The tourism industry has struggled over the last few years, but these are some of the travel stocks to buy to benefit from its rebound.
Initially the travel sector was affected by the pandemic, and later on by Russia’s invasion of Ukraine. But despite rising prices and an uncertain economic environment, it looks as if demand will continue to be steady throughout the year.
And if travel companies’ latest numbers are anything to go by, this is likely to be the case.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Of course, economic uncertainty could prove to be a headwind for these companies in the months ahead - consumers are being squeezed by inflation, particularly in the UK, and rising interest rates.
But if the recovery continues, the following stocks could provide investors with a way to benefit from the sector’s comeback.
Affordable flights fuel easyJet rebound
Like all airlines, easyJet (LSE: EZJ) suffered throughout the pandemic, and after that from the Russian invasion of Ukraine. However, the company’s latest results show it’s having a profitable recovery.
Capacity increased throughout the year as travel restrictions eased, which allowed it to grow revenue by 296% to £5.7m from £1.4m the year before.
While higher fuel prices increased operating costs, the company was able to offset this by increasing ancillary revenue (or selling more extras to customers such as extra legroom and more baggage space).
The company is known for its affordable flights, especially to Europe, which consumers are more likely to choose over more expensive transatlantic holidays as the cost of living crisis bites.
Its balance sheet is in a stronger position than it was in 2019, and holidaymakers are still making up for lost time throughout the pandemic.
Package holidays boost Tui
Shares in Tui (LSE: TUI), another airline known for its affordable flights, fell after it launched a discounted rights issue at the end of March.
The firm issued stock at a 40% discount to help it raise money to pay the debts it accrued throughout the pandemic. It borrowed heavily from the German government during the pandemic to keep the lights on, and the borrowing came with strict conditions such as limits on bonuses and dividends.
With the rights issue, Tui was able to raise €1.8bn to repay its debts.
A lower debt burden will help the group in the long term, especially in a high interest-rate environment. So, while the rights issue might have been a disappointment for investors at the time, it should pay off in the medium term.
The trends that are boosting easyJet are also in place for Tui. The airline reported strong bookings throughout Easter and said the load factor (a measure of how full its flights were) was in line with pre-pandemic levels. In particular, Tui reported strong demand for sunny European destinations and all-inclusive offers as consumers favour cheaper, closer-to-home destinations with limited costs.
Staycation boom bodes well for Whitbread
Whitbread (LSE: WTB) owns Premier Inn – a budget option for staycations.
Demand for its rooms is booming as customers seek out more affordable options as costs rise. Its 2023 results showed profit has grown to above pre-pandemic levels, thanks to its UK brand.
It’s also expanding in Germany, where it has opened 51 hotels. Additionally total accommodation sales for the seven weeks to April were 140% ahead of the same period the year before.
In the UK accommodation sales were 55% ahead of 2022 and 37% ahead of 2020.
Underlying profits reached £375m in 2023, which means previous expectations of £384m for 2024 have increased given demand is expected to continue growing.
The group has warned its expansion in the UK and Germany will weigh on earnings, but it remains confident profit will continue to grow.
A one-stop-shop poised for growth
WH Smith (LSE: WHS) offers a slightly different way to play the travel rebound. It has hundreds of shops mainly in airports and stations, frequented by travellers on their way to exotic destinations and a high street portfolio in high footfall locations, which should see a benefit from more domestic travellers.
Over the six months to the end of February revenue was up 41% year-on-year, with total travel trading profit growing to £47m from £10m in 2022.
An expanding store footprint will also help growth. WH Smith opened 29 new stores in North America in the six months to the end of February, powering revenue in the region higher by 53% (revenue in the UK expanded 66%).
Looking ahead, the group’s second half is off to a solid start according to management, with 11 new stores on-track to open their doors and support sales growth further.
Don’t forget the boom for buses
The ongoing train strikes over the last few months have benefited coach operator National Express (LSE: NEX).
Consumers have also been looking for cheaper alternatives to rail travel as prices increase (both travelling for staycations and to airports to travel further afield), boosting the company’s top and bottom lines.
The company posted strong first-quarter results, with revenues rising 25% thanks to the strong performance of its Spanish arm.
Its German arm also saw positive growth. The geographic diversification is a positive for the company, as it’s not banking on any one region for growth.
It also announced a cost-cutting scheme to cope with higher staff operating costs and economic uncertainty.
The company’s annual revenue surpassed pre-pandemic levels for the first time back in March.
As the travel sector continues to recover, National Express is in a prime position to benefit from further growth.
Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.
Most popular stocks of 2023: AI on the up while interest in Netflix plummets
We reveal the most popular shares of 2023 so far.
By Ruth Emery Published
Marine North Berwick review: Scotland’s magical bird isles
Matthew Partridge combines a stay at Marine North Berwick with a visit to see the puffins
By Dr Matthew Partridge Published