The Ship Has Sailed On Travel

Many stocks have reported better than expected numbers. Expedia jumped 8% on Friday based off an earnings beat. Royal Caribbean beat on revenue and earings per share; 4.10 billion vs 4.05 billion and 3.32 vs. 2.87, respectively. Disney reported 4% revenue growth and a $1.43 EPS compared to a $0.25 loss in the same quarter last year. 

With all this good news, it seems like we are still in a carefree environment of a booming economy. However, I'm not so sure. Many economists don't expect a major economic crash, and neither do I. But there are many signs that travel will be on hold for a while. 

Let's look at the industry players themselves. Many of them say that we should expect weakening in the sector. Expedia came out after beating on profits to warn investors of softening demand. Their guidance went from growth in the high single digits to only 4%. They join the likes of travel industry giants, Airbnb, Booking.com, Marriott, all guiding down in their forecast, citing softening consumer demand.

So what's happening on the outside that make these companies so worried?

Consumer revolving credit, the credit that people usually use to pay for these things, has increased on average by $10 billion since September of 2023. In the same time frame, credit delinquency rates have been steadily climbing. From about 2.4 to 3.2 percent. Do I think that this is an end of the world scenario? No. But it does mean that there is going to be less money going around for leisure activities. And while inflation has cooled, prices are still high and families are still feeling the pinch. Prices of necessities: rent, food, clothing, mortgages are still high. Although there has been some relief with mortgage rates coming down a bit, it is still not enough to move the needle for me.

And what about these layoff numbers? Every other news article is talking about another company laying off workers. Paramout, despite reported growth, is planning a 15% layoff. Intel is laying off 15,000 of its workers. They join the likes of Amazon, Google, Microsoft. It has got people asking, is my job next? It's hard to plan a vacation if you don't know if you are going to have a job tomorrow. 

With all this bad news, I do not like travel stocks. Are we facing the end of the world? Not exactly. However, until consumers feel more comfortable in their economic situation, the travel company ship has definitely sailed. 

*This is solely my personal thoughts and opinions and not to be taken as financial advice. For that, please contact your financial advisor