New boom in the travel sector in 2024, but there are shadows on the stock market

Apart from wars, inflation and rising flight and hotel prices, global tourism in 2024 will exceed the 2019 peak by 8% with 12% year-on-year growth. This is equivalent to 10% of global GDP compared to 9.1% in 2023 and the 2019 peak of 10.4%. Particularly in southern European regions, the good performance of tourism more than offset the negative performance of other sectors. According to Nomura analysts, in the second quarter of 2024 domestic demand in the euro area contracted and GDP growth was revised 10 basis points lower. But it was tourism in the peripheral areas of Europe that prevented the economic contraction. Merit also goes to the Olympics in France, which gave a strong boost to international arrivals.

According to Nomura, French GDP growth in the third quarter will receive a tourism boost as a result of the Olympics and will most likely offset the weakness of the French industrial sector. Not only that. The data suggest that most of the net trade contribution came from the export of services arriving in Southern Europe from tourism. Thus, it seems that the good performance of tourism is keeping the euro area afloat. A trend that is expected to continue in the third quarter of 2024. 'In reality, while growth is certainly not over, compared to the strong recovery phases of 2022 and 2023, there is some slowdown,' explains Kevin McCarthy, equity analyst at Neuberger Berman, 'as consumers are struggling with prices. Airfares have moderated in the spring, but airport traffic volumes continue to slow (from +7% in January to +5% in August) and hotel prices may flatten out by the end of the year, up from +3% in January'.

On the stock exchange it is a very composite sector (it includes hotels online operators, shipping companies, but also airlines) and today it seems to be characterised by lights and shadows. 'Since the beginning of the summer, demand for travel/hotels has been very high,' explains Filippo Diodovich, senior market strategist at IG Italia, 'but fierce competition between groups has eroded margins and led some famous stocks to lose considerably. The main ETFs linked to the world of tourism have shown a performance very close to zero since the beginning of the summer, despite strong fluctuations in the period under review (boom in sales in July and marked purchases in August)'. If, for example, the performance of Expedia, Booking.com, Marriott International, Hilton, Intercontinental and Accor was positive, the losses for Tripadvisor, Airbnb and all the airlines were heavy. 'Airbnb faced difficult challenges from much tighter regulations in major urban markets and weaker-than-expected bookings,' Diodovich explains. Inflation has also hit consumer discretionary spending, particularly on more expensive accommodation. TripAdvisor failed to fully capitalise on the trend. Increased competition in the industry, combined with a shift in consumer behaviour towards more direct bookings, hurt Tripadvisor's performance'.

As the expert further reminds us, Expedia and Booking.com, on the other hand, have prospered. The diversification choices between flights and hotels have attracted travellers looking for all-in-one solutions. Expedia (editor's note: Goldman Sachs has a buy rating on the stock, raising its rating from $184 to $200) has shown resilience, thanks to a diversified platform that embraces various travel needs.

'Despite the challenges, tourism stocks remain in the spotlight,' Diodovich concludes, 'as global travel demand remains strong. But companies like Airbnb and TripAdvisor will have to overcome many obstacles to win back investors'. Kevin McCarthy's short-term expectations point to a cyclical adjustment phase over the next six to 12 months, while on a three-year horizon he foresees a secular expansion underpinned by multiple factors: younger travellers in developed countries (with an experiential orientation), high-net-worth baby-boomers, and growing wealth in emerging markets. Among the stocks, the preference is for cruises "which offer a significant discount compared to land-based alternatives (around 30 per cent)," McCarthy concludes, "and should continue to benefit value-seeking customers. Here we prefer Carnival Corp, which is also undergoing reorganisation with new management focused on delivering value to shareholders by improving its balance sheet".