Travel stocks: how to invest and the best companies to watch

Travel sector investing: what you need to know

The travel and tourism industry contributed over $9 trillion to global gross domestic product (GDP) in 2019, making it one of the largest sectors on the planet.

That’s perhaps unsurprising, though, given how broad the industry is. There’s a huge variation in the products and services offered – and the businesses offering them. A boutique travel agency, for example, is an entirely different proposition to an international airline.

However, when investors talk about travel stocks they’re usually referring to companies in any of the following four main sectors:

1. Airlines
2. Hotels
3. Bookings
4. Cruises

Airlines

Global commercial airlines generated a record $838 billion in revenue in 2019. On the stock market, the industry is usually broken down between US and European carriers – with European companies expected to see significant consolidation in the coming years. Coronavirus is likely to make this an even more pressing concern.

Hotels

A handful of players dominate the global hotels market, most of them located in the US. Traditional hotels have been challenged by upstart tech firms such as Airbnb in recent years, which is expected to float in the near future.

Casino hotels are some of the key players in the resort market, particularly in the US and China.

Bookings

The time when this industry was dominated by travel agencies is well over. Now it’s the domain of online booking providers such as Booking.com and Expedia in the US, and Trip.com in China. In the UK, this came to a head with the 2019 collapse of Thomas Cook.

Cruises

Cruise companies have had a torrid 2020 so far, and recovery from the disastrous headlines brought about by coronavirus is likely to be slow. The cruise sector is already dominated by just three operators: Carnival, Royal Caribbean and Norwegian.

How to trade travel stocks

1. Learn everything you need to know about shares in IG Academy
2. Open a live IG Bank account to buy and sell thousands of global stocks, including the world’s biggest travel companies
3. Use fundamental or technical analysis to identify your first opportunity
4. Open your position

You can use your IG Bank account to trade on the travel shares prices using CFDs. With these derivatives, you can choose whether to open a long or a short position on travel stocks – by opening a short position, you can make a profit when the industry is in a bear market.

Alternatively, open an IG Bank demo account if you’re not quite ready to commit real capital. You’ll get CHF 20,000 in virtual funds to try out trading shares, indices, forex and more.

The top 10 travel shares to watch

1. Southwest Airlines
2. Air China
3. Ryanair
4. Las Vegas Sands
5. Marriott International
6. InterContinental Hotels Group
7. Booking Holdings
8. Trip.com
9. Carnival
10. Royal Caribbean

^{*As of 2 April 2020}

The ten stocks listed here are some of the most valuable travel companies by market capitalisation in each area of the industry, across the US, China, UK and Europe.

Southwest Airlines

Southwest Airlines is the biggest low-cost airline on the planet, focusing mostly on domestic flights within the US.

The US airline industry is dominated by four ‘majors’: Southwest, Delta, United Airlines and American Airlines. At the beginning of 2020, Delta was the largest airline – in the US and the world – by passenger numbers, revenue and market cap. But in the turbulence that has hit the markets since, Southwest exceeded it in value.

Delta shares fell some 60% in the first three months of the year, while Southwest only fell 40%. That’s mostly down to its healthy balance sheet, which investors believe could help the business come out of the current crisis ahead of its competitors.

Air China

Air China is the flag carrier for the People’s Republic of China. Like Southwest, it wasn’t China’s largest airline at the beginning of the year – China Southern and China Southern were both bigger – but has fared better than others in the global turndown.

The 30% fall that Air China has seen in 2020 so far represents a relatively robust performance for an airline in current times. In Air China’s case, the company’s status as the official airline for China may have helped dampen the effect of global travel bans on its share price. After all, the Chinese government could be unwilling to let its flag carrier fail.

Air China has a dual listing on both the London Stock Exchange (LSE) and Hong Kong Stock Exchange (SEHK).

Ryanair

Ryanair is Europe’s leading budget airline. Its shares have fallen around 40% so far this year, which compares favourably to the 50% and 60% falls seen by European rivals Lufthansa and easyJet respectively.

The oil price crash should have been a boon to Ryanair, but wasn’t. The company had already hedged the majority of its fuel costs, meaning that oil’s drop to $27 a barrel provided little relief.

