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 full year results for 2023, Airbnb delivered $9.9 billion in revenues - up 17% at constant currency rates compared to 2022 - and made net income of $4.8 billion. The company said it is seeing strong growth in nights and experiences but was hit by currency tailwinds. However, it made a net loss of $349 million in the fourth quarter.

The shares trade on a price earnings ratio of 21 and are up 35% this year to $156.

Southwest Airlines

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

In its most recent results, the company reported full year net income of $498 million, or $0.81 per diluted share. However, Southwest made a loss in the fourth quarter of $219 million. Nevertheless, revenues were at a record level of $6.8 billion in the fourth quarter and $26.1 billion for the full year.

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

IAG

IAG owns British Airways, Air Lingus, Vueling and Iberia. In its recent full year results, operating profits rose to €3.5 billion (from €1.2 billion in 2022) while operating margins almost doubled to 11.9% (5.4% in 2022). This was thanks to a restructuring programme at the company.

Capacity also improved by 22.6% in the full year, boosted by activity in its North Atlantic and South Atlantic markets. Despite concerns such as the Israel/Hamas war in Gaza and the conflict in Ukraine, passenger unit revenue rose by 8.2% thanks to strong holiday bookings. At 144p, the shares are currently valued at just 5 times earnings.

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 will be lower than last year, the airline says it will be shouldering a £40 million exceptional cost due to the effects of the war in Gaza.

The shares trade on a price earnings ratio of 13 and are up 7% this year to 552.3p. Nevertheless, this is still some way off their three-year highs of 884p, last seen in April 2021. 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 fourth quarter, RevPar (revenue per room) at constant currency rates rose by 7.2% worldwide - 3.3% in North America and 17.4% in international markets compared to the same period in 2022. Meanwhile, net income rose to $848 million, compared to $673 million.

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

InterContinental Hotels Group

InterContinental Hotels Group (IHG) is one of Britain’s most-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.

At the recent full year results in February group revenues increased by 19% to $4.6 billion from $3.9 billion last year.

The shares trade on a price earnings ratio of 22 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.

Fourth quarter revenues rose 18% to $4.8 billion compared to the same period in 2022. However, net income for the quarter fell 82% to $222 million. This was due to a loss of $276 million made on Booking's Netherlands pension fund issue and a further loss of $530 million related to a draft decision by the Spanish competition authority. Nevertheless, full year net income rose 40% to $4.3 billion.

Analysts at broker UBS think the shares could hit $4,000.

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 its fourth quarter results, domestic hotel reservations rose by more than 130% compared to the same period in 2022. Meanwhile, outbound hotel and air reservations both recovered to over 80% of the level seens pre-COVID in 2019. Net revenue rose by 105% in Q4, while net income came in at RMB1.3 billion ($189 million).

Analysts at broker HSBC think the shares could reach $60.

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 it posted record fourth quarter and full year revenues, up 10% in both periods compared to 2022. Meanwhile, full year lodging gross bookings grew 11% to record levels, while similarly record hotel gross bookings were up 18%, compared to the previous year.

Analysts at broker Royal Bank of Canada think the shares could reach $155.

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, according to its recent AGM trading statement, thanks to strong winter bookings. According to the company, the total transaction value (TTV) of holidays sold has increased by 27% compared to the same period in 2023.

Encouragingly, total transaction value in its business to consumer long haul division has also nearly doubled (up by 86%) compared with the same period last year. Meanwhile, chief executive Shaun Morton says he is “confident” that bookings for summer 2024 will be “significantly ahead" of last year's figures.

The shares trade on pricey price earnings ratio of 24 but could be 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