Macro: Sandcastle economics
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Delta variant ruined the big comeback year for travel
Peter Garnry
Chief Investment Strategist
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.
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.
| Name | Industry | Market Cap (USD mn.) | F12M Sales growth (%) | 12M EBITDA margin (%) | Diff to PT (%) | 24M Fwd EV/EBITDA |
| Boeing Co/The | Airliner manufacturer | 137,429 | -7.4 | -19.1 | 16.4 | 16.6 |
| Airbnb Inc | Booking platform | 94,333 | 12.6 | -95.4 | 12.0 | 50.1 |
| Booking Holdings Inc | Booking platform | 90,472 | -36.5 | 16.2 | 15.8 | 14.1 |
| Airbus SE | Airliner manufacturer | 106,129 | -5.1 | 6.8 | 15.3 | 9.4 |
| Marriott International Inc/MD | Hotel chain | 43,762 | -41.1 | 10.1 | 11.6 | 14.8 |
| Hilton Worldwide Holdings Inc | Hotel chain | 34,058 | -44.5 | 17.8 | 9.2 | 16.6 |
| Southwest Airlines Co | Airlines | 29,825 | -40.6 | -39.2 | 30.9 | 5.3 |
| Amadeus IT Group SA | Travel software | 28,003 | -50.0 | 14.2 | 12.9 | 13.5 |
| Delta Air Lines Inc | Airlines | 25,533 | -46.2 | -28.5 | 40.1 | 5.4 |
| Carnival Corp | Cruise lines | 25,546 | -99.2 | -64.0 | 29.2 | 9.0 |
| Aena SME SA | Airport Services | 24,362 | -43.9 | 37.4 | 7.7 | 12.5 |
| Expedia Group Inc | Booking platform | 22,416 | -36.3 | -5.5 | 22.1 | 10.0 |
| Trip.com Group Ltd | Booking platform | 15,879 | -45.1 | 1.1 | 73.0 | 12.7 |
| Royal Caribbean Cruises Ltd | Cruise lines | 20,093 | -98.8 | -66.9 | 21.5 | 10.6 |
| Ryanair Holdings PLC | Airlines | 21,336 | -70.2 | -16.4 | 14.1 | 7.8 |
| Huazhu Group Ltd | Hotel chain | 14,354 | -3.0 | 1.1 | 42.6 | 17.9 |
| Shanghai International Airport Co Ltd | Airport Services | 11,453 | -64.0 | -27.9 | 40.6 | 23.1 |
| Air China Ltd | Airlines | 13,205 | -49.0 | 13.8 | 38.9 | 7.2 |
| International Consolidated Airlines Group SA | Airlines | 11,267 | -74.8 | -17.0 | 37.2 | 5.0 |
| China Southern Airlines Co Ltd | Airlines | 13,056 | -32.8 | 18.0 | 40.8 | 7.6 |
| Sydney Airport | Airport Services | 15,255 | -51.0 | 63.2 | 5.7 | 25.7 |
| InterContinental Hotels Group PLC | Hotel chain | 11,596 | -35.3 | 3.8 | 10.0 | 14.7 |
| Aeroports de Paris | Airport Services | 12,008 | -46.8 | 34.1 | 4.1 | 12.8 |
| Vail Resorts Inc | Ski resorts | 12,029 | -16.3 | 28.2 | 14.3 | 15.2 |
| Host Hotels & Resorts Inc | Hotel REITs | 11,359 | -59.7 | -27.0 | 15.9 | 12.8 |
| Norwegian Cruise Line Holdings Ltd | Cruise lines | 9,266 | -99.5 | -84.8 | 25.8 | 9.5 |
| Accor SA | Hotel chain | 8,879 | -49.7 | -24.4 | 22.3 | 13.5 |
| Whitbread PLC | Hotel chain | 8,677 | -71.5 | -52.7 | 18.5 | 12.7 |
| TripAdvisor Inc | Booking platform | 4,802 | -43.2 | -0.7 | 25.3 | 10.6 |
| TravelSky Technology Ltd | Travel software | 4,985 | -32.5 | 15.8 | 45.6 | 6.5 |
| TUI AG | Travel agency | 5,027 | -81.7 | -6.5 | -28.7 | 6.0 |
| Choice Hotels International Inc | Hotel chain | 6,479 | -8.8 | 37.8 | -0.7 | 17.0 |
| Travel + Leisure Co | Hospitality services | 4,589 | -11.6 | 7.0 | 38.3 | 8.0 |
| Park Hotels & Resorts Inc | Hotel REITs | 4,373 | -67.1 | -26.4 | 27.7 | 12.4 |
| Grupo Aeroportuario del Sureste SAB de CV | Airport Services | 5,285 | -5.1 | 38.6 | 9.1 | 9.5 |
| Sabre Corp | Travel software | 3,485 | -49.8 | -31.7 | 32.4 | 13.9 |
| MakeMyTrip Ltd | Booking platform | 2,828 | -49.5 | -21.4 | 22.8 | 51.8 |
| Flight Centre Travel Group Ltd | Travel agency | 2,103 | -83.7 | -42.1 | 16.5 | 5.1 |
| On the Beach Group PLC | Booking platform | 806 | -83.0 | -101.5 | 12.6 | 12.9 |
| Airtrip Corp | Travel agency | 475 | -39.3 | -4.1 | 57.7 | 9.6 |
| Aggregate figures (sum or median) | 916,813 | -45.7 | -4.8 | 20.0 | 12.6 |
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