The tourism industry has struggled over the past few years due to the pandemic and geopolitical tensions, but many people can't shake off the travel bug and there are some airline and holiday stocks to buy that are benefiting from its rebound.
Initially the travel sector was affected by the coronavirus outbreak restrictions, and later on by Russia’s invasion of Ukraine. Tensions in the Middle East may also cause concern but despite rising prices and an uncertain economic environment, demand remains high.
And if travel companies’ latest numbers are anything to go by, this is likely to be the case for the foreseeable future.
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Of course, economic uncertainty and geopolitical tensions could prove to be a headwind for these companies in the months ahead - consumers are still squeezed by inflation even if it has fallen slightly, while interest rates remain high.
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 is flying above expectations.
Its pre-tax earnings for its financial year to the end of September 2023 were above analyst forecasts at £476 million, while passenger revenue rose from £3.8 billion to £5.2 billion.
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 airline also proposed paying a 4.5p per share dividend.
More recently, EasyJet posted a loss of £126 million for its first quarter to the end of December 2023 as it was affected by the Middle East conflict that began in October and saw a pause in flights to Israel and Jordan amid a wider slowdown in bookings across the industry. The figure was still an improvement on the £133m loss in the same period a year before though.
The company said demand and bookings have recovered since late November as it continues to focus on other areas where there is high demand.
Its easyJet holidays brand had a strong quarter, with customer numbers increasing by 48% compared with the same period last year, and a profit of £30 million, a 131% increase year-on-year.
The airline said its seasonal winter loss for the first half of its 2024 financial year is also expected to improve despite a direct impact of £40 million from the conflict in the Middle East.
The company said it expects cost per seat excluding fuel to remain broadly flat in the first half of 2024, with fuel costs around 7% higher and is anticipating customer growth in its easyJet holidays business to exceed 35% year-on-year.
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.
"The return to dividend payments will mean it shows up on income investors’ radars once more, providing hope of more inflows to boost the share price," says Chris Beauchamp, chief market analyst at IG Group.
"But until global investors rediscover a love for UK stocks, easyJet may continue to struggle despite the improved outlook."
Package holidays boost Tui
The trends that are boosting easyJet are also in place for Tui (LSE: TUI). The airline reported strong bookings throughout the summer, up 5% annually and close to pre-pandemic levels at 96%.
TUI also said winter bookings were up 15% and it reported underlying profits of €977m for its financial year to the end of September 2023, a 139% annual increase.
It represents a turnaround after shares in airline, known for its affordable flights, fell last year after it launched a discounted rights issue at the end of March 2023.
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.
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.
Whitbread's third quarter results for its 2024 financial year, representing the 13 weeks to the end of November, showed Premier Inn sales were up 11% annually in the UK, while its German business saw a 47% rise.
Its 2023 results showed profit has grown to above pre-pandemic levels, thanks to its UK brand.
Whitbread is 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.
A trading update for the 20 week period to 20 January 2024 showed revenue at the brand's travel business was up 13% annually, with the UK up 15%.
Over the 12 months to the end of August 2023, revenue was up 36% year-on-year, while trading profits in its travel division were up 84%.
An expanding store footprint will also help growth. WH Smith said in November that it has a new store pipeline of more than 110 stores yet to open in travel, including more than 60 in North America.
It has also said it is on track to open 15 stores in the UK during 2024 and recently opened its largest store in UK travel - a 6,000 sq ft location at Birmingham airport.
Don’t forget the boom for buses
The ongoing train strikes over the last few months have benefited coach operator Mobico Group (LSE:MCG) previously known as National Express.
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 third-quarter results, with revenues rising 10% annually thanks to the strong performance of its UK arm and in North America School Bus as a result of investment in a strong operational school year startup.
It operates in several other countries including Germany and Spain and has been operating 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 and it expects its full-year earnings to be in the range of £175m to £185m for 2023.
As the travel sector continues to recover, National Express is in a prime position to benefit from further growth.
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