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

About the travel sector

Travel and tourism is a broad sector with 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

Due to the pandemic, the past couple of years saw global commercial airlines fail to break even. 2023, however, was the first year since 2020 where they are on track to make a profit. However, relatively high inflation and an unstable geo-political environment remain major challenges.

Hotels

A handful of players dominate the global hotel market, most of them located in the US. Whilst the sector seems to be recovering from the pandemic, concerns regarding high inflation and the need to raise prices to cover the increased cost may inhibit growth in 2024, although this is abating.

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.

Cruises

The cruise sector is dominated by just three operators: Carnival, Royal Caribbean and Norwegian.

Of all the sectors, the cruise industry was hit particularly hard by the pandemic, but with passenger numbers recovering, signs of recovery are showing.

The top 10 travel shares to watch

1. Airbnb
2. Southwest Airlines
3. IAG
4. EasyJet
5. Marriott International
6. InterContinental Hotels Group
7. Booking Holdings
8. Trip.com
9. Expedia
10. On the Beach

The 10 stocks listed here are not necessarily the ‘best’ by size standards, but are chosen by virtue of revenues, market capitalisation, dividends, future growth prospects and other factors.

Airbnb

The company that launched a thousand couch surfs and small hospitality businesses alike, Airbnb is technically the world's biggest hospitality franchise that’s not a hotel.²

In its first quarter results, Airbnb grew revenues by 18% to $2.14 billion compared to the same period due to the continued strength in travel demand and the timing of Easter, the company said. The quarter was its most profitable first quarter ever, with net income of $264 million more than doubling from Q1 2023 and the company delivering a net income margin of 12% up from 6% in Q1 2023.

The shares trade on a price earnings ratio of 19 and are up 26% this year to $147.

Southwest Airlines

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

In its first quarter results it posted a net loss of $231 million, or $0.39 loss per diluted share. However, the airline also delivered record first quarter operating revenues of $6.3 billion. It had liquidity of $11.5 billion, and debts of $8.0 billion in the first quarter. Revenue per seat mile for the quarter came in lower than expected due to lower leisure passenger volumes.

Bob Jordan, president and chief executive officer told investors: "While it is disappointing to incur a first quarter loss, we exited the quarter with healthy profits and margins in the month of March. We are focused on controlling what we can control and have already taken swift action to address our financial underperformance and adjust for revised aircraft delivery expectations."

Analysts at broker Morgan Stanley think the shares could reach $38.

IAG

IAG owns British Airways, Air Lingus, Vueling and Iberia. In its recent first quarter results, the company said it had seen "strong demand" across its airlines, which has driven higher revenue." Operating profits before exceptional items rose by €59 million to €68 million (Q1 2023: €9 million), while passenger capacity rose by 7.0% versus the same quarter last year.

Chief executive officer Luis Gallego told investors: “Our transformation initiatives and increased demand, including over the Easter holidays, have delivered another very good set of results with improvements to both revenue and operating profit."

EasyJet

UK low cost airline EasyJet is reaping the benefits of the return of European holidaymakers following the Covid pandemic, seeing good growth in its EasyJet Holidays business. The division made a £30 million profit in the first quarter, up from £13 million last year. The company has also recently reintroduced dividend payments.

However, although half-year losses were lower than last year at £347 million, the airline shouldered a £40 million exceptional cost due to the effects of the war in Gaza.

The shares trade on a price earnings ratio of 9 and are down 4% this year to 465p. Analysts at broker Barclays think the shares could travel to 700p.

Marriott International

Marriott International is the largest hotel brand in the world and covers over 100 countries.

In the first quarter, RevPar (revenue per room) at constant currency rates increased by 4.2% worldwide, 1.5 percent in the U.S. and Canada, and 11.1 percent in international markets, compared to the first quarter of 2023. Meanwhile, net income came in at $564 million, compared to $757 million in the same period last year. Interest rate hikes meant interest payments on debt were higher at $153 million versus $111 million in the first quarter last year. However, Marriott has increased its earnings guidance and is returning up to $4.4 billion to shareholders this year.

Analysts at broker Argus think the shares could reach $280.

InterContinental Hotels Group

InterContinental Hotels Group (IHG) is one of Britain’s best-known hotel companies. It runs several different hotel brands, including Holiday Inn, Crowne Plaza and Regent Hotels. It is currently looking to expand further into Europe.

In its recent first quarter trading update, the company said that global RevPar (revenue per room) was up 2.6% year-on-year, but down 0.3% in the Americas, up 8.9% in EMEAA and up 2.5% in Greater China. The company signed an agreement in Germany with NOVUM Hospitality, which adds up to 17,700 rooms (119 hotels) or "+1.9% to global system growth".

