Corporate travel may finally be back in business, unlocking higher profit margins for airlines and hotel companies and a much-needed revenue boost for the next few months, typically a slow season for leisure travel.<\/p>\n
Travel manager surveys, anecdotal evidence from airlines, hotel company earnings, and the end of the Hollywood and auto makers\u2019 strikes all signal a long-awaited uptick after a slow postpandemic recovery. The key for investors is that there looks to be more upside ahead.<\/p>\n
\n
The challenge, though, is determining which travel stocks can fully benefit. The larger, more corporate-exposed airlines, such as
\n Delta Air Lines
\n (ticker: DAL) and
\n United Airlines Holdings
\n (UAL) could get a boost, but the sector is battling myriad capacity issues that cloud the picture.<\/p>\n
Hotel chains such as
\n Hilton
\n Worldwide Holdings (HLT) and
\n Marriott
\n International (MAR) are also potential beneficiaries, particularly if larger corporations, which have lagged behind smaller businesses in travel spending, boost budgets into 2024.\u00a0<\/p>\n
The postpandemic business travel recovery has had a number of false dawns, but signs of a sustained comeback are beginning to emerge. Most major U.S. airlines flagged an improvement in business travel in the third quarter, but they would really commit only to \u201csteady\u201d\u2014very much the buzzword this time around.<\/p>\n
\n American Airlines Group
\n (AAL), one of the biggest carriers for corporate travel,<\/strong> said total business revenue rose 2% in the third quarter and that it has seen a \u201csteady improvement\u201d since Labor Day. Discounter
\n JetBlue Airways
\n (JBLU) said the recovery is in a \u201csteady state\u201d and will grow with the economy. Delta noted that it continues to \u201csteadily improve,\u201d citing return-to-the-office initiatives.<\/p>\nYou get the picture\u2014slow and steady wins the race. But the pace could pick up. Corporate travel surveys are pointing to budgets growing in 2024.<\/p>\n
The Global Business Travel Association\u2019s latest outlook shows that 67% of the 860 global businesses surveyed expect their travel budgets to increase or stay the same in 2024, with 39% seeing a rise. Morgan Stanley\u2019s October survey of corporate travel managers found that 2024 budgets are expected to be up an average 8% year over year. That\u2019s after an 11% rise in 2023.\u00a0<\/p>\n
Such continued growth, if it materializes, is good news for airlines and hotel companies. The U.S. Travel Association said that, at the end of 2022, corporate and group business travel was still 29% below 2019 levels. A full recovery, and beyond, isn\u2019t out of the question in 2024. It\u2019s likely to be a boon for airlines. Despite making up just 12% of total passengers, corporate travelers generated up to 75% of profit on certain flights prepandemic, according to a PwC report. It will also help Hilton, Marriott, and Holiday Inn\u2013owner
\n InterContinental Hotels Group
\n (IHG), for which business travelers accounted for about 45% to 50% of revenue in 2019.<\/p>\n
The elephant in the room is the evolving macroeconomic environment. Travel budgets are often among the first casualties when companies are looking to cut costs. While that\u2019s a valid risk, it\u2019s more likely to delay a recovery than put a permanent stop to it.<\/p>\n
Aspects of current business travel also suggest that a rebound may be about to accelerate. Right now, smaller businesses lead the recovery\u201441% of enterprises with less than $1 billion in revenue said\u00a0<\/strong>they have already returned to pre-Covid travel levels, according to Morgan Stanley\u2019s survey. But only 22% of businesses with $16 billion or more of revenue were at 2019 levels\u2014lower than the 26% in the bank\u2019s May survey. Analyst Ravi Shanker says that \u201clikely indicates that larger corporations may be a bit more stagnant, which could indicate there is more upside to come.\u201d\u00a0<\/p>\nAnother reason to believe the recovery will accelerate is the settlement of the entertainment and auto-maker strikes. Delta President Glen Hauenstein described the United Auto Workers and Hollywood strikes as a \u201cdrag\u201d on corporate revenue in the third quarter. Delta\u2019s business revenue is still accelerating, though, with corporate travelers working in both the tech and financial services sectors posting double-digit revenue growth\u2014so the two strike-hit sectors offer more upside now that agreements have been reached.<\/p>\n
Delta may be in the best position to benefit. \u201cWe continue to like Delta Air Lines as possibly the most corporate-exposed carrier in the U.S.,\u201d Shanker says. He has an Overweight rating on the stock.<\/p>\n
