The tourism industry has struggled over the past few years due to the pandemic and geopolitical tensions, but a busy summer holiday period is expected and there are some airline and holiday stocks to buy that are benefiting from the sector's 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, 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 as well as higher fuel costs. However, the company’s latest results show it is flying above expectations.
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.
The airline reported in April that passenger numbers are on the rise and there has been an "increase in volume and pricing" for the warmer months ahead compared with last summer.
Its headline loss before tax expected to be between £340 million and £360 million, better than analyst expectations of £411 million.
Meanwhile, its easyJet holidays brand posted £31 million of profit before tax for the
six months to the end of March 2024 - up 206% annually, with customer numbers up 42%.
While higher fuel prices are pushing up easyJet's operating costs, the company has offset this by increasing ancillary revenue (or selling more extras to customers such as extra legroom and more baggage space).
Its share price is up by almost 5% so far this year and it has even proposed paying dividends again.
"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 a total of 2.8m customers travelled during its second quarter between October 2023 and the end of March 2024 - 14% more than in the prior year.
Quarter two group revenue was a record €3.6 billion, with a pre-tax loss of €188.7 million, albeit a €53.6 million improvement.
It said 60% of its summer holidays are already booked and it expects revenues to rise 10% annually this year.
Adam Vettese, analyst at investment platform eToro, highlights that Tui's expected loss was 17% lower than consensus.
“This is an encouraging sign going into the peak summer season where TUI tends to do most of its business as the current climate does not come without its challenges in terms of manufacturer deliveries and costs, particularly fuel prices," says Vettese.
"Despite some lingering economic uncertainty, it does not seem demand will be lacking, inflation pressures have begun to ease as consumers have more disposable income for travel. TUI is relying on this to be true if it intends to meet its forecast of hiking up profits 25%.
"Investors will also be hoping that this can kickstart some movement in the price with shares basically flat for the year so far."
Tui's share price is up 27% over the past six months.
This 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.
Its interim results for the six months to the end of February 2024 showed the brand's travel business revenue was up 13% annually, with the UK up 15%.
Trading profits in its travel division rose from £47 million to £50 million for the period.
An expanding store footprint will also help growth. WH Smith said it has a new store pipeline of more than 110 stores this financial year, including more than 50 in North America.
It has also opened new stores in the UK during 2024, including the largest 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.
Company revenue rose by 12.2% to £3.15 billion during 2023, thanks to the strong performance of its UK arm and in North America School Bus.
It operates in several other countries including Germany and Spain and has been operating a cost-cutting scheme in these countries to cope with higher staff operating costs and economic uncertainty.
This pushed the brand into an overall operating loss of £21.4 million for the year.
Without these extra costs, the company posted an operating profit of £168.6 million in 2023.
As the travel sector continues to recover, National Express is in a prime position to benefit from further growth and it is expecting adjusted operating profit to be in the range £185 million to £205 million this year.
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