The shares trade on a price earnings ratio of 23 and analysts at broker Berenberg think the shares could reach 7,400p and have a hold recommendation.

Booking Holdings

Booking Holdings is a world leader in the online travel sector. Owning many companies including Priceline.com, Booking.com, Kayak.com, Agoda.com and Cheapflights.com, the company specialises in connecting customers with travel providers around the world.

First quarter gross travel bookings were $43.5 billion, up 10% from the same quarter in 2023. Room nights booked increased 9% on the first quarter in 2023. Meanwhile, total revenues rose 17% to $4.4 billion and net income was $776 million, an increase of 192% from the same period in 2023.

Analysts at broker Argus think the shares could hit $4,342.

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.

In the first quarter Trip.com said both domestic and international businesses "maintained robust growth momentum," with domestic hotel and air bookings both up by over 20% year over year. Meanwhile, outbound hotel and air bookings both increased by over 100%.

Total revenue generated from the Company’s global platform, Trip.com almost doubled - up by 80% on the same period last year, while net revenues were up by 29%. Net income for the first quarter came in at RMB4.3 billion (US$599 million), compared to RMB3.4 billion for the same period in 2023.

Analysts at broker Barclays think the shares could reach $76.

Expedia

Another large player within the online travel sector, Expedia Group owns and operates many large companies within the sector including Expedia.com, Trivago, Carbookings.com, Orbitz, Travelocity and Hotels.com.

In Expedia's most recent results, first quarter gross bookings rose by 3% to $30.2 billion, while hotel bookings were up 12% compared to 2023. Revenues rose 8% to $2.9 billion compared to the same period in 2023, while net losses came in at $135 million - an improvement on the $145 million losses last year. The company said while the figures had met expectations, bookings were less robust and its Vrbo arm was not recovering as quickly as expected.

Analysts at broker BMO think the shares could reach $145.

On the Beach

In spite of the ongoing cost of living crisis in the UK, holiday company On the Beach is still seeing an increase in bookings. The company started 2024 with a record forward order book. In the first half results in May, the total transaction value (TTV) of holidays sold rose by 22% to £597.8 million from £491.7 million in the same period last year compared to the same period in 2023. Group revenues rose 11% to £80.8 million from £72.9 million in the first quarter of 2023.

Management of the company, which has signed a new deal with Ryanair, says the overall travel market remains strong, although the budget sector is currently "challenging" due to the ongoing cost of living crisis.

The shares trade on price earnings ratio of 14.5 and are worth watching.

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

Travel sector investing: what you need to know

Since 2021 travel stocks have all been about Covid-19 recovery, and for the most part, 2024 is no different, although the cost of living crisis in the UK also remains an issue. Despite the removal of all restrictions, the industry is yet to return to pre-pandemic levels.

Recent findings from the travel association ABTA³ suggest that for many, 'foreign holidays remain a top priority despite the rising cost of living’. This view is also reflected in the research conducted by the European Travel Commission⁴ (ETC), which found a significant increase in the number of holiday makers intending to travel in the first six months of the year.

What's more, most travel stocks have increased since the beginning of the year. Whilst this information appears hopeful, it is worth remembering the rates of decline these stocks have undergone since the beginning of the pandemic.

It's also worth noting that whilst leisure transportation has seen an uptick in the past few months, business travel remains significantly below pre-pandemic levels. With many businesses adapting and utilising online video platforms to facilitate remote working, there is some speculation as to whether levels will ever return to what they once were.

On a final note, the travel sector is vulnerable to macro-economic events such as the Israel/Hamas war in Gaza and the war in Ukraine, and further escalation could impact the travel industry.

There is also a concern that due to the increased cost, the number of holiday makers may level out once people have fulfilled their pent-up travel needs.

How to trade and invest in travel stocks

1. Learn everything you need to know about shares in IG Academy
2. Open a live 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 account to invest in tourism businesses with share dealing, and trade on their share prices using CFDs and spread bets. 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.

It's worth noting that CFDs and spread bets are leveraged products meaning you can open a position much larger than your initial margin. You can therefore gain or lose money faster than expected.

You can also, open a demo account if you’re not quite ready to commit real capital. You’ll get £10,000 in virtual funds to try out trading shares, indices, forex and more.

Sources:

¹ TIME, 2023
² HospitalityNet, 2021
³ABTA, 2023
⁴ ETC, 2023