Notwithstanding geopolitical concerns, Donald Trump's policies, and uncertainty surrounding the global economy, the travel industry is doing well
Astute investors ought to jump on board right away.
Even though the news is constantly filled with negative headlines about everything from geopolitical tensions and global economic jitters to worries about overtourism, the travel industry is quietly solidifying its position as a very profitable and resilient industry. According to Frank Holmes, CEO and chief investment officer of US Global Investors, the post-pandemic recovery, along with massive structural changes in demand and the widespread integration of cutting-edge technology, has turned large portions of the industry into "just one great big cash machine." This is far from being a risky investment, according to many financial analysts and industry leaders. He contends that this combination of circumstances makes travel "one of the all-time great contrarian opportunities."
Eliminating temporary concerns about the travel sector.
Although industry observers acknowledge that demand in some segments is somewhat softening, especially in the short term, they largely believe that current concerns are exaggerated. "Some of the macroeconomic fears were leading to a reduction in the number of bookings that they were getting, to the extent that they were having to take down their guidance about future earnings," according to hotel executives Paul Middleton, head of global equities at Mirabaud Asset Management, who recently spoke with the executives. Additionally, he highlights the sincere "frustration" that locals in places like Barcelona, which are struggling with the inflationary pressures of excessive tourism, have expressed.
Middleton insists, though, that a drop in advance reservations does not necessarily indicate a drop in actual travel. He contends that instead of making reservations three months in advance, customers are just waiting longer and making last-minute reservations. "If they still have a job by the time summer comes, they will still be going on holiday," he says, despite their possible concerns about the Middle East or the state of the world economy. In addition, it is thought unlikely that cities will implement harsh policies to reduce tourism because of the significant "economic benefits that come with it."
Big hotel chains agree with this sentiment. Hilton's president of Europe, the Middle East, and Africa, Simon Vincent, says there is "no evidence of significant reduction in traffic from the US to Europe, or to the Middle East" and that "a strong summer of US travel into Europe" is a reality.
Gianvito Mangano, general manager and director of operations for the upscale Puglian boutique hotel Canne Bianche, presents a somewhat more cautious viewpoint, pointing out that US reservations are currently declining. In line with Middletons' assessment and predicting steady medium-to-long-term growth from the US market, he nevertheless attributes this to a shift towards "booking at the last minute rather than way in advance."
Michael Stiasny, head of UK equities at MandG Investments, asserts that market swings are a natural part of the business, regardless of whether they are caused by "geopolitical factors or consumers confidence." However, human nature's "propensity to seek out new experiences and other countries" will endure regardless of the short-term circumstances. Travel "should keep on growing over the long term" despite the short-term disruptions.
The recovery of travel after the pandemic.
The travel industry has recovered strongly since the pandemic, demonstrating its extraordinary resilience. According to data from the Association of British Travel Agents, Simon McCulloch, chief growth officer at travel insurance company Staysure, more than half of British people took vacations overseas in 2023 and 2024a notable increase from a low of 16 percent during the pandemic's peak.
The majority of developed markets, including the US, have seen a similar pattern in air traffic, with European air traffic "broadly recovering to pre-Covid levels and in many cases surpassed them," according to Jean-Hugues de Lamaze, a portfolio manager at Ecofin Global Utilities and Infrastructure Trust. Certain changes brought about by the pandemic are probably here to stay, like the increase in virtual meetings and hybrid work, which entails "less frequent and leaner" business travel. The rise in leisure travel, however, driven by "more flexible work agreements and pent-up demand," has more than offset this.
Emily Foshag, Principal Asset Management's head of listed infrastructure, agrees, arguing that a rise in leisure travel has more than offset any drop in business travel. She states, "If I and billions of people like me spend more time on Zoom at our desks during our professional lives, we'll be more willing to take a vacation that involves a long-haul flight and some time in the airport." Airports serving leisure travellers, like those in Spain, are showing a change in performance, with traffic "materially above pre-Covid levels" lately.
