Travel stocks can be exciting to own, but they can also be quite volatile. Travel stocks are the ultimate cyclical play because, by and large, they tend to outperform during strong economic periods and underperform during recessions.
But numerous other variables can affect both the short- and long-term performance of various stocks in the travel industry, from consumer confidence to the state of interest rates to company-specific factors.
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Here’s a look at some of the most important factors affecting the travel industry along with specific stocks to consider this holiday season.
Macroeconomic Factors
As travel companies generally operate over wide areas, whether across the whole country or even the entire globe, they are susceptible to numerous macroeconomic factors.
Geopolitical instability, such as violent conflict, can obviously dampen or even eliminate travel demand in certain areas. Weather calamities, such as hurricanes and earthquakes, can likewise make travel to affected places less likely for tourists.
High interest rates can raise costs both for travel companies, many of which have a large amount of debt on their balance sheets, and for consumers, as they can reduce the amount of discretionary income consumers have.
A recessions is a worst-case scenario for many travel companies. It typically dampens demand for their products, as consumers are more likely worried about keeping their jobs than planning any vacations.
As of Nov. 2024, however, most macroeconomic factors are in favor of investing in travel stocks. Interest rates, while still high, are slowly trending lower, and the overall economy is still booming, keeping money in consumers’ pockets. Oil prices spiked in July but have been trending downward ever since, providing a tailwind for energy-intensive travel companies, like airlines and cruise lines. And while there are still some regions of the world that are off-limits due to wars and conflict, overall, most popular destinations are still conflict-free.
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Seasonal Trends
Seasonal trends for many travel companies are favorable in the fall and heading into winter. This is because holiday travel is extremely popular, with many airlines, hotels and cruise ships reaching maximum capacity. Plus, fuel prices are often lower during the fall and winter months than in the summertime, helping companies manage costs better.
These seasonal trends can make travel stocks worth looking at during this time of year.
Company-Specific Performance
Even though all travel stocks get lumped into “the travel industry,” company-specific performance can help determine what travel stocks end up being winners and losers. For example, in the airline industry, cost control, revenue management and executive decisions often mean the difference between profits and losses.
This is why it’s important to dig into the specifics of each individual company in addition to understanding the seasonal and macroeconomic factors that affect the industry as a whole.
3 Specific Travel Stocks To Look At This Holiday Season
Here are some specific travel-related stocks recently recommended by experts.
Booking Holdings (BKNG)
Booking Holdings has its fingers in many pies when it comes to the travel industry. In addition to its namesake Booking.com website and app, it owns Priceline, Agoda, Kayak and OpenTable, making it the world’s largest do-it-yourself travel agency.
In the third quarter of 2024, Booking Holdings topped earnings expectations by 7.63%, with revenue jumping 9% and earnings before interest, taxes, depreciation and amortization increasing 12% on a year-over-year basis. Plus, the company’s artificial intelligence efforts could pay off going forward, per InvestorPlace.
Carnival Corp. (CCL)
An investment in Carnival carries a certain amount of risk. The cruise line operator — which along with its namesake line owns the Princess and Cunard lines, among others — is the largest cruise operator in the world. It suffered mightily during the pandemic, but it’s slowly climbing its way back.
Per Kiplinger, record bookings are already in place for 2025, and the company is making headway cutting down its debt. Plus, its stock has plenty of room left to recover, if consumer demand remains high — and especially if interest rates fall.
Delta Air Lines (DAL)
Airlines are notoriously cyclical, but Delta is doing a good job of trying to smooth out the rough patches.
The company has been focusing on increasing revenue, improving its balance sheet and lowering its debt, per The Motley Fool. With declining interest rates, a strong economy, a low price-to-earnings ratio under 9 and continuing customer demand for travel, especially in premium cabins, Delta could be a good bet heading into the holiday season.
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This article originally appeared on GOBankingRates.com: Are Travel Stocks Good Buys This Holiday Season?
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