The Travel Recovery Is Here (Yes, Really)

The Travel Recovery Is Here (Yes, Really)

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Mark Twain once remarked, “Travel is fatal to prejudice, bigotry, and narrow-mindedness.”

As it turns out, travel is also fatal to stock-market gains. Despite my bullish expectations for travel and tourism stocks, most of them have failed to revive from their COVID-induced malaise.

But even though travel-related stocks failed to reward investors in recent years, I believe that 2023 might finally be their year.

My readers in both Investment Report and The Speculator had the chance to take some profits off the table from plays on Trip.com Group Ltd. (TCOM) – China’s largest online travel company – just yesterday.

And I think this is only the beginning.


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A Steady Recovery

Looking at the big picture, U.S. air travel has just about returned to pre-pandemic levels.

According to the passenger throughput data on the TSA.gov website, the checkpoint travel numbers for the full months of October and November 2022 stand at 132.4 million – and over those same months in 2019, the number was 140.2 million.

For perspective, those same months in 2020 yielded only 50.8 million – a mere 36% of the previous year’s numbers!

Similarly, most global gauges of travel activity have recovered to the vicinity of pre-pandemic levels. Just look at the recent earnings reports from the airline industry…

  • Delta Air Lines Inc. (DAL)

Delta reported all-time record revenue for the third quarter and provided fourth-quarter expectations that surpassed analysts’ projections by a wide margin. The airline expects revenue in the current quarter to exceed pre-pandemic levels by 5%-9%.

“As we look into the fourth quarter, there’s nothing that gives me pause to think that this momentum isn’t going to continue,” said CEO Ed Bastien.

  • American Airlines Group Inc. (AAL)

AAL also generated all-time record revenue in the third quarter and expects fourth-quarter revenue to top pre-pandemic levels by 11%-13%.

Chief Financial Officer Derek Kerr said, “We continue to believe that 2023 demand for air travel will be robust. We currently see no signs of demand slowing as we move into the new year.”

  • United Airlines Holdings Inc. (UAL)

UAL followed suit by producing record third-quarter revenues and earnings that trounced analyst expectations.

The airline generated nearly $13 billion in revenue, which easily surpassed the prior quarterly record of $11.4 billion from the second quarter of 2019. The airline said demand for both leisure and business travel remains robust.

Commenting on the strong results, CEO Scott Kirby said, “Despite growing concerns about an economic slowdown, the ongoing COVID recovery trends at United continue to prevail.”

  • JetBlue Airways Corp. (JBLU)

JetBlue announced a third-quarter result that produced the airline’s first profit since the end of 2019 and said it is “confident in the demand backdrop for the year-end holiday peaks.”

  • Southwest Airlines Co. (LUV)

The nation’s biggest carrier capped off the industry’s strong third-quarter performance by reporting record revenues as well. The company also forecast a 13% to 17% jump in fourth-quarter revenues.

As CEO Robert Jordan explained…

The trends are really good. The leisure trends are really strong. The business trends have come out of the dip, and they are strengthening. So our revenue trends overall are really strong. They’re strengthening into the fourth quarter. I think they’ll strengthen further into 2023.

Emerging Victorious

Meanwhile, across the pond, European airlines are also sprouting the green shoots of fresh growth.

U.K.-based International Consolidated Airlines Group S.A. (ICAGY) is one example. The airline’s core brands include British Airways, Spain’s Iberia, and Ireland’s Aer Lingus.

Last quarter, the company returned to profitability for the first time since the pandemic struck and is expecting earnings to ramp sharply higher over the coming quarters.

The company also issued a very positive outlook for the upcoming year by stating, “Forward bookings remain at expected levels for the time of year, with no indication of weakness.”

Travel activity is also ramping up quickly in the Asia Pacific region… finally.

Because this large portion of the globe has been implementing the world’s most restrictive COVID-containment measures, travel activity in the region has been slow to recover.

Using China Southern Airlines Co. Ltd. (ZNH) as a proxy for the region, its 12-month revenues are still 40% below pre-pandemic levels. And the airline continues to bleed red ink, quarter after quarter.

That said, the clouds of COVID gloom in the region are beginning to part. As James Liang, the co-founder of Trip.com, remarked on the company’s most recent conference call…

Travel activities in Asia Pacific are rebounding, with border reopenings and further lifting of travel curbs, and have started to recover faster than ever since the outbreak of COVID.

Sabre Corp. (SABR) CEO Sean Menke underscored that observation when he stated…

I am ecstatic about what we’re seeing in APAC right now…We are starting to see further positive signs in this region… which had been the slowest to recover… Within APAC, our bookings improvement has been most pronounced in Taiwan and Hong Kong, where travel restrictions have recently been relaxed. Hong Kong bookings started Q3 at just 16% of the same period in 2019. By the end of the quarter, the recovery there was 29%. Taiwan is an even better story with the quarter starting at 17% recovery and ending at 45%.

Moving – or Flying – Forward

These encouraging data points from across the travel industry are extremely encouraging – and right now, the profit potential in Sabre Corp. is vast.

Sabre is one of the travel industry’s “Big 3” global distributions systems (GDS), and because more than 400 airlines and one million hotels use the Sabre system to process travel bookings, Sabre’s system processes 2.5 million bookings every minute.

The company generates its revenues from the volume of transactions it processes, not the dollar value of those transactions.

So, when travel activity increases, Sabre’s revenues also increase. The connection between the two is very close… and predictable.

This travel-recovery is something I’ve been pounding the table about since the stirrings thereof emerged in mid-2021, but now, it seems to have the potential to truly take off.

And if you’re interested on how exactly I recommend pulling the trigger to take advantage of this burgeoning megatrend, click here.

Regards,

Eric

P.S. The travel-resurgence trend isn’t the only megatrend I have my eye on for 2023. With this year coming to a close quickly, I’ll soon be sharing what else is on my radar. Stay tuned for that. Until then, click here to learn how to capitalize on one of my biggest megatrends of this decade: The Technochasm.

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, here.


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