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Booking Holdings and Saudi Arabia Strike a Travel Deal

By Nicholas Rossolillo - Dec 28, 2018 at 8:29PM

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An agreement to help religious pilgrims underscores the growth potential for global travel.

Booking Holdings( BKNG -2.65% ) subsidiary Agoda recently signed an agreement with Saudi Arabia's Ministry of Hajj and Umrah to help the kingdom hit its goal of 30 million pilgrims a year by the year 2030. That's an ambitious target, as the Ministry of Hajj and Umrah says the number of international pilgrims has tripled in the last decade and is tracking toward 15 million by 2020.

Those growth rates illustrate the boom in international tourism in recent years, and all indications are that the numbers will continue to rise. For the online travel industry, where Booking Holdings reigns, that's great news for the long haul.

Hajj and Umrah and where Booking comes in

Hajj and Umrah refer to pilgrimages in the Islamic faith. Umrah can be done at any time, is not compulsory, and is considered a minor pilgrimage. Hajj only can be undertaken at certain times of the year and is a mandatory journey for each individual in the Muslim faith at least once in their lifetime -- given they are physically and financially able to do so.

The trip takes pilgrims to the holy cities of Mecca, Medina, and Jeddah, and the journey can get congested. Saudi Arabia has been building infrastructure to accommodate the growing number of visitors, like a new high-speed train connecting Mecca and Medina.

It also can get expensive quickly. On the website DawnTravels.com, all-inclusive 2019 Hajj travel packages start at $6,000 per person. That's where Booking comes in.

The company's Singapore-based subsidiary Agoda signed the agreement with Saudi Arabia to "use technology to manage the anticipated increase in guests to the Kingdom and make accommodation reservations more accessible, easier, faster and secure." With the goal to more than double the number of pilgrims to the country in little more than a decade, Booking's technology will no doubt be useful in managing all of that extra traffic and alleviating some of the overcrowding that occurs during Hajj.

What's it to investors?

As the global leader in accommodations booking and online travel management, Booking's newly inked deal won't move the needle by itself. Gross travel bookings (the value of all travel services reserved) were $24.3 billion during the third quarter of 2018 alone. However, the agreement with Saudi Arabia underscores a fact that Bookings' management often speaks extensively about: Tourism is on the rise as wealth around the globe increases.

According to the World Bank, the number of tourists traveling outside their home countries was 1.25 billion as of 2016, up nearly 50% from 2006. International travel was worth $1.4 trillion that year. Europe and North America have long been the biggest benefactors, but the developing Middle East, Asia, and Africa have begun to pick up millions more visitors in recent years, as well.

A man and woman laying in beach chairs on a white sand beach overlooking a tropical ocean.

Image source: Getty Images.

Expectations for global growth have eased in recent months, most notably at global economic researcher International Monetary Fund (IMF), which downgraded its outlook for global gross domestic product (GDP) growth by 0.2% in 2019, to 3.7%. Nevertheless, the IMF expects global growth to chug along in the low single digits for years to come. That's meaningful to travel companies like Booking because rising wealth overseas means more travel.

During the first quarter 2018 earnings call, CEO Glenn Fogel said: "[T]ravel is a function of GDP. World GDP goes up, travel will grow faster, and I am highly confident that world GDP is going to continue to go up in the long run."

Paired with the continued migration of existing travelers to online travel and accommodations management, Fogel's outlook is an important factor for investors to consider. Saudi Arabia's preparation for a big influx of visitors in the years ahead is a piece of evidence supporting the idea that the travel industry is a long-term growth story. With Booking Holdings easily in the lead in that department, its stock is worth considering as a long-term core holding for investor portfolios.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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