Unlike many other airlines, Ryanair doesn’t pay a dividend to shareholders. It does, however, pay occasional special payouts when it has the cash to do so.

Las Vegas Sands

The largest hotel company in the world by market cap is Las Vegas Sands. It operates casinos and resorts around the world, including two on the Las Vegas strip: the Venetian and the Palazzo.

Like Southwest Airlines, Las Vegas Sands has a strong balance sheet with comparatively low debts that may help it ride out the ongoing storm. The company generates much of its revenue from Macau, which could bounce back from coronavirus faster than other cities – casinos are open there, although the island is still closed to visitors.

Las Vegas Sands is paying out an all-time-high dividend of 7.85%.

Marriott International

The top pure-play hotel company, meanwhile, is Marriott International, with a market capitalisation of £16 billion. The company was trading at a record high of $150 per share at the beginning of the year but slumped below $60 by April, wiping out four years of growth.

Like many travel companies, Marriott is essentially waiting for the world to return to some form of normality so that people can holiday again. It announced that its hotels were below 25% capacity in the US and Europe, against 70% last year. It has furloughed many of its staff.

InterContinental Hotels Group

InterContinental Hotels Group (IHG) is Britain’s most-valuable hotel company. It runs several different hotel brands, including Holiday Inn, Crowne Plaza and Regent Hotels.

IHG shares have fared slightly better than Marriott’s in 2020, losing around half of their value. The company announced a swathe of measures to save capital in late March, boosting hopes that it could weather out the crisis. Its share price popped 15% on the announcement.

Booking Holdings

The biggest travel company in the world is Priceline.com, which owns and operates Booking.com, Kayak.com, Agoda.com and Cheapflights.com – plus several other metasearch sites.

Those sites have been hit just as much by coronavirus as hotels and airlines, with total bookings down for the foreseeable future. That has played out on Booking Holdings’ share price this year, which is down around 40%, compared to a 23% fall for the S&P 500.

Trip.com

Booking Holdings’ main stock market rival is currently Trip.com, a Chinese company that runs its namesake website as well as Skyscanner, Ctrip and more. Trip.com is the largest online bookings company in China.

Its share price has performed roughly in line with Booking Holdings, falling around 41% so far in 2020. The company’s chief executive officer (CEO), Jane Jie Sun, says that she expects ‘pent-up demand’ to drive a recovery for Trip.com later in the year.

Trip.com is listed on the NASDAQ and is a constituent of the NASDAQ 100.

Carnival

Carnival is the world’s leading cruise company, with around 100 vessels split across ten brands.

Cruise operators have been among the worst-performing global stocks in 2020. Carnival has been no different, dropping over 80% so far this year thanks to tumbling bookings and unwanted headlines for several of its ships.

The business announced a $6 billion recapitalisation at the end of March. It also suspended its dividend.

Royal Caribbean

Royal Caribbean is Carnival’s long-standing cruise rival – and has also seen its share price plunge over 80% this year.

The question now becomes whether the business has the resilience to survive until demand for cruise holidays picks up once more. The stories of cruise ships becoming breeding grounds for coronavirus may mean that demand returns slower for cruises than other travel industries.

Open an IG account today to buy and sell the world’s top travel stocks.

How to analyse travel shares

The variation within the travel sector means that a one-size-fits-all approach to fundamental analysis doesn’t really work.

Airline investors, for example, might look at revenue per available seat mile (RASM) or load factor, which measures how full the average flight is. Hotels, meanwhile, are often analysed on occupancy data. And online booking firms are tech stocks, judged on entirely different criteria again.

Coronavirus, however, has levelled the playing field somewhat. With revenues and profits dropping severely across most of the sector, the question for tourism stocks is whether they can hold out until demand picks up again. So investors are paying closer attention than ever to balance sheets, using metrics such as liquidity and leverage ratios to assess each stock's short- and long-term solvency.

Trading travel stocks summed up

• The travel industry is made up of stocks across airlines, hotels, bookings and cruises
• Some of the leading players include Southwest Airlines, Marriott Hotels, Booking Holdings and Carnival
• There are lots of different metrics you can use to analyse tourism businesses
• Open a live account to buy and sell hundreds of travel stocks