Investors will find a great deal to like across the travel
and leisure segment in the coming year, according to the latest research from Bank
of America Merrill Lynch.
In its 2018 Travel and Leisure Industry Overview, analysts
cite surveys from Euromonitor that show vacation and leisure travel are the top spending priorities for most people, ahead of saving money or buying clothing, cars or home improvement items.
For the five subsectors analyzed – hotels, cruise, tour
operators, gaming and catering – the report predicts hotels will post the strongest
performance.
Hotels vs. OTAs
Of note, the analysts express confidence that the large
hotel groups will make gains in their distribution battles with online travel
agencies.
“There are clear signs the larger hotel groups are beginning
to fight back with more effective direct distribution and may even be able to
begin to lower the fees the OTAs charge them,” the report states.
In 2017, nearly all brands boosted the percentage of web
traffic that came directly to their sites, while the percentage of traffic from
search declined.
Enhanced loyalty programs and direct-booking perks such as
free Wi-Fi are proving effective for large chains. The report notes InterContinental Hotels Group “derives
as much revenue from customers booking through the loyalty program as it does
from OTAs.”
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Regarding Airbnb, the analysts posit the potential for it to
disrupt the hotel sector is diminishing. One possible explanation: Airbnb is
targeting leisure travelers, while large hotel groups derive most of their
revenue from business travelers.
Tour operator growth and threat
Tour operators are another
strong subsector, due in part to increased capacity being offered by European
short-haul airlines and also by a rebound in tourism to Turkey.
By offering convenience, reliability, competitive pricing
and unique content, vacation packages are an attractive choice for many
travelers.
But there is caution, too. The analysts note that OTAs and
low-cost carriers have rattled the business of tour operators. Data from the
United Kingdom shows package holidays are losing market share compared to other
holidays.
In fact, the report cites low-cost carriers as potentially a
greater threat to travel agencies than OTAs, noting that they have “aggressively targeted market share gains on short-haul leisure routes” which has
“served to undermine their vertically integrated business model and eroded the
value proposition they offer to consumers.”
Still, close to 50% of holidays are booked through some form of package, with consumer surveys indicating travelers prefer options that ensure “everything is taken care of” in the booking.