Hedge funds make $1 billion from bets against travel companies

LONDON: Hedge funds betting against travel stocks this year made profits of $1.01 billion to end-July, and have $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% so far this year, and on Thursday the world's largest tourism firm TUI posted second-quarter losses of 1.1 billion euros. 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 ($1.01 billion) 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.

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.