Travel and tourism, tantalising investments
Everyone is familiar with travel websites and apps, but is travel and tourism a good area in which to invest? I believe it is.
The field is vast and there are many investment opportunities to choose from.
Online travel providers have experienced fantastic growth. Revenue continues to move to the internet, eg the growth of Amazon, and this is exactly the same scenario prevailing in the travel and tourism industry. Traditional travel agents sitting in physical agencies are rapidly replaced by websites that offer lower prices, convenience, choice and planned schedules.
Large companies to consider are Booking.com and Expedia. Priceline, which belongs to Booking.com, has gained huge market share by driving traffic to its websites for flights, accommodation and last-minute specials.
Another area is the cruise-line industry. This industry is more than 100 years old, but arguably still has a lot of potential to grow.
Carnival, the largest cruise line, estimates that only 3.4% of the population in North America has ever been on a cruise. And, of course, the percentages are much lower in the rest of the world. The industry as a whole is growing strongly and has enjoyed capacity growth of seven percent per annum.
The hotel industry is also a fertile area of investment to consider. The largest players are Hilton, Marriott and Starwood. These companies are massive in the US and are now growing strongly internationally. They also manage thousands of properties on behalf of outside owners and are very involved in timeshares, where they sell the rights for consumers to use their properties for a week or more during each calendar year.
The largest cruise-line companies are Royal Caribbean, Carnival Cruise Lines and Norwegian Cruise Lines. Boosted by an ageing population and strong economic growth in the US, a record number of people will cruise this year.
In December last year, Norwegian Cruise Lines had already sold 70% of its occupancy for 2019 and at higher prices than 2018. This will support another year of record sales and profit for the company. The number of people cruising has been increasing every year for the past 10 years, and the major cruise lines are launching more ships with greater capacity, incredible features and on-board entertainment.
A company that Fenestra is currently analysing is Booking Holdings. This company is led by an incredible manager, Glen Fogel.
Booking Holdings has six primary brands: Booking.com, KAYAK, Priceline, Agoda, Rentalcars.com and Open Table.
In 2016, total revenue was $10.7 billion and by last year it had ballooned to $14.5 billion, a gain of 36%. Earnings per share nearly doubled from $42.65 in 2016 to $83.26 in 2018. Booking Holdings had more than $92.7 billion gross bookings in 2018.
Fogel says these results are because “the people of this organisation have continued to come up with great innovative technology – driven ways to make travel better, partly because we have out-executed our competitors”. Fogel makes another point, that it is vital to empower people at every level to make decisions, “especially as a global company with people operating in varying cultures and time zones. One wants to enable everyone to implement and execute the company’s vision.”
The internet is the great equaliser and has made travel much more affordable for millions of people and, politically, travel broadens the mind. Mark Twain said it best: “Travel is fatal to prejudice, bigotry and narrow-mindedness.”
Once you start to travel, the journey never ends!
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*William Meyer is a qualified Chartered Accountant (SA) and Chartered Financial Analyst (USA). He has been CEO of Fenestra Asset Management since 1990. He lives in Mooi River with his wife Claire and their four children and commutes to his Head Office in Cape Town.