Hedge funds gain from travel turbulence as short bets in Lufthansa, TUI and IAG take off

Turbulence

Hedge funds have collected almost EUR200 million from successful bets against the embattled travel and leisure sector, with short positions in Lufthansa, TUI and IAG driving the bulk of the gains recently.

New analysis by Ortex, the London-based equity analytics firm, shows short sellers made EUR196 million in profits from component companies of the STOXX Europe 600 Travel & Leisure Index in July - a sharp rise from the EUR41 million worth of gains in June.

Bets against major airlines and package holiday groups fuelled returns as the ongoing coronavirus pandemic has put European consumers’ summer vacation plans on ice. Deutsche Lufthansa AG, TUI AG and International Consolidated Airlines Group S.A. accounted for EUR191 million of the total profit across the index, Ortex said.

On the flipside, hedge funds’ bearish bets in certain gambling companies in the index went awry.  Short losses of some EUR52 million were registered following better-than-expected performances from gaming stocks including Flutter Entertainment, Evolution Gaming Group and the operator of France’s lottery, La Française des Jeux.

Peter Hillerberg, co-founder of Ortex Analytics, said ongoing concerns about coronavirus, coupled with the looming risk of local lockdowns and quarantine restrictions, has impacted consumer confidence in the travel sector over the summer.

This underlying nervousness has squeezed the balance sheets of firms that depend on the summer holiday peak period for the majority of their profits, he explained.

“Europe’s summer holiday season has been thrown into disarray by Covid-19,” Hillerberg observed.

“With uncertainty looking likely to continue throughout August and beyond, the European travel sector needs to fasten its seat belt and prepare for more turbulence throughout the summer.”