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Printed: 05 December 2022 1:05 PM

News

25 May 2022 - Revenge Travel
By: Insync Fund Managers

Revenge Travel

Insync Fund Managers

April 2022


Why on earth would Experiences thrive with the gloom around today?

Put simply-Pent-up demand. Pre-Covid expenditure on experiences had been consistently growing ahead of GDP and its sub-segment, travel, was one of the fastest growing. Most megatrends within Insync's portfolio tend to have low sensitivity to economic cycles but the one sub-segment that suffered temporarily was travel.

The extent of the fall in travel was unprecedented. Worldwide a staggering 1 billion fewer international arrivals in 2020 than in 2019. This compares with the 4% decline recorded during the 2009 global economic crisis (GFC).

The Vacationer, an online publication found that 25% of respondents say they

intend to 'revenge travel', likely spending more money than ever before after

being stripped of the opportunity to vacation over the last two years.

There has been a lack of visibility on how leisure travel was going to emerge after governments implemented onerous travel restrictions. This was compounded by the shift to working from home with online meetings reducing the need for face-to-face meetings. What we do know is that humans desire to travel is hardwired into all of our DNAs. As travel restrictions have started to ease consumers appear to be making up for lost time.

Airlines in the US last month reported domestic flight bookings surpassing pre-pandemic levels! US travellers spent $6.6 billion on flights in February, 6% higher than February 2019. Airlines for America, a leading US industry advocacy group noted that travellers have been eager to book tickets as COVID restrictions lifted.

This provides a good indicator for the rest of the world. Our families and friends are all planning new adventures and reunions too. Interestingly, rising jet fuel prices, which have put upward pressure on ticket prices, has so far not deterred travellers who are willing to spend more. Emirates recently added a fuel surcharge and saw booking rise!

A number of surveys are painting similar stories. TripAdvisor, found that 45% of Americans are planning to travel this March and April, including 68% of Gen Z travellers. This number will climb higher as the summer season rapidly approaches, as 68% of all American adults will vacation this summer (The Vacationer). No wonder hotels around the United States are nearing or have already surpassed pre-pandemic occupancy. Just try finding a decent, moderately priced hotel room in Sydney, as two of our team have recently experienced.

The megatrend of Experiences is accelerating. Finding the right businesses benefitting from the trend is equally important for the consistent earnings growth we seek. It's why Cruise lines, airlines and hotels, whilst obvious picks, don't meet the quality criteria we insist upon.

Recently we reinvested into Booking Holdings after the over-blown pull back in its share price and the Covid event subsiding. It generates prodigious amounts of cash because of their scale and superior margins versus its competitors. As well as delivering a commanding competitive position they also help it in protecting against inflation. Bookings recently overtook Marriott, the largest hotel group, in gross volume booked in 2012, and today stands 70% bigger.

Companies with superior business models and balance sheets tend to come through a crisis strengthening their competitive position. Booking Holdings is a prime example. The structural reduction in business travel has made hotels reliant upon OTAs once again to fill-up their rooms. This has been evidenced by recent data showing strong market share gains, in excess of pre-COVID levels. Second is the shutdown of Google's "Book on Google" product, removing the biggest perennial risk to the OTA investment case. The fact that the most powerful online search engine is shutting down this service is testament to the powerful position that Booking Holdings occupy.

Long term, travel looks set to continue to grow ahead of GDP as populations age, emerging market middle classes expand, and discretionary spend shifts more from "things" to "experiences.". Booking Holdings will be a major beneficiary compounding earnings for many years with its share price likely to follow the consistent growth in earnings.

 


Funds operated by this manager:

Insync Global Capital Aware FundInsync Global Quality Equity Fund


Disclaimer
Equity Trustees Limited ("EQT") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) ("Insync"), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

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