Delta Delta Delta

Delta variant ruined the big comeback year for travel

Equities 6 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Our travel basket is only 3% this year underperforming the global equity market as the delta variant has caused extended travel restrictions despite a massive vaccine rollout the developed world. Revenue is down 46% over the past 12 months for our basket and uncertainty over travel demand will linger well into 2022. However, Airbnb is defying the industry's doom and gloom reporting positive growth as the travel platform is benefitting from people preferring renting private homes over resorts and hotels.


Our travel basket had the highest sensitivity to the vaccine announcement in early November 2020 and the subsequent rally across value and other beaten down stocks. The travel basket rose 63% from October 2020 to February 2021 and this year was supposed to become the big comeback year for travel related companies as the vaccines would accelerate the world out of the pandemic. But the rally stopped as the world slowly learned that Covid-19 was mutating into more highly transmissible variants such as the Delta variant first observed in India. The overall equity market has reached new all-time highs, but our travel basket is down 11% in July from February and has declined another 0.8% in August as the delta variant is causing renewed mobility constraints across many countries.

As the chart below shows, revenue per kilometer for airliners in Europe was still down 83% in June compared to June 2019. Long-haul traffic is still at depressed levels and the delta variant has only postponed the rebound as the US is still upholding strict limitations on air passenger incoming from Europe. To make things worse, several experts are now saying that herd immunity via vaccination may never happen due new variants being much more transmissible which means that pandemic will last well into 2022 impacting both travel and the goods economy via supply chain disruptions.

Source: Bloomberg

Airbnb seems more immune to travel restrictions

But everything in our travel basket is not created equal. Airbnb which reported Q2 earnings Thursday night after the US market close showed a strong rebound in its business. This is our post earnings take from our Market Quick Take on Friday:

Airbnb and travel are back with bumpy ride still ahead. Airbnb is back on a strong growth trajectory despite various Covid-19 variants such as delta adding uncertainty over travel activity across many countries. Airbnb Q2 gross bookings were $13.4bn vs $11.2bn and EBITDA $217mn vs est. $50.4mn on $1.34bn in revenue showing that Airbnb is back at revenue level where economics of scale kicks in big time. Q3 revenue guidance is well above Q3 2019 and thus will be a record quarter for the company showing that Airbnb is out of the crisis despite the near-term visibility issues. Airbnb says in a statement: “In the last few weeks, we had our biggest night ever in the U.S. and our biggest night globally since the pandemic began, with more than 4 million guests staying at an Airbnb listing”. Despite the strong comeback Airbnb acknowledged that the delta variant will hit gross bookings and near-term outlook is uncertain. That was enough for investors to send the shares down 4% in extended trading.

Airbnb seems to have benefitted from the global trend of people wanting to have vacation again but limited to short distance vacation. Also renting a private home may for many people mean less infection risk compared to resorts and hotels combined with going through airports or other high dense traffic nodes.

As our travel basket overview below shows, Airbnb is the only company in our basket of 40 travel related companies that has positive revenue growth over the past 12 months. The median revenue growth is current -46%, but despite the low activity levels sell-side analysts remain optimistic with a median upside of 20%. Because Airbnb’s strong rebound the company is also trading at a high forward valuation of 50.1x on the EV/EBITDA multiple which is 3x of the global equity market. The overall travel basket is valued at 7% discount to global equity market, which seems fair or maybe a bit too low a discount given the uncertainty for the industry.

NameIndustryMarket Cap (USD mn.)F12M Sales growth (%)12M EBITDA margin (%)Diff to PT (%)24M Fwd EV/EBITDA
Boeing Co/TheAirliner manufacturer137,429-7.4-19.116.416.6
Airbnb IncBooking platform94,33312.6-95.412.050.1
Booking Holdings IncBooking platform90,472-36.516.215.814.1
Airbus SEAirliner manufacturer106,129-5.16.815.39.4
Marriott International Inc/MDHotel chain43,762-41.110.111.614.8
Hilton Worldwide Holdings IncHotel chain34,058-44.517.89.216.6
Southwest Airlines CoAirlines29,825-40.6-39.230.95.3
Amadeus IT Group SATravel software28,003-50.014.212.913.5
Delta Air Lines IncAirlines25,533-46.2-28.540.15.4
Carnival CorpCruise lines25,546-99.2-64.029.29.0
Aena SME SAAirport Services24,362-43.937.47.712.5
Expedia Group IncBooking platform22,416-36.3-5.522.110.0
Trip.com Group LtdBooking platform15,879-45.11.173.012.7
Royal Caribbean Cruises LtdCruise lines20,093-98.8-66.921.510.6
Ryanair Holdings PLCAirlines21,336-70.2-16.414.17.8
Huazhu Group LtdHotel chain14,354-3.01.142.617.9
Shanghai International Airport Co LtdAirport Services11,453-64.0-27.940.623.1
Air China LtdAirlines13,205-49.013.838.97.2
International Consolidated Airlines Group SAAirlines11,267-74.8-17.037.25.0
China Southern Airlines Co LtdAirlines13,056-32.818.040.87.6
Sydney AirportAirport Services15,255-51.063.25.725.7
InterContinental Hotels Group PLCHotel chain11,596-35.33.810.014.7
Aeroports de ParisAirport Services12,008-46.834.14.112.8
Vail Resorts IncSki resorts12,029-16.328.214.315.2
Host Hotels & Resorts IncHotel REITs11,359-59.7-27.015.912.8
Norwegian Cruise Line Holdings LtdCruise lines9,266-99.5-84.825.89.5
Accor SAHotel chain8,879-49.7-24.422.313.5
Whitbread PLCHotel chain8,677-71.5-52.718.512.7
TripAdvisor IncBooking platform4,802-43.2-0.725.310.6
TravelSky Technology LtdTravel software4,985-32.515.845.66.5
TUI AGTravel agency5,027-81.7-6.5-28.76.0
Choice Hotels International IncHotel chain6,479-8.837.8-0.717.0
Travel + Leisure CoHospitality services4,589-11.67.038.38.0
Park Hotels & Resorts IncHotel REITs4,373-67.1-26.427.712.4
Grupo Aeroportuario del Sureste SAB de CVAirport Services5,285-5.138.69.19.5
Sabre CorpTravel software3,485-49.8-31.732.413.9
MakeMyTrip LtdBooking platform2,828-49.5-21.422.851.8
Flight Centre Travel Group LtdTravel agency2,103-83.7-42.116.55.1
On the Beach Group PLCBooking platform806-83.0-101.512.612.9
Airtrip CorpTravel agency475-39.3-4.157.79.6
Aggregate figures (sum or median)916,813-45.7-4.820.012.6

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