Tourism is forecast to return with a vengeance this year as people get vaccinated against the novel coronavirus and economies around the world reopen. This will be welcome news for travel stocks.
Segments from cruise ships to museums are expected to rebound in 2021. And popular sun destinations in the Caribbean and Central America are forecast to see a massive influx of tourists in the latter part of this year as people again feel comfortable congregating in-person.
As travel bounces back, we take a look at these seven travel stocks that are likely to benefit:
- Southwest Airlines (NYSE:LUV)
- Royal Caribbean Cruises (NYSE:RCL)
- Six Flags (NYSE:SIX)
- MGM Resorts (NYSE:MGM)
- Marriott International (NASDAQ:MAR)
- SeaWorld (NYSE:SEAS)
- Hyatt Hotels (NYSE:H)
Travel Stocks: Southwest Airlines (LUV)
The world’s biggest low-cost airline has struggled during the pandemic, forced to cut 90,000 flights to the Caribbean and other sun destinations and seek pay concessions from its various unions. The downturn also negatively impacted LUV stock, which has begun to recover but remains 7% below its level this time last year at its recent price of $53.01 per share.
However, shareholders of Southwest Airlines have reason to be optimistic about the future.
As Covid-19 restrictions relax and Americans resume vacation travel to their favorite destinations, Southwest Airlines and LUV stock are sure to continue recovering and reach new highs. Many analysts have pegged Southwest Airlines as the air carrier that is likely to perform best as travel returns in the second half of this year. They point out that Southwest Airlines’ profit margin is better than that of American Airlines (NASDAQ:AAL), the world’s largest carrier. And Southwest’s focus on leisure travel makes it an ideal candidate to ride the vacation boom that is coming.
Royal Caribbean Cruises (RCL)
Like airlines, cruise lines were devastated by the Covid-19 pandemic. Royal Caribbean has been particularly hard hit. The company’s debt has grown to $20 billion, revenue during the second quarter of 2020 plummeted 93% compared to the same period of 2019 and revenues for all of last year are expected to be 70% on an annualized basis. RCL stock has clawed its way back from the lows of last year, but at its recent price of $78.96 a share, remains 42% below its pre-pandemic high of $111.01.
The good news is that if there’s one company likely to roar back with the coming surge in travel it is Royal Caribbean Cruises. The world’s largest cruise line is popular with tourists who enjoy sailing around the Caribbean and other tropical locales.
Before the pandemic, Royal Caribbean was the undisputed cruise king with annual revenue that topped $11 billion. And most travelers did not cancel their cruise trips over the past year. They just pushed the cruises to the second half of this year and out as far as 2022 and 2023. Royal Caribbean will be just fine.
Six Flags (SIX)
Amusement park operator Six Flags has had a rough go of it over the past 12 months. With its 26 parks shut to the public, the company reported revenue declined 96% during the third quarter of 2020, which is its peak summer season. As a seasonal business, Six Flags earns three-quarters of its revenue in the summer months of June, July and August. Unlike rival Walt Disney (NYSE:DIS), which is diversified and gets only about 40% of its annual revenue from theme parks and resorts, fully 94% of Six Flags revenue comes from ticket sales to its parks. Being shut down has been crippling for Six Flags.
Yet despite all the pain of the past year, Six Flags and its stock are recovering. The roll out of a vaccine against Covid-19 has the company optimistic that it will be able to reopen to the public this spring. The company has already extended its season-passes into 2021 for the days lost last year, a decision that has endeared the company to the public and helped reinforce customer loyalty.
SIX stock is on the mend too, more than doubling (up 121%) since October as investors anticipate the company’s parks reopening.
Travel Stocks: MGM Resorts (MGM)
In addition to sun destinations, cruise lines and amusement parks, Americans also enjoy gambling.
Consider that half all Americans bet a total of $4.3 billion on this year’s Super Bowl between the Tampa Bay Buccaneers and Kansas City Chiefs, and you get an idea of how big gambling is in the U.S. Casinos and resorts that cater to gamblers in places such as Las Vegas and Atlantic City were popular before the pandemic and they will make a comeback as more people get inoculated against Covid-19.
And MGM Resorts is well-positioned to capitalize on the return of gamblers. The company owns hotel and casino properties in U.S. states such as Nevada, Michigan, New York, New Jersey and Mississippi, along with several properties in China.
Before the pandemic, MGM was re-branding itself as primarily a gambling and sports betting company. And that repositioning should pay dividends as people are able to once again sit beside each other at card tables and slot machines. MGM stock is higher than it was this time last year having now risen more than 400% from just $7 a share last March to around $36.
Marriott International (MAR)
Marriott International has been in cost-cutting mode since the pandemic impacted the world last spring. The company laid off 673 workers, nearly 20% of its workforce, as of Nov. 1, 2020, and furloughed about two-thirds of its corporate staff. Yet, despite the cuts, Marriott International continued to plan for the future and a post-pandemic world. The company has continued to open new properties, including a new hotel on Batam Island in Indonesia, and plans to open 11 new Fairfield properties in Japan.
Marriott has also taken steps to compete against Airbnb (NASDAQ:ABNB) with the launch of its Marriott Homes & Villas, a luxury rental service that provides customers with a private property rather than a hotel room.
Clearly the company is ready to welcome travelers back in earnest later this year. MAR stock isn’t quite back to its pre-pandemic level of $148.91 a share, but it is up 130% from its low last March. At its recent price of $136.28 a share, the stock seems to have room to run.
SeaWorld Entertainment (SEAS)
Who doesn’t love SeaWorld? Sadly, like Six Flags, SeaWorld Entertainment has been struggling with park closures over the past year.
Last September, the company announced plans to permanently layoff furloughed employees at its 13 theme parks and corporate headquarters. In all, 1,900 employees were let go by the company as it struggled to survive the global Covid-19 pandemic. While some SeaWorld properties are open now, most are running at 30% capacity.
But sunnier days are surely ahead of SeaWorld as the economy reopens and people begin traveling again. SEAS stock seems to reflect the optimism of the amusement parks reopening having risen 86% since the end of October to $38.92 a share recently. SeaWorld’s stock price is now above the level it was at before the pandemic.
While the company isn’t out of the woods yet (its forecast a decline in earnings for its most recent quarter), the company and its stock price are in the healing process.
Travel Stocks: Hyatt Hotels (H)
After seeing revenue per available room crater 90% year-over-year last spring, Hyatt Hotels has been steadily recovering during the pandemic. The company even managed to report a couple of quarterly earnings beats in 2020. No small feat.
Hyatt’s international footprint, notably in China, helped it outperform during a period when the broader hotel and tourism industries have been decimated. Occupancy rates in China were at 65% in September.
Additionally, the company used the global pandemic to streamline its business and ensure it is ready to quickly recover once the pandemic recedes.
The efforts are paying off when it comes to H stock. The company’s share price is up 127% from its March 2020 depths at $82.26 recently. Investors seem to like the moves Hyatt Hotels made to prepare itself for a resumption in travel. They have praised the company for its diversified global operations.
On the date of publication, Joel Baglole held a long position in DIS.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.