Travel Stocks And The Tourism Industry: Investing As The Market Boom Continues

The travel and tourism industry is healthy and thriving, now accounting for more than one-tenth of the national GDP, according to a recent Deloitte report. Last year alone, bookings added up to a staggering $1.6 trillion, due in no small part to a strengthening global economy, increased consumer spending, intensified airline competition resulting in lower fares, and a healthy demand for corporate travel initiatives.

As forward-thinking investors, this presents a lucrative opportunity to invest in travel stocks, and there are certainly many avenues through which you can do so. After all, the industry itself is valued at around $2.3 trillion and if future projections hold true, that number isn’t looking to dip any time soon. Yet, before going out and investing in every opportunity that presents itself within the sector, it’s wise to consider what’s behind this upward industry momentum.

When customer discretionary spending is up, so too is the travel and tourism industry. As such, when it’s down due to uncertain economic conditions, the industry dips right along with it. This makes the stocks sensitive, as that negative shift in perspective and habit could occur at a moment’s notice. The same holds true for major events like recessions, which can be detrimental to an industry so dependent on client cash flow.

In general, experts recommend focusing your investment interests in one of four primary areas, all of which have historically performed well despite slowdowns in consumer spending. These include:

Major, Established Hotel Chains: Think Marriott MAR and Hilton HLT over smaller boutique establishments.

Well-Known Commercial Airlines: These include American Airlines AAL and Delta Airlines DAL, as well as United Continental UAL.

Cost-Comparing Travel Booking Websites: These are sites that help customers compare pricing for airlines, hotels, rental cars and more. Some of the top players in this category include Priceline Group PCLN and Expedia EXPE.

Cruise Lines: Recent reports show that 2.7 million people are expected to board cruise lines in 2018. Focus investments on ones that have proven track records and a steady customer following, such as Royal Caribbean RCL or Carnival CCL.

Why Invest in Hotel Stocks?

With the rise of alternative lodging accommodations, primarily Airbnb, investors might wonder how the chain hotel industry is holding up. The good news is that even amid home rental services expanding, hotels are still holding steady. The two parties have been at odds since the latter’s inception, primarily due to claims around Airbnb’s questionable operational practices and lodging methods. Yet, as the company’s revenue reached $1 billion in Q4, it stands to reason that it’s not going away any time soon. At the current time, however, it appears that there’s room enough at the table for both sectors. Investors should remain cognizant of room rental rates on both sides, as an increase will often trigger stock prices to likewise rise.

How the Airline Industry Fits In

Historically, airline stock has been iffy, especially as over-competition and industry saturation drove prices down. Now, however, there are four top airlines that dominate a substantial 80% of the market, including American Airlines, Delta Airlines, United Airlines, and Southwest. As fuel prices continue to dip, profits are back up at a healthy margin and that, coupled with an increase in consumer spending, has helped bolster their bottom lines.

Still, with factors such as oil prices, competition, weather conditions and more impacting the state and performance of the airline industry, these stocks can tend to be somewhat volatile. Investors can keep a close eye on key metrics, including PRASM (passenger revenue per average seat mile) to monitor how the market is performing.

Booking Sites and Cruise Lines: Disruptors and Comeback Kids

Next, let’s take a look at booking sites like Expedia. Taking the place of a traditional travel agent, these sites have boomed in recent years thanks to a budding consumer tech-savviness and increased interest in cost-consciousness. While competitors, including Trivago, have come into play in recent years, they’re not threat to industry giants like Priceline, which has grown more than 1,600% in the last 10 years. As the latter continues to expand its international presence and take on strategic acquisitions such as Kayak, growth appears to be steady.

In a similar vein, cruise lines are also experiencing a period of solid growth, which is good news as the industry dipped slightly around five years ago. Yet, as Carnival continues to expand its reach and looks to invest heavily in China (currently only 6% of its market), this industry is expected to continue to grow.

Like the airline sector, cruise line revenues are also dependent on the price of fuel, as well as weather and environmental conditions. Investors should monitor cabin capacity to determine how well each major cruise line is performing and identify any pending weak spots that might turn into red flags. Moving forward, the travel industry appears to be a solid bet when it comes to investing, though it’s important to stay up-to-date with the trends and patterns. For those willing to ride the ebb and flow, however, the payout could make the journey worth it.