The travel and tourism industry, severely impacted by the COVID-19 pandemic, is showing strong signs of recovery. While still navigating the aftermath, the sector has demonstrated resilience and potential for growth. The United Nations World Tourism Organization (UNWTO) reports that the global travel sector has recovered to 80% of pre-pandemic levels. This resurgence, coupled with innovative technologies and evolving consumer behavior, raises an important question for investors: Are Travel Stocks A Good Buy Now?
Understanding the Current State of the Travel Industry
One of the primary drivers behind the travel industry’s rebound has been “revenge travel,” where people are eager to make up for lost time and experiences during the pandemic. The easing of lockdowns and travel restrictions in China has also significantly boosted the industry, with the country accounting for 11% of annual online travel market growth.
Alt: Eager travelers at the airport, ready for their post-pandemic trips.
Trip.com Group Limited (NASDAQ:TCOM), a Chinese online travel agency, reported a remarkable 180% year-over-year (YoY) increase in net income in its second quarter, alongside a 22% sequential increase. Their Q2 results were encouraging for the airline and hospitality sectors as outbound hotel and air reservations recovered 60% to pre-pandemic levels. Furthermore, air ticket bookings on Trip.com’s platform nearly doubled to pre-pandemic levels, representing a 120% YoY increase.
HSBC analyst Meredith Jansen expressed a bullish outlook on the travel and leisure industry on October 23. This positive sentiment was evident when companies like MGM Resorts (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN), and Airbnb (NASDAQ:ABNB) were among the S&P 500’s top gainers. The analyst initiated coverage of nine travel and leisure stocks with a Buy rating, noting:
“We are bullish on new demand categories and the innovative technologies that can further enhance travel and leisure.”
Technological Innovations and the Future of Travel
Technological advancements have historically played a crucial role in the travel industry’s growth, and this trend is expected to continue. Expedia Group, Inc. (NASDAQ:EXPE) is one example, with their Vice Chairman and CEO, Peter Kern, highlighting the integration of AI into their platform during the second-quarter earnings call:
“On the topic of AI, earlier this year, we launched conversational trip planning, powered by ChatGPT and the Expedia iOS app. And last month, we launched it on the Expedia Android app. We have been learning from consumer interactions and are adding a number of new features to help consumers on their journey of discovery. Travelers can now start a new conversation by choosing from suggested prompts, and soon they will be able to return to a conversation at any time and even respond throughout a conversation by simply choosing a suggested response, all of which is designed to bring them one step closer to booking their desired trip.”
Industry-Specific Outlooks: Airlines, Cruises, and Hospitality
The airline industry, the most severely affected segment during the pandemic, faced $230 billion in losses in 2020, with airlines accounting for $167 billion of that amount. However, the International Air Transport Association (IATA) now projects the airline industry’s profitability to reach $9.8 billion by year-end, a significant increase from the previous forecast of $4.7 billion. Industry revenues are expected to rise almost 10% from 2022, although they will remain approximately 4% below 2019 levels.
Alt: Aerial view of planes taking off and landing, showcasing the airline industry’s activity.
The cruise industry is experiencing rapid growth. The Cruise Lines International Association (CLIA) projects passenger volume in 2023 to exceed 100% of 2019 levels, reaching 31.5 million passengers. By 2027, CLIA anticipates passenger volume to approach 40 million.
While the hospitality industry has performed well recently, STR and Tourism Economics have tempered growth expectations for the U.S. hotel industry. Revenue per available room growth forecast has been lowered by 0.5% to 4.5% for 2023 and 4.1% for 2024. Occupancy is expected to grow by 0.8% and 1% in 2023 and 2024, respectively, while the average daily rate is projected to increase by 3.6% and 3% in the same periods.
Top Travel Stocks to Consider
Given the increasing travel demand, investors may want to consider travel stocks such as Booking Holdings Inc. (NASDAQ:BKNG), Expedia Group, Inc. (NASDAQ:EXPE), and Delta Air Lines, Inc. (NYSE:DAL). These companies are well-positioned to capitalize on the industry’s recovery and future growth.
Key Travel Stocks to Watch
Here’s a closer look at some of the best travel stocks, based on hedge fund interest:
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Ryanair Holdings plc (NASDAQ:RYAAY): This Irish airline is rapidly expanding its fleet and expects traffic to reach almost 125% of pre-COVID levels.
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Tripadvisor, Inc. (NASDAQ:TRIP): A travel research corporation with a strong presence in numerous markets, showing promise in profitability.
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Travel + Leisure Co. (NYSE:TNL): Formerly Wyndham Destinations, Inc., this company provides hospitality products and services with positive hedge fund sentiment.
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Copa Holdings, S.A. (NYSE:CPA): The parent company of Copa Airlines, with strong analyst ratings and potential upside.
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Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH): One of the largest cruise operators, expecting positive net income and fleet expansion.
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Carnival Corporation & plc (NYSE:CCL): A major cruise operator with a strong Q3 performance and positive outlook.
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United Airlines Holdings, Inc. (NASDAQ:UAL): A major U.S. carrier with strategic fleet orders and strong financial results.
Conclusion: Is Now the Time to Invest in Travel Stocks?
The travel industry is undoubtedly in a recovery phase, driven by pent-up demand, technological advancements, and strategic adaptations by key players. While challenges remain, particularly in specific segments like hospitality, the overall outlook is positive. Investors should carefully consider individual company performance, industry trends, and their own risk tolerance before making any investment decisions. Travel stocks, with their potential for growth and innovation, could be a valuable addition to a diversified portfolio.
