The country is looking to upgrade current tourist locations and is opening new ones which should attract even more business. At the moment, most of the traffic comes from China, which accounts for 30% of the total, and ASEAN countries. The annual passenger rate is expected to reach more than 25 million in the next five years, as Vietnam builds new airports, additional international routes are opened and visa relaxations are put in place. In addition, domestic travel has also increased due to higher income per capita and a resulting increase in purchasing power. The cost of traveling through air and road is almost the same, which also encourages air travel. Domestic air traffic has grown by 27% CAGR in the last five years.
Given the existing aviation landscape in Vietnam, budget airlines are likely to benefit the most as they offer better value for money to international tourists and a cheaper commute for domestic passengers.
For us, the focus on travel stocks over the season is no longer a big factor, with the exception of some of the Northern hemisphere travel operators such as TUI. Today
the strong trends we see in global travel are positive all year round, and are broadly favoring online businesses, for example Booking.com and Ctrip in China. Hotel groups such as Accor and InterContinental Hotel Groups are also benefiting from these positive trends. In this space the focus is primarily on the business traveler, particularly given the growth of competition in the vacation travel market from online private rental with operators, for instance Airbnb.
Overall growth in travel is being driven by two key trends. In the West, consumers – particularly baby boomers – are becoming less attracted to material things and more focused on experiences such as travel, while in the East, incomes are now reaching levels where foreign travel becomes an attractive option. Generally, we continue to like this sector and suggest going to visit your bucket-list destinations before they become full.
We are looking into the cruise sector because many tailwinds have become headwinds and have led to weak performances. One example is the market leader
The sector as a whole has been plagued with fears over capacity, now amplified by the move in fuel prices. Despite the double whammy of fuel prices increasing and the US dollar strengthening, the underlying fundamentals of the cruise industry remain supportive.
The booking curve continues to lengthen, consumer confidence remains strong and recent commentary suggests that prices are continuing to hold up despite market concerns. At the recent launch of Carnival’s latest cruise ship, Carnival Horizon, the management’s tone on the booking curve, the underpenetration of the industry, and the potential of benefits from the company’s new yield management system, leave an encouraging picture.
Carnival traditionally trades on a P/E multiple that is broadly in line with the one-year forward market multiple. Significant discounts to that could mean interesting entry points.