Following nearly three years of pandemic-induced lockdowns and travel restrictions, travel and leisure companies, including airlines are showing signs of steady recovery, despite the global economy beginning to soften on the back of higher interest rates.
The soaring performance of travel stocks witnessed in the last several months, which was largely driven by pent-up demand, the stronger dollar, and travelers rescheduling their trips after enduring a summer of travel chaos last year – managed to boost company performance, both in their financials and on the stock market.
In a report by the U.S. Travel Association published in August, traveler spending remained 1.2 percent higher in July 2023 compared to the same period last year. What’s more, spending remained above last year’s levels for three consecutive months and was up by 4.1 percent year-to-date through July 2023.
On the back of soaring air travel demand, which was up 12 percent in July 2023 compared to July 2022, airline operators reported strong performance during the mid-year earnings season.
Among the travel stocks that posted increases is Delta Airlines
Delta Airlines (NYSE: DAL) posted $14.61 billion in revenues during its Q2 2023 earnings, representing an 86.11% year-over-year jump. At the same pace, United Airlines (NASDAQ:UAL) reported an impressive 17% year-over-year increase in revenue for Q2 2023, with around $14.81 billion in quarterly revenues, outpacing Wall Street analysts’ estimates by 24.9%. UAL stocks are up by 33% year-to-date.
Considering the tougher consumer spending market, largely influenced by higher interest rates and sticky inflation, travel and leisure stocks have managed to weather difficult economic headwinds, leaving investors looking to scoop up higher performers amidst seemingly volatile conditions.
This year has already thrown a wrench into the works for investors, leaving them seemingly bearish over the wider macroeconomic landscape.
Despite the central bank’s aggressive inflation-busting policies, further difficulties in the macroeconomic realm, following the collapse of Silicon Valley Bank and other regional banks earlier in the year, and the U.S. debt ceiling crisis, investors were left hawkish over the potential of a soft economic landing.
However, as prices have begun to stabilize in recent months, and more positive economic data, including steady unemployment figures and sinking inflation – investors could begin to change their tone once again, looking to cash in on value-driven stock picks against the backdrop of better-than-expected earnings.
Perhaps the most significant turn of events has been the steady demand for artificial intelligence (AI) both within the commercial and investor landscape.
Companies, big and small, are now throwing their weight behind the advancement of AI tools, with travel and leisure companies steady on the heels of these developments.
Following the chaotic summer travel season experienced last year, travel companies, including airlines are now heavily investing in new artificial tools to assist with soaring traveler demand.
An earlier report by Skift.com revealed that Amazon Web Services (AWS) announced plans to launch a new $100 million program that will enable customers to develop and build new AI-generated platforms. These efforts have already paid off for some hospitality groups, including Hyatt Hotels (NYSE:H), which raised more than $40 million in revenues after six months of working with AWS.
Several other names in the travel planning and booking industry, including Expedia (NASDAQ:EXPE), Booking.com (NASDAQ:BKNG), and Tripadvisor (NASDAQ:TRIP), among others, have since launched AI-powered tools that aim to help customers throughout the booking process, and further streamline the online user experience.
Travel and leisure companies have embarked on a race to adopt advanced artificial tools, not only to further assist with higher-than-usual customer demand but to further remain attractive stock options for investors as a steady slowdown in travel demand is expected once consumers begin to recede in the coming months.
With investors still unsure in which direction the post-pandemic economic recovery will swing, a handful of travel and leisure stocks are witnessing soaring investor interest on the back of strong earnings and soaring stock market performance.
Paradise, Nevada-based developer, Wynn Resorts, Limited (NASDAQ:WYNN) experienced a strong second quarter, following the release of its Q2 2023 earnings. The company boasted more than $1.60 billion in quarterly revenue, an increase of 75.95% compared to the first quarter, and a further 180% boost in net income.
The company currently operates across four locations, including Wynn Las Vegas and Encore Boston Harbor, Wynn Macau, and Wynn Palace, Cotai. During the Q2 2023 shareholder meeting, CEO of Wynn Resorts, Limited, Craig Billings said that both North American locations are currently their biggest financial drivers, while strong demand in Macau continues to represent positive traveler spending and steady demand.
Stocks are currently 12% below their earlier peak of the year, however, overall year-to-date performance has surged by 18.72%, and after falling more than 13% in August, WYNN has already gained 8.27%.
Multinational hotel group, Hilton Grand Vacations Inc (NYSE:HGV) has a strong and diversified portfolio, with representation across 15 U.S. cities, and further boasting with resorts in Canada, the Caribbean, Mexico, Japan, the United Kingdom, and selected countries in Europe.
Overall, the company experienced a steady increase in revenues compared to Q2 2022. In total Q2 2023 revenues were $1.07 billion, compared to $948 million over the same period last year. On another positive note, total operating expenses were down 23.08% for Q2 2023, while there was a significant improvement in total net income growing 8% over the quarter. Based on their second quarterly financial reports, the company has more than $11.8 billion in contract sales pipeline.