Airlines stocks have been battered since their July peak, and Delta\u2019s shares are cheap, trading at 5.5 times projected 2024 earnings. A corporate uptick could lift the shares. Wall Street is bullish, with 96% of analysts rating the stock a Buy. The average price target of $52.30 implies a 44% upside to Monday\u2019s trading.<\/p>\n
United Airlines is on a similar path\u2014a major corporate carrier whose stock is flashing signs of being too cheap.\u00a0<\/p>\n
Airlines could do with the revenue boost, particularly as cost pressures mount and the peak summer travel period becomes an increasingly distant memory, but they may find it difficult to fully capitalize on greater demand. The industry has a number of capacity problems, including a shortage of pilots and air-traffic control staff, as well as engine and maintenance problems for aging fleets. The pilot shortage won bumper pay raises through union negotiations: American and United pilots gained about 40% pay hikes over four years. But with pilots required to train for 1,500 hours before obtaining a Federal Aviation Administration certificate, fixing the shortage is taking time.\u00a0<\/strong>\u00a0<\/p>\nCarriers also need to juggle reallocating capacity that is available to them, balancing business and leisure-travel demand. \u201cDepressed business traffic is pushing too much capacity into traditional leisure markets,\u201d noted TD Cowen analyst Helane Becker in a report on why airline multiples remain stuck below prepandemic levels. \u201cDemand is normalizing and resulting in losses in oversupplied markets,\u201d she wrote.<\/p>\n
Larger carriers such as Delta and United, with the most capacity, have the best chance of capitalizing on a business recovery. Greater capacity means they can be more agile in reallocating aircraft to capture demand. The pair, plus American, have historically strong corporate customer bases.<\/p>\n
It\u2019s a similar story for hotels. An acceleration in corporate travel is a tailwind, but hotel companies are facing inflationary pressures and a burning question: How high can they hike room rates? International travel, particularly in and out of the key Asian market, is also lagging, and an uptick there could boost the stocks.<\/p>\n
Business travel exceeding 2019 levels would help. Macquarie analyst Chad Beynon tells Barron\u2019s<\/em> that it could happen in 2024. \u201cIt\u2019s the big corporations that are not back [in 2023],\u201d he says, adding that trends for next year look good. \u201cBusiness-travel pricing for the big corporates is up more than 5%.<\/strong> In terms of getting back to those prepandemic levels, we could see that it in 2024.\u201d<\/p>\nIf business travel does come back, Beynon sees Marriott International and Hilton as the biggest beneficiaries. Marriott has 180 million loyalty members\u2014typically business travelers\u2014the most in the industry. It\u2019s worth noting that in 2019 both hotel groups had the largest exposure to business travel, with 50% of Hilton\u2019s revenue coming from corporate travelers, and 47% of Marriott\u2019s. And the hotel companies are also renegotiating corporate room rates upward in 2024. So all bodes well.\u00a0<\/p>\n
The recovery, however, appears inextricably linked to the fortunes of the U.S. economy, which may be why it isn\u2019t being priced into the stocks. That\u2019s not necessarily a bad thing, and could be a buying opportunity.\u00a0\u201cIf we go into a little bit of a downturn and there are layoffs and companies pull back on travel spending, then you\u2019re probably not going to see that [recovery] in 2024. But as of now, based on everything we see with macro, we would see that [return to prepandemic levels],\u201d he says.<\/p>\n
Whether business travel would ever return to prepandemic levels was once a hotly contested debate. Now, it seems to be a given. The big question: when? <\/p>\n
Write to Callum Keown at callum.keown@dowjones.com<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Corporate travel may finally be back in business, unlocking higher profit margins for airlines and hotel companies and a much-needed revenue boost for the next few months, typically a slow season for leisure travel. Travel manager surveys, anecdotal evidence from airlines, hotel company earnings, and the end of the Hollywood and auto makers\u2019 strikes all […]<\/p>\n","protected":false},"author":1,"featured_media":87845,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-87844","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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