Having recently returned from an overseas trip, travel has been at the forefront of my mind. With travel and tourism being one of the fastest-growing sectors in the global economy, let’s take a look at three popular ASX shares operating in the travel space.
Webjet Limited (ASX: WEB) is a digital travel business spanning both global consumer markets (‘B2C’) and wholesale markets (‘B2B’). It was established in 1998 and now claims to be the leading online travel agency (OTA) in Australia and New Zealand. Webjet says it was the world’s first to use ‘Travel Services Aggregator’ technology and is now leading the industry in blockchain innovation.
There is a lot to like about Webjet’s long-term growth potential. Strong organic growth particularly in the company’s rapidly growing B2B WebBeds business, a continued shift towards the online travel marketplace and new blockchain initiatives aimed to reduce costs and improve efficiency are all positives.
In saying that, the share price of Webjet has fallen roughly 25% since the federal election in mid-May. This decline may be attributable to weaker discretionary spending and Webjet’s deal with its strategic UK partner Thomas Cook, whose share price has suffered amid concerns over the viability of its business.
Flight Centre Travel Group Ltd (ASX: FLT) is one of the world’s largest travel agencies and has company-owned operations in more than 23 countries, while their corporate travel management network spans more than 90 countries. The Group employs more than 19,000 people and owns 2,800 businesses.
Flight Centre has an exceptional balance sheet that comprises $394 million in cash and only $35 million in debt. The company is also founder run and has a strong long-term record of growth, ticking further boxes of an attractive investment.
However, Flight Centre issued a downgrade in its FY19 profit guidance back in April, citing lacklustre Australian leisure results due to lower Australian consumer confidence and thus, subdued trading conditions. Further, the brick and mortar element of Flight Centre’s business model has long been a concern for investors given the rise of online travel bookings.
Despite this, Flight Centre’s share price has risen roughly 12% in the last 3 months, a stark contrast from that of Webjet.
Corporate Travel Management Ltd (ASX: CTD) is a provider of travel management solutions to the corporate market. They pride themselves on personalised service excellence and client-facing technology solutions, and these traits have helped them to win AFTA’s award for Australia’s Best Corporate Travel Management Company twelve times! Corporate Travel Management currently operates throughout Australia, New Zealand, North America, Europe and Asia.
Corporate Travel released a strong half-year report earlier this year with revenue, underlying EBITDA, statutory NPAT and EPS all growing more than 20% on the prior corresponding period.
Pleasingly, the company is also founder-led and has a technology focus that may prove to set the company apart in the Asian and US markets where online penetration in the corporate travel segment is relatively low.
However, Corporate Travel was the target of a scathing short report released in October 2018. In this report, Vgi Partners Ltd (ASX: VGI) identified 20 “red flags” ranging from deceptive accounting policies to questionable cash balances.
As a result, the Corporate Travel share price plummeted to a 52-week low of $19.20 in early November 2018. While the company’s half-year report provided temporary relief for investors, with the share price rallying as high as $29.27 in February, it has since fallen back to around $21.
Which Share Would I Buy?
To me, it seems all three of these businesses are cyclical and may be vulnerable to an economic downturn. Further, Flight Centre and Webjet in particular face increasing competition from the likes of Booking.com, owned by Booking Holdings (NASDAQ: BKNG), Expedia Group (NASDAQ: EXPE), Trivago (NASDAQ: TRVG) and Helloworld Travel (ASX: HLO).
However, the long-term growth potential of these businesses remains intact and the recent pullback in share prices may present a buying opportunity for long-term investors.
Of the three, I’d be most compelled to buy Webjet shares due to its impressive growth rates, particularly in relation to its WebBeds B2B business, as well as the company’s blockchain initiatives that seek to improve productivity. Webjet is also well-positioned to benefit from the continued industry shift away from traditional brick and mortar stores to the online marketplace.
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At the time of writing, Cathryn has no financial interest in any of the companies mentioned.