Furthermore, opinions differ on the severity of the decline in business travel. Simon Vincent of the Hilton observes "business travel pretty much as it was" prior to the COVID-19 pandemic. He contends that small and medium-sized businesses "still prioritise that important face-to-face connection" despite potentially being "a little more selective" about what business travel expenses they will accept. Significant conferences and events are still "alive and kicking" as well, with record attendance at recent events like the World Retail Congress, which was hosted at the London Hilton on Park Lane. Vincent also draws attention to the expanding "bleisure travel" movement, which combines leisure and business travel more and more.
Changing demographics have an impact on the travel sector.
The changing spending habits of the middle class worldwide, especially in emerging economies, are a major structural driver of the travel industry's steady growth. According to Paul Middleton of Mirabaud Asset Management, a larger percentage of spending goes toward services, particularly healthcare, education, and travel, as incomes rise on both a national and personal level. He states, "After all, there's only so many goods that you can buy," but our desire for exhilarating experiences is greater. Therefore, it is anticipated that the travel sector will grow faster than the global economy as a whole, rising from 11% of the world's GDP today to roughly 16% in the next ten years, with a significant portion of this growth coming from Asia, especially China.
Frank Holmes of US Global Investors is also very optimistic about how Chinese tourism will change the world. There have been "many of the big Chinese tour operators buying large blocks of hotel rooms in prime European tourist destinations" in recent months, sometimes securing entire hotels. Although they have mostly concentrated on second- and third-tier hotels, this growing demand has also given luxury hotels "incredible pricing power" in the middle and upper-middle segments of the market, resulting in room prices "doubling in less than a year."
Other emerging markets are also fueling the boom, in addition to organized Chinese tour groups. A sudden surge in Brazilian tourists has led Canne Bianche's Gianvito Mangano to establish alliances with Brazilian travel agencies and take part in trade exhibitions throughout Latin America.
Naturally, the desire to increase travel expenditures is not limited to developing nations. Younger generations in developed economies are taking more vacation time than their parents and older siblings. Holmes explains this in part by pointing to a post-pandemic response from the generation that was arguably most negatively impacted by the COVID lockdowns and is now eager to travel. But he also sees a larger, pre-Covid generational trend that he says is "not going away": a move away from material possessions and toward experiences.
Younger travelers "have higher expectations about the number and quality of travel experiences, not least because they have grown up in a world where travel is within reach for a much bigger chunk of the population than it was 30 or 40 years ago," according to Michael Stiasny of M&G Investments, while acknowledging potential challenges such as younger travelers' growing concerns about sustainability for the airline industry.
Drivers of profitability in the travel sector.
A young woman using a smartphone to communicate with artificial intelligence.
Artificial intelligence (AI) is being strategically implemented to greatly increase the travel industry's profitability and revenue generation. First, as Frank Holmes noted, airlines used AI to significantly lower the number of lost luggage incidents, resulting in an 87 percent reduction in missing bags. This is an important improvement because AI directly affects passenger satisfaction. Subsequently, this application has developed into increasingly complex applications, like scheduling optimization via the examination of demand data. Airlines can now quickly and precisely modify flight schedules, destinations, aircraft types, and prices thanks to this.
As Holmes explains, AI can facilitate quick switches from larger to smaller aircraft or even the cancellation of flights if a route performs poorly. In contrast, demand spikes may lead to the addition of more flights and dynamic price increases. This ability is crucial for reducing the need for drastic price reductions and avoiding resource waste on underutilized aircraft during off-peak hours. The hotel industry has now successfully implemented these strategies, changing the conventional "high season and low season" into a "high season and an even higher season."
According to Hiltons Simon Vincent, technology is also significantly enhancing the customer experience, even though predictive and dynamic pricing models have proven contentious, especially during live events. From efficient check-in procedures and room assignments to the easy ordering of amenities through loyalty programs, this covers it all. It's true that Hilton guests can now use technology to personalize every aspect of their stay, from the pillows' softness to the preferred floor and outside view.
