China’s recent decision to lift the ban on group tours to the U.S., Japan, South Korea, and select European countries brings much-awaited relief to luxury stocks. While the immediate impact on visitor numbers to the U.S. may be limited due to bilateral flight restrictions, this move sets the stage for Chinese tourists to resume their pre-pandemic spending habits worldwide.
In May, the Transportation Department allowed Chinese carriers to increase weekly round trips to the U.S. to 12, matching the number of flights operated by U.S. airlines in the opposite direction. Before the pandemic, both sides enjoyed more than 150 weekly round trips. Although these restrictions persist, the lifting of the ban opens up opportunities for Chinese tourists to explore approved destinations and engage in overseas spending, which is positive news for companies like Visa (V) and Mastercard (MA).
Chinese tourists were the world’s largest spenders in 2019, with a staggering $255 billion spent abroad, as reported by the International Monetary Fund. On Thursday, China’s Ministry of Culture and Tourism expanded its list of approved group travel destinations, adding over 70 countries including Germany and the U.K.
This welcome development holds significant promise for the luxury goods sector, which notably benefited from Chinese consumers’ overseas spending. With group tours set to resume, an upward trajectory is expected for luxury stocks.
Sales Impact of Chinese Nationals in Europe
LVMH Moët Hennessy Louis Vuitton’s Chief Financial Officer, Jean-Jacques Guiony, recently addressed the contribution of Chinese nationals to sales in Europe during the company’s earnings call. He mentioned that this contribution has become significantly smaller compared to previous years. In fact, he stated that Chinese nationals used to account for a substantial portion of the business until 2019. However, at present, their presence is very limited. Guiony emphasized that there are no longer large tour groups from China, only individual travelers, and even they represent only a fraction of the total number of clients that the company used to have in Europe.
Stock Performance and Competitors
Following this news, LVMH (ticker: LVMHF) experienced a notable increase in stock value, with a 3.4% jump on Thursday. This positive reaction occurred despite the emergence of a potential competitor in the form of a proposed merger between Coach owner Tapestry (TPR) and Versace parent Capri Holdings (CPRI).
Other luxury brands also benefited from this development. Gucci parent company Kering (KER.France) witnessed a boost of 2.2% in its stock value, while Cartier owner Richemont (CFR.Switzerland) saw a significant jump of 2.5%.
Cross-Border Travel Recovery and Opportunities
During Mastercard’s earnings report last month, the company highlighted the progress made in the recovery of cross-border travel but also acknowledged the immense opportunities presented by China. Chief Financial Officer Sachin Mehra expressed optimism about the future, stating that there are still areas of potential growth, particularly when it comes to entering and exiting the Chinese market.