Will travel tailwinds continue to blow?

Airline and travel stocks are basking in a strong start to 2023, but can the rebound last? This week’s updates from Airbnb and Tui offer room for optimism.

Summer optimism continues to drive travel stocks higher after Airbnb (NASDAQ:ABNB) joined TUI (LSE:TUI) in reporting strong booking trends and easyJet (LSE:EZJ) got the benefit of a big City upgrade.

Airbnb shares jumped 9% in after-hours trading on Wall Street last night as the home-sharing platform said European customers were making their travel plans earlier this year.

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It also beat expectations for the Christmas quarter, with revenues the highest on record at $1.9 billion (£1.6 billion) and net income up to $319 million (£265 million) as guests increasingly returned to cities and crossed borders after the long period of Covid disruption.

The company, which ended 2022 with 6.6 million global active listings, said: “Looking forward to 2023, we’re seeing strong demand in the first quarter, indicating that consumer confidence to travel remains high.”

That’s in line with trends reported in the UK amid signs that households are committed to their summer break despite the prolonged squeeze on living standards.

Yesterday’s first-quarter update by holidays and airline giant TUI highlighted some record booking days for the UK and Germany as its winter 2022-23 and summer seasons move towards capacity.

Tui expects full-year earnings to increase significantly, although the scale of its progress will depend on trends in inflation and the potential for disruption from labour shortages.

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Its shares have lost about two-thirds of their value during the three years of pandemic disruption, but the former FTSE 100 stock is now moving in the right direction after a rise of more than fifth so far this year.

The recovery at easyJet has been particularly rapid in recent weeks, with shares up 50% on signs that the UK economy is faring better than most analysts thought back in the autumn.

This was the driving force for yesterday’s double upgrade by analysts at Deutsche Bank as they replaced their “sell” recommendation with a “buy” one and lifted their target price by more than 41% to 580p. The FTSE 250-listed shares today stood at 492.8p.

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The bank notes that easyJet has the greatest exposure to the UK economy, representing about 40% of its profits based on pre-Covid passenger figures.

Its previous negative stance was also based on concerns about easyJet’s ability to deal with rising non-fuel costs, but the improved macroeconomic conditions and positive outlook now mean the airline should be able to pass these on.

Deutsche Bank sees scope for £350 million of pre-tax profits in 2023, which compares with the current City consensus of £204 million. 

It is based on fares per passenger remaining 17.5% above 2019 levels — as they were in the December quarter — with the bank noting that each percentage point increase adds about £36 million to the bottom line.