MarketBites Daily Investment Commentary: Travel Prices Become Smarter I The New Big Short

Stock Market Commentary for 5/18/2021:


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Top Investment Story #1: Airlines Look To Recover
What is Happening?:

Covid-19 created distinct changes in consumer behavior surrounding travel. Consumers were not willing to book as far out as they once were, due to volatile virus numbers and regulation changes. In the short term, flight pricing algorithms were unable to adapt, now, they’re stronger than ever.

Why Does This Matter:

As the return to pre-pandemic life continues, many expect the coming two quarters to bring a domestic tourism boom. While analysts have pointed to pent-up demand as a catalyst for airlines and vacation planning providers, the return of predictable human behavior could arguably be more impactful.

Algorithms set to control the number of available seats for domestic flights were unable to adjust to a void of business travel and leisure vacations in 2020. The algorithms began to offer seats at record low prices, while cancellations caused ticket reimbursements and flight vouchers to cripple airlines and planning services.

The return of the algorithm, according to Benjamin Cany, head of the airline optimization group at Amadeus, shows that predictable human behavior can cause a 1% increase in total revenues for every 10% of gained flight visibility. Recent reports suggest that domestic flight visibility is still only around 15%, while international flights remain close to 0%.

Cany remarked that, prior to the pandemic, the Amazon-like algorithms were slowly being adopted. As airlines become desperate to roar back after a year of harsh losses, the technology has been aggressively implemented and trusted. The use of effective algorithmic pricing has given industry specialists a reason to believe that 5%-8% outperformance is not only possible, but quite attainable.

The Takeaway:

Consumers will not enjoy the return of the algorithm. As in the past, it will likely withhold supply, knowing that travelers will pay up if need be, in the coming months. Such dynamic pricing schemes have been harshly criticized in other industries. It will be an item to keep note of within the coming months of travel.

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– By Jack Dunne

– Published in MarketBites Daily Newsletter

Meet the Authors
Top Investment Story #2: The New Big Short
What is Happening?

Michael Burry revealed a short position he holds against Tesla ($TSLA), worth over half a billion dollars.

Why Does This Matter?

Burry is more commonly know for his actions in 2008, commemorated by the book and movie “The Big Short.” Burry held a short position against mortgage securities leading up to the 2008 crisis, where he cashed in big time for him and his clients.

Shares of Tesla fell more than 4% on Monday, bringing its month-to-date losses over 20%. Burry has openly criticized Tesla on Twitter for it reliance on regulatory credits to generate profits.

Tesla historically racked up around $1.6 billion in regulatory energy credits, aiding the firm in reporting more than four consecutive quarters of profitability. This lead to Elon Musk’s automaker to be added to the S&P 500 index.

Musk has over ten million followers on Twitter, and many people believe his actions on the platform are the cause of Telsa’s recent volatility.

The Takeaway:

Tesla shares have dropped nearly 20% in 2021, after surging a whopping 740% in 2020. Burry has made bets like this in the past with massive success, so keep an eye on Tesla.

By Jack Dunne

– Published in MarketBites Daily Newsletter

Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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