The blow of COVID-19 caused many companies in the travel industry to hemorrhage financially. However, as the world starts to rebound from the global health crisis, people are feeling better about the future of travel.
Economic indicators show things are getting better in the travel and tourism industry, a huge part of the global economy. In 2022, more than 900 million tourists travelled globally – twice as many as the previous year, but still only 63% of what it was before the pandemic. According to the United Nations World Tourism Organization (UNWTO), that number is expected to soar to 80-95% of pre-pandemic levels in 2023.
The following online travel giants are poised to capitalize on demographic and geographic trends, making them a solid choice for investors with a long-term outlook.
World’s largest online travel agency by revenue, Booking (BKNG) offers booking and payment services for hotel and alternative accommodation rooms, airline tickets, rental cars, restaurant reservations, cruises, experiences, and other vacation packages. The company’s brands includes Booking.com, Agoda, OpenTable, and Rentalcars.com. The bulk of its profit is driven by transaction fees for online bookings.
Booking’s platform boasts the industry’s most comprehensive array of travel content. At the end of 2022, it offered 2.7 million accommodation properties in over 220 countries and territories consisting of over 400,000 hotels, motels, and resorts, and over 2.3 million homes, apartments, and other unique places to stay.
“While inflation and currency concerns continue to be overhangs on Booking's near-term travel demand, we see the company exhibiting solid financial health,” says a Morningstar equity report.
Additionally, the firm is expected to continue to strengthen its position as the top global online travel agency in the coming decade, supported by a healthy position in Asia-Pacific, continued leadership in Europe, and an expanding presence in various vacation vertices.
“Booking has built a leading network (the source of its narrow moat) of hotel properties and other services, which drives an increasing user base,” says Morningstar equity analyst Dan Wasiolek, who puts the stock’s fair value at US$3,100.
This network effect continues to grow in both developed and emerging markets, as well as peripheral industries including rentals, attractions, flights, and payments resulting in a full connected trip offering.
Leading travel metasearch provider, Tripadvisor (TRIP) offers 1 billion reviews and information on about 8 million accommodations, restaurants, experiences, airlines, and cruises. More than half of its revenue comes from its core segment, which includes hotel revenue generated through advertising on its metasearch platform. Viator, its experiences brand, contributes more than a quarter of sales.
The company has a large data set of reviews and travel-related content created by its users. It also enjoys a strong position in the experiences and restaurants sectors of the travel industry. As a result, Tripadvisor is a top-10 travel iOS mobile application in 7 markets around the world, per App Annie.
While growing competition from Alphabet, Amazon and Meta could mean higher marketing costs over the next few years, TRIP’s experience platform and the experiences market “have strong growth opportunities in the online travel space,” says a Morningstar equity report.
TRIP's leading global experience position is evidenced by the fact that Booking and Expedia have decided not to build their own position in the sector and are instead partnering with Tripadvisor to utilize its content.
That said, intense metasearch competition prevents Tripadvisor from holding a network advantage over the next decade, cautions Wasiolek, who recently lowered the stock’s fair value from US$31 to US$27.
Expedia (EXPE), the second-largest online travel agency in the world by bookings, generates revenue from a range of services including lodging, which accounts for 76% of total sales, air tickets (3%), rental cars, cruises, in-destination, and other services (14%), and advertising revenue (7%).
The firm owns and operates such popular brands as Expedia.com, Hotels.com, Travelocity, Orbitz, Wotif, AirAsia, and Vrbo. More recently, it acquired Trivago to expand into travel media.
“Expedia's investments in a unified technology platform, and loyalty stand to support its network advantage, the source of its narrow moat,” says a Morningstar equity report.
The company is well placed to benefit from the work from anywhere trend, particularly among “higher-income occupations (technology, finance, legal, and architecture) in industries that are the most likely to support ongoing work from remote locations’” the report adds.
Expedia has also been quick to adopt new technologies to boost its offerings, including the viral generative AI phenomenon ChatGPT. Expedia has integrated ChatGPT into its app to facilitate an open-ended conversation with its members. This allows for personalized recommendations on travel destinations, accommodation, transportation, and activities based on chats with customers.
On the other hand, the travel firm has been aggressively expanding its international presence. “In emerging markets, the company has a collaboration with Trip.com, the leading online travel agency in China,” says Wasiolek, who puts the stock’s fair value at US$175.