Stock market performance has been somewhat forgiving, raising 16.12% year-to-date, and further seeing steady improvement since falling sharply in March this year. Favorable consumer spending conditions and a healthy balance sheet are helping the company relinquish earlier losses and have positive upside potential.
Next on our list is the American travel company, Expedia Group (NASDAQ:EXPE) which recently received a strong recommendation from seasoned investor Jim Cramer, on the back of shares having gained 4.85% over the last 12 months, compared to the overall 9.4% gain of the S&P 500.
More than this, similar to competitors, the company has endured a seemingly positive second quarter, with both revenue and net income rising 5.56% and 301.11%, respectively, for the quarter ending June 2023.
A closer look at the company’s overall balance sheet indicates that while travel and leisure have endured some challenging performance years, Expedia has held strong, and has more than $804 million in free cash flow.
Their solid performance and diverse business strategy have kept share prices in the near $100 per share region for the majority of the year. Share prices hit a peak at the end of July 2023, trading at $122.53 per share, and have since slipped just under 11%. Year-to-date performance has overall remained steady, with share prices already up by 24.95% to date.
Another crowd favorite among serious investors is the American travel aggregator Booking Holdings (NASDAQ:BKNG), which has recently revised its yearly price target range, climbing by 11.78% for the full year.
BKNG is considered a high-value stock and currently sits at a year range of $1,616.85 – $3,251.71. However, recent revisions have now set new price targets at $3,392.30 per share, which might be somewhat outside of the comfort zone for novice value investors.
Based on Q2 2023 earnings and financial results, the quarter indicated a steady influx of traveler demand, with total gross travel bookings, inclusive of taxes, fees, and travel services rising by 15% compared to Q2 2022.
The company reported an overall increase in room nights booked, jumping 9% between Q2 2023 and Q2 2022, and total revenue was up by 27% for the quarter, representing an increase of 27% from the same period last year.
Investors attending the quarterly earnings call were pleased to see that the company has also raised net income, booking in $1.3 billion, a solid 51% increase from the same quarter last year.
The company holds a steady business model, and an even more diverse portfolio, allowing it to evenly distribute its free cash flow, and invest in new developments, among them being the integration of artificial intelligence to improve customer experience, and provide more streamlined results.
One cannot talk about favorable travel and leisure stocks and not mention Irish-based airline operator, Ryanair Holdings (NASDAQ:RYAAY).
Not even the pandemic could keep Ryanair grounded, and while many other popular airline operators in the U.S. and Europe struggled to weather the effects of lockdowns and travel restrictions, Ryanair CEO Michael O’Leary kept operations fairly normal at the time.
By September 2020, the company reported profits of €1.371 billion, at a time when the majority of air travel was still under red tape and fleets remained grounded. Less than a year later, by July 2021, at the height of the Delta variant, RYAAY shares were higher than before the pandemic started, outpacing the European conglomerate IAG which operates British Airways and Aer Lingus, and further outperforming easyJet by 50%.
Matthew Hart of automotive firm Axlewise shared that despite consumers, and perhaps more so, travelers having to tighten their purse strings somewhat further this year due to rising fuel costs, Ryanair provides European travelers with an affordable and straightforward solution that outpaces the need for them to rely on other modes of transportation.
“They have a good business model, and considering the direction in which oil prices have moved over the last several months, consumers will continuously look for affordable alternatives that get them where they want to be, without having to pay an arm and a leg for it,” said Hart.
This year has been no different for the company, with shares of RYAAY already up by more than 30% to date, and the airline reported soaring revenues of above $3.6 billion for the quarter ending June 2023.
During August the company transported more than 18.9 million passengers, an increase of 11% compared to the same time last year, and has further added an additional 1.6 million extra seats for the upcoming holiday period.
Based on their optimistic forward-looking guidance, and strategies to increase the number of passengers within the next several months, RYAAY is a cheap stock pick considering share prices are trading steadily below the $100 per share mark.
The answer contains a somewhat mixed bag of results, and considering the strong performance of some travel and leisure companies during the last several months, the softening economy might lead consumers to cut back on leisure spending, and perhaps return in the better half of next year.
Considering the broader market, with the Dow Jones U.S. Travel & Tourism Total Stock Market Index (DWCTTR) steadily making improvements this year, which has already jumped by 58.18% to date, the forward-thinking solution would be to buy strong-performing travel stocks, while they are still below their 52-week peak.
We see this not only in the U.S. but perhaps in the wider spectrum, as the FTSE 350 Travel and Leisure Index (INDEXFTSE:NMX405010) has been regaining traction throughout much of the year, with performance up roughly 24.58% over the last 12 months.
Overall, conditions remain volatile, and investors need to provide further diversification to their portfolios if they seek to buy-in on travel and leisure stocks. Given the trajectory in how things have developed over the last few months, we can perhaps expect the travel industry to reach full recovery by early summer next year, leaving investors to thoroughly leverage their positioning.
Countless opportunities are now steadily presenting themselves to the travel industry, and as the sector begins to invest more in the development of artificial intelligence and advanced technology, the upcoming years will be brimming with activity. Let’s hope another global catastrophe doesn’t completely derail this performance.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
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