Bustling airports nowadays present a promising future for travel and tourism. Despite facing numerous challenges -- political unrest, pandemic, wars, and economic instability -- the hospitality sector has staged a remarkable resurgence. It remains a sizeable contributor to the US$10 trillion global travel industry.
The luxury hotels market worldwide is forecasted to expand from US$193.5 billion in 2020 to US$304.6 billion by 2031, marking an annual growth rate exceeding 6%, per a Transparency Market Research report. Additionally, a recent ITB World Travel Trends Report highlights double-digit growth in outbound travel in 2023, led by a staggering 140% growth in Asia for the same period.
The following names in the global hospitality sector are strategically positioned to capitalize on these industry trends. Their vast international footprint, strong brand recognition, substantial revenue streams, and innovative offerings coalesce to create are long growth runway.
A global operator and franchisor of hotels, Marriott (MAR) comprises 1.6 million rooms across 30 brands including Marriott, Sheraton, and Courtyard, as well as newer lifestyle brands Autograph, Aloft, and Moxy. North America accounts for 63% of total rooms.
“We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset -- the source of its wide moat -- which is endeared by both hotel owners and travellers,” says a Morningstar equity report.
In recent years, Marriott has revamped many of its Marriott and Courtyard properties, while introducing several new brands. These steps underpin the positive outlook for the operator and position it well for the next generation of travellers, the report adds.
Marriott's sustainable competitive advantage, or wide moat, stems from its top-notch brand and switching costs. These features are amply displayed by its large portfolio, skillful management, and loyalty program, among others.
“As a result, we have conviction in further revenue share gains for the foreseeable future and durable economic profits well beyond the next 20 years,” says Morningstar analyst Dan Wasiolek, who recently raised the stock’s fair value to US$220 from US$217.
Marriott also has an industry-leading loyalty program, with 196 million members, which incentivizes third-party hotel owners to join the company's brands. Moreover, Marriott's acquisition of Starwood's global luxury portfolio and partnership with MGM's Vegas portfolio, which ensures its presence in the gaming mecca “complement Marriott's dominant upper-scale position in North America” notes Wasiolek.
A global chain of hotels, Hilton (HLT) operates 1.2 million rooms across 22 brands serving the premium economy through luxury segments. Hampton and Hilton are the two largest brands, representing 28% and 19%, respectively, of the company’s total rooms.
“Hilton's brand strength is illustrated by the company's mid-single-digit share of global hotel rooms with 20% share of all industry pipeline rooms under construction,” says a Morningstar equity report, adding that the U.S. accounts for 66% of total hotel room count.
Morningstar recently upgraded Hilton’s moat to wide from narrow, prompted by an industry-average-beating growth, its brand intangible assets and switching cost advantages. These factors have increased “our conviction in further revenue share gains for the foreseeable future and lasting economic profits during the coming decades,” says Wasiolek, who recently revised the stock’s fair value to US$178 from US$177, primarily to account for the time value of money.
Hilton holds the number three or four room share position across all major international markets, representing a low-single-digit share of existing rooms.
As well, Hilton's current portfolio comprises 5% of all industry rooms, while its pipeline accounts for 21% of the global under-construction room base, indicating a potential for further market share growth.
“Hilton’s strong affirmation with both owners and travellers has translated to its global revenue share expanding to 6% in 2023 from 5% in 2018, trailing only Marriott’s 9% share,” says Wasiolek.
InterContinental Hotels Group (IHG) owns and operates 19 brands including Holiday Inn and Holiday Inn Express, its largest brand, and newer lifestyle luxury names including Hotel Indigo, Voco, Even and Kimpton. Managed and franchised represent 99% of the total rooms it operates. Americas account for 55% of total rooms, while China (19%) and Europe and MENA (26%), make up the rest.
“With 99% of rooms managed or franchised, InterContinental has an attractive recurring-fee business model with high returns on invested capital and significant switching costs—a moat source—for property owners,” says a Morningstar equity report.
The operator benefits from several factors that contribute to a strong growth tailwind. It holds one of the industry's strongest brand intangible assets (a source of its wide moat), which will support its room share growth over the next decade.
“Renovated and newer brands focused on the attractive midscale and extended-stay segments as well as a loyalty program of 130 million members will aid this growth,” says Wasiolek, who recently upped the stock’s fair value to US$96 from US$84, driven by the time value of money and stronger profitability through demand growth in China.
The company also enjoys a strong presence in international markets, with non-Americas regions constituting 45% of total rooms in 2023. “This positions the company well for the more than 1 billion middle-income individuals expected to be added to the global population over the next decade,” contends Wasiolek.
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