As a multi-billion dollar industry, the international travel industry includes a broad range of companies that can be sound investments.
A critical issue for investors in any market is how well financial sectors and their industries are performing. Undoubtedly, the travel industry has been through some rough times in recent years, with the global economic downturn affecting people’s disposable income and even compromising their ability to vacation at all. Thankfully, as the economy has recovered, so too has Consumer Discretionary sector and the travel industry.
The emergence of online travel providers has opened up new avenues for investment, and the initial euphoria of the dot-com bubble gave way to a subsequent crash, and has been replaced instead by a more stable industry, reflected in the continued growth of some well-established companies in the online travel segment. The travel industry, like other industries, has seen a migration to online platforms, with the traditional travel agent competing with and in some cases being usurped by websites allowing travellers to shop around for lower prices. Priceline and Expedia have become household names, and some of these online providers are becoming the first port of call, as such, for vacationers.
Of course, there are many investment opportunities in the more traditional travel industries as well. For all the developments in technology, travel remains a determinedly old-fashioned market, and not in a pejorative sense. After all, people still travel on vacation, like they have been doing for decades, and they need somewhere to stay when they arrive at their destination. Hotel chains can represent a good investment option, and some chains have become very large indeed, including the likes of Marriott and Starwood Hotels, both of which have become publicly traded companies. These hotel chains have largely outgrown the US market and are now looking at international growth. Investors will also be interested to know that alternative income streams are also being utilized, including the management of properties for hotel owners as well as timeshare arrangements, under which consumers are sold the rights to use particular properties for a certain number of days or weeks in any one calendar year (image by Sean MacEntee).
Other sectors of the travel industry to consider include cruise companies, mega-resort operators, and casinos.
Before investing in any sector or industry, investors should research the sectors performance and how they will benefit from studying said sectors as they track the performance of their investments. Fisher Investments section on Goodreads offers a series of books on the financial sectors, each one focusing on one particular sector. The travel industry is no different than any other sector of the economy, in that there is a wealth of information available, so much so that investors might feel overwhelmed. A big benefit of using an experienced money management and advisory firm such as Fisher Investments is that they know what to look for in terms of key information and have the ability to put that information into a readable and easily understandable form for clients who have a limited amount of time to study all of the available data themselves.
When it comes to successfully investing in the travel industry, watch out for trends in the industry itself. If investors can spot a market trend before it gains real momentum, they may well be in a position to see a modest initial investment grow into something much more significant. Of particular interest currently is the increasing presence of digital apps and their ability to facilitate consumer-to-consumer transactions, disrupting existing industry patterns in the process and bypassing the traditional industry suppliers. For instance, the home sharing website airbnb.com successfully raised almost $500 million in privately sourced venture capital during 2014 and saw its valuation rise to an impressive $10 billion (image by Connor Bleakley).
The disruptive nature of technology is apparent in the consumer transition from desktop to mobile computing, reflective of a broader trend across all sectors of the economy. With travel companies investing significant resources into mobile platforms, investment opportunities may arise in those companies providing the technology.
Another signal to watch out for is the travel sector will match the general economy, albeit with something of a lag, as confidence gradually extends from the wider economy into the travel industry. As general business confidence grows, investors can expect to see hotel and airline stocks rise, as occupancy rates and load factors increase.
Investors in the travel industry have the potential to make significant returns, but as with any investment, tracking performance is critical, so make sure to keep abreast of industry trends and overall growth patterns. An important point to remember is that growth in international markets, particularly in emerging markets, is likely to continue outstripping growth in the more mature markets, such as Europe and North America.
Related post: How to Travel Europe on a Budget?
Feature image by Cuba Gallery