Just How Hot is the Travel Market?

The travel market has suffered more than almost any other during the pandemic, and the recovery is also going to take longer. Based on research reports from Deloitte, The U.S. Travel Association and Statista, it’s clear that this pattern holds true across all pieces of the travel pie, including hotels (the biggest slice), vacation rentals, camping, holiday packages and cruises.

The pent-up demand for travel has been so great that the Hotels segment started recovering as soon as vaccines were available. Travelers still tend to be younger (because of hesitancy among older people) and more affluent (possibly because of greater confidence in safety parameters at up-market establishments). 2022 is unfolding into a very strong year with revenues expected to grow 45% this year to exceed 2019 levels, as indicated by Statista.

Vacation rentals, although dipping as a category in the last couple of years, has been relatively more resilient for a couple of reasons. The first is that they allowed the traveler some personal space, which was of course of primary importance during the pandemic when social distancing was the norm. And second, this personal space appears to be popular even now that those restrictions are gone, because of the increase in travelers combining work with pleasure.

The work-from-home/hybrid operating model allows the flexibility to choose a location that some people are taking advantage of. Since this requires the kind of personal space that mainly vacation rentals are able to offer, this segment is expected to remain popular. It can even bring stability in total travel revenue, as it allows people to take more trips. Therefore, this segment is expected to grow more than 23%, exceeding pre-pandemic levels in 2022 itself.

Holiday packages are expected to grow 47% this year but actual revenues won’t exceed 2019 levels until next year.

As may be expected, camping also picked up in 2020 and dropped sharply in 2021. It is expected to remain weak this year and return to growth from 2023. The segment is currently expected to recover very gradually, overtaking 2019 levels only in 2025.

The greatest strength is currently coming from the cruise segment, which grew 498% in 2021 and is on track to grow 33% this year. It will cross pre-pandemic 2019 sales in 2024.

According to the U.S. Travel Association, travel spending increased considerably in September, to 6% above 2019 levels, before the pandemic started. What’s more, 32% of American travelers said they intended to spend more on travel in the next three months. International travel remains sluggish although that too is up slightly on a year-over-year basis.

Business travel is likely to come back gradually over the next few years, although technology (online conferences) will take over part of it.

Therefore, the travel market looks very strong and the predictions override all the negative news flow about a recession. Analyst estimates, some of which have moderated in the past month are indicative of a robust market.

In the case of Zacks #2 (Buy) ranked Travelzoo TZOO for example, the 2022 estimate is up 10.5% in the last 30 days. The 2023 estimate is also up, by 15.9%. Analysts expect revenue growth of 12.0% and 16.0% in 2022 and 2023, respectively. Earnings are expected to grow 366.7% this year and 73.8% in the next.

Similarly, Expedia’s EXPE earnings estimates for 2022 are up 6.1% on average while for 2023, they’re up 3.0%. The Zacks Rank #2 company’s revenue and earnings are currently expected to grow a respective 36.7% and 341.8% in 2022. In 2023, they’re expected to grow a respective 9.5% and 21.2%.

For Booking Holdings BKNG, the 2022 estimate has moderated in the last seven days while the 2023 estimate increased. But in the last 30 days, the Zacks Consensus Estimates are down a respective 1.7% and 0.5%. Still, current estimates represent an increase of 53.9% in revenue and 101.2% in earnings in 2022. Revenue and earnings growth for 2023 is expected to be 13.1% and 28.1%, respectively. The shares carry a Zacks Rank #2.

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