The travel industry is undergoing remarkable expansion, propelled by a surge in global wanderlust. This upswing is notably fueled by the evolving travel preferences of younger Americans, heralding significant advantages for the airlines, hotels, and resorts sector.
Given the accelerating momentum of this trend, it could be wise to keep a close eye on potential year-end gains from key players InterContinental Hotels Group PLC (IHG), United Airlines Holdings, Inc. (UAL), and Target Hospitality Corp. (TH). Before delving into the featured stocks, let's examine the travel industry's dynamics.
The travel landscape burgeoned with activity this year, presaging a sustained surge in global wanderlust. The Allianz 2023 Vacation Confidence Index survey underscores the pivotal role of younger Americans (18-34), pioneering enduring travel patterns poised to shape the industry's future.
Solo travel is rapidly gaining traction, as 42% of younger Americans intend to undertake solitary journeys in 2024. Concurrently, more travelers are prioritizing accommodations offering conducive workspaces and robust WiFi. 30% of respondents plan to work remotely while vacationing in 2024.
Given the burgeoning travel trends, the airline industry anticipates a flourishing trajectory. The International Air Transport Association projects a net profit surge, reaching $25.7 billion in 2024 with a 2.7% net profit margin, marginally surpassing the revised upward projection for this year at $23.3 billion net profit and a 2.6% margin.
In 2024, total revenues are poised for a 7.6% year-on-year upswing, reaching a historic high of $964 billion. The robust growth aligns with projections of approximately 4.7 billion individuals traveling during the year, surpassing the pre-pandemic benchmark of 4.5 billion observed in 2019.
The hotel and resort industry is also poised for significant benefits amid the travel boom. Robust demand from domestic leisure travelers is playing a pivotal role in the resurgent performance of hotels in 2023. Additionally, the gradual resumption of conferences and corporate events is bolstering the sector, further contributing to its recovery.
Nevertheless, hotels have recently embraced increasingly sophisticated revenue and yield management strategies. BCD Travel's latest outlook predicts a 6.8% average increase in global hotel rates for 2024. This anticipated uptick stands to benefit the hotel and resort industry significantly.
In light of these encouraging trends, let’s look at the fundamentals of the featured travel stocks.
InterContinental Hotels Group PLC (IHG)
Based in Windsor, the United Kingdom, IHG oversees, franchises, and leases hotels. Its operational divisions encompass the Americas; Europe, the Middle East, Asia, and Africa (EMEAA); Greater China; and Central Functions. That company boasts 6,000 operational hotels across 100 countries and 1,800 in development.
On December 13, IHG enhanced its portfolio by signing a management agreement with A.R Resorts & Hotels Pvt Ltd for a new hotel in Amritsar – voco Amritsar Airport. This marks the fifth voco hotel in India, highlighting IHG's expansive growth, aligning seamlessly with its ambitious regional strategy for the premium brand.
On December 12, IHG disclosed an extended strategic alliance with RAK Properties PJSC. The expansion introduces 'Staybridge Suites Mina Al Arab' on Hayat Island, featuring 156 keys of contemporary design, including studio, one, and two-bedroom apartments.
The collaboration reflects IHG's commitment to providing diverse and appealing accommodation options, contributing to its continued success in the competitive hospitality industry.
For the six months that ended June 30, 2023, IHG’s total revenue increased 24.1% year-over-year to $2.23 billion. Its operating profit grew 61.8% from the year-ago value to $584 million. Additionally, the company’s adjusted earnings rose 41.1% from the prior year’s period to $316 million, while adjusted EBITDA grew 24.2% year-over-year to $513 million.
For the fiscal year ending December 2023, IHG’s revenue is estimated to increase 15.9% year-over-year to $2.14 billion. Likewise, the company’s EPS for the current year is expected to come in at $3.71, up 31.6% from the prior year. Shares of IHG have gained 20.6% over the past month and 55.3% year-to-date to close the last trading session at $90.92.
