Travel companies are flying higher despite risk-off

Travel companies are flying higher despite risk-off by Saxo Group
Travel companies are flying higher this month being the only equity theme basket up for the month. Investors are betting on higher growth and margin expansion as vaccines are rolled out globally.

The best performing equity theme in September is our travel basket up 6.3% as of yesterday’s close with all other themes in negative. How come investors are bidding up travel companies when the world is undergoing an energy crunch which in theory should cut disposable income and increase travel prices?

Our basket consists of 40 stocks with exposure to the travel segment in different ways. Expectations for revenue growth next fiscal year are currently 31% for the industry highlighting the enormous pent-up demand expected for travel related activities as the global vaccine rollout continues. Analysts have price targets on average 10% above the current prices, but with 24-month forward EV/EBITDA already on par with the MSCI World the upside from here might be quite limited.

Name Industry Market Cap (USD mn.) FY22 Sales growth (%) Diff to PT (%) 24M Fwd EV/EBITDA 5yr return
Boeing Co/The Airliner manufacturer 128,021 26.1 25.6 15.5 80.3
Airbus SE Airliner manufacturer 106,662 6.0 18.8 9.1 127.4
Airbnb Inc Booking platform 105,977 68.5 1.3 51.8 NA
Booking Holdings Inc Booking platform 99,888 53.8 3.7 15.1 65.3
Marriott International Inc/MD Hotel chain 50,018 25.9 -2.8 16.3 139.1
Hilton Worldwide Holdings Inc Hotel chain 38,055 30.9 -2.2 17.9 198.6
Southwest Airlines Co Airlines 31,387 73.5 22.5 5.4 41.8
Amadeus IT Group SA Travel software 30,209 34.9 0.6 14.2 37.7
Carnival Corp Cruise lines 29,166 -56.1 9.7 8.9 -39.8
Delta Air Lines Inc Airlines 27,798 65.9 26.7 5.5 20.0
Aena SME SA Airport Services 25,592 9.6 2.4 13.2 23.8
Expedia Group Inc Booking platform 25,455 60.8 6.6 10.8 50.0
Royal Caribbean Cruises Ltd Cruise lines 23,424 -10.6 3.9 11.0 33.5
Ryanair Holdings PLC Airlines 22,076 217.5 12.2 7.7 38.1
Trip.com Group Ltd Booking platform 19,130 16.8 23.5 14.9 -35.6
Sydney Airport Airport Services 16,006 -26.1 12.3 26.3 43.3
Huazhu Group Ltd Hotel chain 15,269 30.8 26.2 19.1 325.6
Air China Ltd Airlines 14,151 29.9 32.7 6.5 4.0
Vail Resorts Inc Ski resorts 13,846 32.1 0.7 16.9 140.9
China Southern Airlines Co Ltd Airlines 13,540 22.1 30.2 8.1 3.5
Aeroports de Paris Airport Services 13,241 16.8 -7.1 13.1 39.3
Shanghai International Airport Co Ltd Airport Services 13,177 7.9 14.6 23.2 70.6
International Consolidated Airlines Group SA Airlines 12,326 14.8 23.7 5.1 -13.6
Host Hotels & Resorts Inc Hotel REITs 12,080 67.3 9.8 12.7 28.4
InterContinental Hotels Group PLC Hotel chain 12,022 38.4 3.4 14.7 60.5
Norwegian Cruise Line Holdings Ltd Cruise lines 10,335 -28.0 9.4 9.5 -25.9
Accor SA Hotel chain 9,645 40.2 11.2 13.9 -3.2
Whitbread PLC Hotel chain 9,208 160.2 6.8 13.0 8.7
Choice Hotels International Inc Hotel chain 7,201 37.7 -9.2 18.3 199.9
TravelSky Technology Ltd Travel software 5,654 18.1 21.8 7.4 -12.7
Grupo Aeroportuario del Sureste SAB de CV Airport Services 5,618 30.8 4.7 10.0 37.3
TUI AG Travel agency 4,996 -25.4 -32.6 6.0 -39.9
Travel + Leisure Co Hospitality services 4,958 39.5 24.3 8.6 123.5
TripAdvisor Inc Booking platform 4,801 55.4 24.4 10.2 -37.9
Park Hotels & Resorts Inc Hotel REITs 4,772 59.9 14.9 12.6 NA
Sabre Corp Travel software 3,849 30.8 11.0 13.5 -52.4
Flight Centre Travel Group Ltd Travel agency 3,062 183.3 -14.4 10.2 -21.8
MakeMyTrip Ltd Booking platform 2,703 131.9 29.1 44.1 9.4
On the Beach Group PLC Booking platform 858 -41.2 2.7 13.7 97.2
Airtrip Corp Travel agency 758 -15.1 12.1 10.9 156.4
Aggregate figures (sum or median) 976,938 30.8 10.4 12.8 37.5

Source: Bloomberg and Saxo Group

Two stocks that have done well this month are Japan based Airtrip and US based Expedia Group up 31% and 17% respectively. As with all other equities post the pandemic, travel companies have seen their market value rise dramatically despite the lack of revenue coming back to pre-pandemic levels. Take Airtrip, analysts do not expect revenue to move pass pre-pandemic levels until FY23 (ending 30 September 2023) which is two years into the future. Nevertheless are investors valuing the company 72% above the market value by FY19 before the pandemic hit travelling. The story is the same for Expedia, which is expected to see revenue reaching pre-pandemic level in FY22 and the booking platform is also seeing its market value being 65% above the pre-pandemic level.

Digging deeper into the numbers it is clear what is driving the expectation. Investors are betting that demand will be so excessive combined with constrained supply of airlines that travel companies will be able to set higher prices and thus see a significant margin expansion. The biggest threat to that outcome is the unfolding energy crunch and potential for higher commodity prices for quite some time eating into margins. We also see increasing evidence of wage growth pressures among lower income groups and with travel being people heavy this is also a growing threat.

Topics: Equities