Even after the economy reopened from the pandemic, the travel and tourism industry is still touch and go as consumers ease back into more normal routines. Any news about new coronavirus variants can send stocks skidding on fears it will derail any momentum they've built.
While it's premature to give the all-clear signal, there's good reason to think 2022 and beyond will provide much better opportunities for the industry. The following trio of companies represent some of the best chances to capitalize on an industry that is still beaten down but ready to rise.
Norwegian Cruise Lines
The cruise industry was arguably the hardest hit by the pandemic because ships were forbidden from sailing well after the rest of the economy had reopened. And when ships were allowed back to sea, it was at a greatly reduced capacity than beforehand.
To survive the crisis, cruise ship operators had to take on massive amounts of debt. Norwegian Cruise Line (NCLH) saw its long-term debt balloon from $6.8 billion to over $11.7 billion at the end of 2020, and its financial report last month showed it had more than $12.4 billion worth at the end of September. It recently said it was going to be adding nearly another billion dollars to the total.
While it might not be smooth sailing, Norwegian is looking better than it has, even before the pandemic. Some 40% of its total capacity is back in the water, representing 11 ships across the Norwegian, Oceania, and Regent Seven Seas brands. It also notes its cumulative booked position for 2022 is in line with what it experienced in 2019, which was a record year for the cruise line. And it's achieving the elevated bookings at higher prices, even when taking into account the impact of the credits it is giving to passengers for cruises that were canceled during the pandemic.
Although Norwegian's stock is down 64% from where it was before the crisis, it's more than doubled from the lows it struck in the immediate aftermath. With Wall Street expecting the cruise ship to reach parity with 2019 revenue next year and then grow 35% over the next two years, Norwegian Cruise Lines looks like a ship-shape investment.
Being diversified is usually a sign of strength in that it offers protection in a downturn. But it was no shield for Disney (DIS 0.17%), which saw virtually all of its operations impacted by the near-complete shutdown of almost all global economies.
Its theme parks were closed, theaters went dark, and stores were closed, leading advertising to plummet because consumers weren't shopping. And yes, its cruise ships were forbidden to sail too.
The one bright spot was Disney+, the streaming service launched just prior to the pandemic, which went on to break all kinds of subscriber- number records as people forced to stay home signed up in droves.
While it still labors under COVID-related restrictions that impede a full recovery, that's going to change. As the crisis recedes further in the rearview mirror, the synergies of its far-flung operations that make Disney a juggernaut will be on full display once more.
Disney's theme parks are profitable once again, it's making movies once more, and its other media components are back on track. As characters inspire toys, theme park rides, and spinoff TV shows, the power of the Disney brand will return to the fore.
Disney's stock is down 18% in 2021, but the revenue engines are expected to spring to life, nearly doubling to $122 billion in five years, leading profits to triple. It's a destination for investors looking to capitalize on a recovery.
Airbnb (ABNB 2.29%) has a simple business model of connecting people who want to get away for short-term vacations with people who have accommodations they're willing to rent out. Its stays tend to be cheaper and more convenient than those at traditional hotels, and its recent results show the pandemic did not permanently dent consumer demand for these rentals.
Travel began to recover in earnest earlier this year, allowing Airbnb to post a record third quarter, with 1 billion guest arrivals worldwide. It ended 2020 with about 5.6 million listings and the number of active listings has grown every quarter this year. And there is plenty of room to grow still.
While there are more than 130 million households in the U.S., there are as many as 1 billion globally, and since short-term travel accommodations in a residence is still an industry in its infancy, Airbnb has the branding to capture an even greater share of the market.
And now Airbnb is getting into longer-stay rentals too, which provides a whole new avenue for growth.
Analysts expect revenue to grow from $5.9 billion this year to over $13.6 billion in 2025, good for a 23% compounded annual growth rate. Although the market has priced a lot of this opportunity into the stock, shares are down 25% from their recent highs even as management expects growth to accelerate in the fourth quarter.
Its asset-lite business model keeps its overhead low and profit margins high, and Airbnb is a travel-and-tourism stock investors will want to check into.