TUI, Airbnb & Co. as beneficiaries of the boom: which travel shares promise strong profits

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by Florian Hielscher, Euro on Sunday

Finally! After two years full of restrictions, you can really travel again this year. And an enormous desire to travel has built up: According to the Federal Statistical Office, the number of overnight stays in Germany increased by 146.3 percent in the first half of 2022 compared to the previous year. In addition to domestic destinations, we also go abroad again. While individual trips such as camping in particular experienced a boom during the pandemic, popular holiday destinations for package tours such as the Mediterranean are now very popular again with relaxed restrictions and regulations.

The recurring desire to travel fuels the business of booking portals and travel providers and is already reflected in the company results: Airbnb, the broker of alternative accommodation, reported a quarter more booked overnight stays and events in the second quarter of 2022 than in the previous year. This resulted in an increase in sales of 58 percent over the same period of the previous year. The tills also rang at the online travel provider Booking Holdings, known for portals such as Booking.com and Kayak. For the first time since the outbreak of the pandemic, the number of overnight stays in the second quarter recovered completely and was even above the level of 2019. Accordingly, the Americans were able to almost double their sales from the same quarter in the previous year and, after losses, are now able to report a net profit again.

In Germany, the tourism group TUI reached 84 percent of the pre-pandemic level of 2019 in the second quarter of the current year. The companies are increasingly leaving the setbacks caused by the pandemic behind.

Possible killjoy

Before you pack the shares of the industry giants in your suitcase in addition to swimwear, there are also a few risks to consider. On the one hand, there is the pandemic, which is still rampant, albeit not as severely. Discussions about possible measures are already underway, as another corona wave is feared for autumn. A mask requirement indoors is under discussion.

Economic factors could also put a damper on the boom: In times of rising interest rates and high inflation, money for travel is no longer so easy. Savings Bank President Helmut Schleweis assumes that up to six out of ten people in Germany will have to spend their entire monthly income on their livelihood. Putting money aside for a long holiday trip seems difficult at first.

So far, however, inflation has had little impact on travel demand. “When I look at the second quarter, where we have already seen significantly higher prices for travel and hotels, the issue has had no negative impact on demand – on the contrary,” said Matthias Tillmann, CFO at the hotel search engine Trivago, in an interview with the “Börsenzeitung”. The question, however, is whether it will stay that way.

Sustained boom

Various restrictions could put a damper on the desire to travel. The stock market already seems to be pricing in some of these uncertainties. The courses at Booking, Airbnb, Expedia or TUI have come back a bit in the last few months. Nevertheless, there is still optimism that the boom will continue: Estimates by the US bank JP Morgan assume that the number of booked overnight stays and events on Airbnb and Booking in the remaining months of the year will be above the comparable periods of 2019. The experts only expect lower booking numbers from booking competitor Expedia.

The companies themselves are also looking positively to the coming months. Year-over-year, Airbnb expects room nights and events to grow in the third quarter, as in the second quarter. In addition, the average daily rates should be slightly above those of the previous year. The Hanover-based group TUI expects that this summer’s capacities will almost reach the level of the pre-pandemic summer of 2019. Booking Managing Director Glenn Fogel also got the shareholders in the mood for a successful month: “We are expecting record sales for the third quarter and are working intensively with our customers and partners to enable an extremely busy summer travel season.”

The US bank JP Morgan can gain a lot from the announced record quarter at Booking, but points to a slowdown in growth in the third quarter. The stock exchanges would possibly calculate with even higher growth rates. However, JP Morgan expects online travel companies to become more efficient going forward and generate higher margins than before the pandemic. Thanks to the pent-up desire to travel.

INVESTOR INFO

The Americans offer a wide range of online travel booking options under various brands, from hotels to flights and rental cars to restaurants. Analysts see Booking better positioned than competitors such as Expedia because of its higher exposure to alternative accommodation (e.g. houses and apartments instead of hotels). The broad positioning offers great growth opportunities, in view of which the valuation of the stock appears moderate.

Airbnb collects a fee as an agent for rooms, holiday apartments or unusual accommodations without owning any accommodations themselves. According to analysts, Airbnb is more geographically diversified than its competitors and hardly dependent on advertising. The stock’s sporty valuation contrasts with strong growth and good prospects. The company recently announced a $2 billion share buyback program.

The group expects a significantly positive adjusted EBIT for the year as a whole; the company did not provide a more concrete outlook. Analysts have recently been more skeptical. In the battered share price, a lot of negative things should be priced in, such as indebtedness with rising interest rates. Investors are hoping for new impetus from the change at the top. At the beginning of October, Sebastian Ebel will take over as chief. Wait.

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