IHG’s fundamentals are reflected in its POWR Ratings. IHG has a B grade for Growth and Sentiment. It is ranked #8 out of 20 stocks within the Travel - Hotels/Resorts industry. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
In addition to the POWR Ratings I’ve highlighted, you can see IHG’s Value, Momentum, Quality, and Stability ratings here.
United Airlines Holdings, Inc. (UAL)
UAL delivers air transportation services, facilitating the movement of passengers and cargo via its mainline and regional fleets. The company partners with diverse regional carriers, offering regional aircraft services under the United Express brand.
On November 30, UAL revealed a $2.6 billion renovation and expansion of Terminal B at George Bush Intercontinental Airport (IAH). Aligned with the United Next growth plan, this involves adding 40 gates at IAH to accommodate larger aircraft, leading to a 40% year-over-year surge in peak travel capacity by 2026.
Such strategic investments position UAL to meet growing demand and enhance operational efficiency, fostering a competitive edge and bolstering its stature in the airline industry.
On November 21, UAL, in collaboration with Lufthansa Group and Deutsche Bahn, unveiled a strategic partnership to elevate customer experiences for those traveling between Germany and the United States.
The commercial cooperation, building upon Star Alliance's Intermodal Partnership model, strategically integrates air travel with various transport modes, providing UAL with a competitive edge and enhancing overall customer satisfaction.
UAL’s total operating revenue increased 12.5% year-over-year to $14.48 billion for the third quarter that ended September 30, 2023. Its adjusted EBITDA grew 17.5% from the year-ago value to $2.44 billion. Also, non-GAAP net income and non-GAAP EPS rose 30.9% and 29.9% from the prior year’s period to $1.21 billion and $3.65, respectively.
The consensus revenue estimate of $53.65 billion for the fiscal year ending December 2023 reflects a 19.4% year-over-year improvement. Similarly, the consensus EPS estimate of $9.77 for the ongoing year exhibits a 287.9% rise from the previous year. Also, the company surpassed the consensus EPS estimates in all four trailing quarters.
The stock has gained 17.2% year-to-date to close the last trading session at $43.59.
UAL’s prospects are reflected in its POWR Ratings. The stock has an A grade for Value. It is ranked #17 out of 28 stocks within the Airlines industry. Click here to access the additional UAL ratings (Growth Momentum, Sentiment, Quality, and Stability).
Target Hospitality Corp. (TH)
TH operates as a specialty rental and hospitality services enterprise, possessing a network of specialized rental accommodation units. Its operations are structured into four segments: Hospitality & Facilities Services - South; Hospitality & Facilities Services - Midwest; Government; and TCPL Keystone.
On October 12, TH disclosed an augmentation of its borrowing capacity under the Credit Agreement by $50 million, resulting in a total available capacity of $175 million, contingent upon adherence to borrowing base requirements. The increase enhances TH's financial flexibility, aligning with its strategy to optimize the capital structure.
For the third quarter that ended September 30, 2023, TH’s adjusted gross profit increased 10.3% year-over-year to $104.41 million. Its adjusted EBITDA grew 12.6% from the year-ago value to $95.04 million. Also, TH’s net income and net income per share rose 139.6% and 125% from the prior year’s period to $45.58 million and $0.45, respectively.
Analysts expect TH’s revenue to increase 10.3% year-over-year to $553.85 million for the fiscal year ending December 2023. Likewise, the company’s EPS for the current year is expected to rise 59.5% from the prior year to $1.57. Moreover, TH topped the consensus revenue and EPS estimates in all of the trailing four quarters.
The stock plunged 5.5% intraday to close the last trading session at $9.37.
TH’s outlook is apparent in its POWR Ratings. The stock has a B grade for Quality. It is ranked #7 out of 20 stocks within the Travel - Hotels/Resorts industry.
Click here to access additional TH ratings (Growth, Momentum, Sentiment, Value and Stability).
What To Do Next?
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IHG shares rose $0.35 (+0.38%) in premarket trading Friday. Year-to-date, IHG has gained 59.13%, versus a 24.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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