity could come from risk aversion among developed market investors.

“The equity prices in America and Europe had risen way earlier and were correlated to their reopening and traffic recovery. However, the Russia-Ukraine war and the aftermath of high inflation is unsettling because none of the Western countries are accustomed to high inflation,” said Aziz.

“Asia is not directly affected by the goings-on of the war in Europe and most Asian countries are more adept at handling inflation. Therefore, the stocks have not de-rated (as much).”

Brendan Sobie, analyst at consultancy Sobie Aviation, said some of the strong performance of the Asia-Pacific airlines could be linked to the region’s speedy recovery.

“While Asia is behind the rest of the world, it has been recovering faster than initially expected when the reopening process in this region finally began earlier this year,” Sobie said. “The faster than expected recovery, which came across in some of the Q3 figures, and some of the recent positive developments are factors.”

At the same time, he added, some companies just have stronger fundamentals than others – and their share prices are a reflection of those fundamentals.

“Favourable market conditions are just one driver. It also depends on the particular airline and which combination of factors is driving the movements,” said Sobie.

He was also more cautious on the region’s outlook for next year, and warned of potential geopolitical and economic uncertainties.

“It is hard to entirely predict what the demand environment will look like but it’s unlikely to be as robust as the last several months,” he added. “Meanwhile supply will continue to increase as airlines restore capacity.”