Expedia’s disappointing reports weigh down travel stocks due to concerns about a slowdown in demand.
Expedia's disappointing reports weigh down travel stocks due to concerns about a slowdown in demand.
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U.S. Travel Stocks Face Headwinds Amid Concerns of Softening Demand
August 3, 2021 – ANBLE
U.S. travel stocks experienced a sharp decline in early trading on Thursday, as concerns over domestic demand weighed heavily on investors’ minds. This downturn was fueled by downbeat quarterly reports from Spirit Airlines and Expedia, which suggested a potential easing of travel demand following a strong rebound from pandemic lows.
Spirit Airlines, primarily operating on domestic routes, also provided a weaker-than-expected revenue forecast for the third quarter. Analysts from Citi attributed this decline to travel demand shifting from domestic to international markets. This predicament, along with missed second-quarter profit and revenue estimates, has been further exacerbated by pilot attrition and turboprop engine issues. As a result, Spirit Airlines’ shares fell by 5.7% in morning trading.
Last week, other major airlines such as Southwest Airlines and Alaska Air had also offered downbeat full-year forecasts. This series of negative reports has had a contagion effect on other U.S. airlines, with shares of Delta Air Lines, United Airlines, and American Airlines slipping by approximately 1%, while Southwest recorded a 2% decline.
To add to the gloom, online travel giant Expedia reported smaller-than-expected bookings for the second quarter, despite claiming that travel demand remained “strong.” Gross bookings of $27.32 billion fell short of analysts’ estimates of $28.16 billion. Furthermore, revenue from points of sale in the U.S. decreased to $2.17 billion compared to $2.21 billion, although international sales showed some growth.
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Scott Devitt, an analyst from Wedbush, noted, “We believe this is further evidence of softening in U.S. travel demand trends while international growth continues to outperform.” Company executives highlighted that U.S. domestic airfares had seen slight declines due to increased capacity, while cross-border airfares remained stable. Expedia’s shares plummeted by 14% to $101.29.
Despite Expedia’s revenue slightly falling short of expectations, the company reported an adjusted profit of $2.89 per share, beating estimates of $2.32 per share. As a result of the weak performance in the travel industry, shares of Tripadvisor and Trivago, both U.S.-listed, were down 8.6% and 3.3% respectively. Shares of vacation rental firm Airbnb, which reports its results later on Thursday, also experienced a decline of 1.5%.
This recent series of disappointing reports has sparked concerns about the sustainability of the travel industry’s recovery from the pandemic. While the initial rebound from the lows of the pandemic was robust, the emergence of new variants and changes in travel patterns have introduced additional uncertainties. Investors and industry insiders will be closely observing how companies adapt to these challenges and whether travel demand stabilizes in the coming months.
Key Points:
- U.S. travel stocks fell following downbeat quarterly reports from Spirit Airlines and Expedia, raising concerns about a potential easing of domestic travel demand.
- Spirit Airlines provided a weaker-than-expected revenue forecast for the third quarter, attributing it to a shift in travel demand from domestic to international markets.
- Other major airlines such as Southwest Airlines and Alaska Air also offered downbeat full-year forecasts, leading to a contagion effect on the industry.
- Expedia reported smaller-than-expected bookings for the second quarter, indicating potential softening in U.S. travel demand trends while international growth continues to outperform.
- Concerns have emerged about the sustainability of the travel industry’s recovery from the pandemic, with investors and industry insiders closely watching how companies adapt to the changing landscape.