Paul Middleton of Mirabaud Asset Management also notes that vacation reservations are changing due to technology. The rise of online travel agencies (OTAs) has been fueled by the abundance of options available to contemporary travelers in the form of price and book comparison websites. These platforms are increasingly using AI to curate suggestions for customized travels in addition to consolidating options. Although OTAs do receive a commission from hotels, they are able to implement "dynamic pricing quicker and more effectively than any single hotel or chain" thanks to their extensive data repositories.
Because of their significant economies of scale, OTAs are a compelling investment option. Because most of their costs are fixed, platforms that gain a sizable portion of the market can provide customers with better value, forming a "natural moat" against rivals and preserving profit margins.
The top investments in the travel sector to make right now.
With an exchange-traded fund (ETF), like the US Global Investors Travel UCITS ETF (LSE: TRIP), investing in the travel boom is the simplest option. Frank Holmes and Joanna Sawicka are its managers. It employs a "smart-beta" approach, evaluating the portfolio's holdings according to earnings and momentum rather than just market capitalization. About 40% of the fund's 50 holdings at the moment are airlines, which make up the top four holdings (ICAG, Delta, United Airlines, and Ryanair). Additionally, hotels account for a sizable portion of the portfolio. The total expense ratio of the ETF is 069%.
Naturally, the expansion of tourism and the backlash against short-term vacation rentals and Airbnbs will help the hotel industry as a whole. Hilton Worldwide Holdings (NYSE: HLT), one of the largest global hotel brands (and the tenth-largest holding in the US Global Investors ETF), owns and franchises a significant number of hotels worldwide. Strong growth prospects, particularly outside the US, justify its current price of 29.7 times projected 2026 earnings. With about 3,600 more hotels planned, the total should surpass 12,000 in the near future.
Purchasing stock in an online travel agency (OTA) is another way to profit from the travel boom. Operating under Booking Holdings (Nasdaq: BKNG), Booking . com is one of the biggest of these. Among the many other travel websites run by Booking Holdings are Priceline, Cheapflight, and OpenTable, a restaurant reservation platform. Although it saw a significant decline in revenue during the pandemic and the immediate aftermath, since 2019, its revenue has increased by almost two-thirds. Profits have increased by roughly the same amount. The stock is trading at a more than reasonable 23.2 times 2026 earnings in spite of this.
Though he concurs that Booking Holdings has a sound business plan, Mirabauds Paul Middleton is even more optimistic about Trip . com (Nasdaq:TCOM), a Chinese online travel agency. He thinks it will profit from the fact that China's travel demand is rising far faster than that of other countries. Its valuation is yet another major draw. Its revenue record since 2019 has been comparable to Booking Holdings', but it has outperformed it in terms of profit growth. It is trading at a far more reasonable 14:5 times 2026 earnings.
As more people travel and take vacations, more people will be using train stations and airports. The news for SSP Group (LSE: SSP) is positive. SSP primarily operates restaurants, bars, lounges, and convenience stores in train stations and airports, including those that operate under their own brands like Burger King and Starbucks. It has operations in 625 locations across 38 nations. Revenue is predicted to continue increasing by about 45% annually and is currently more than 20% higher than it was in 2019. Even so, the stock is trading at a discount to 2026 earnings, or 12:5.
Many airports are listed on international stock exchanges, and Emily Foshag, manager of the Principal Asset Management Global Listed Infrastructure fund, believes that investing in one in a region that sees a lot of leisure travelers rather than business travelers could be very profitable. She mentions Spain in particular as a nation that ought to succeed, as was previously mentioned. Aena (Madrid: AENA) is Spain's biggest airport. Its earnings are predicted to continue increasing and are currently one-third higher than they were in 2019. With a dividend yield of just under 5%, the shares are currently trading at 15:2 times 2026 earnings.
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