Summer travel season is here, and industry experts expect a year of booming travel demand in 2023. In fact, 26% of Americans planned to increase leisure travel spending in the next three months, up from 19% in the first quarter, according to an April consumer survey by the U.S. Travel Association. To add to that, 53% of all Americans and 81% of leisure travelers said they had travel planned over the next six months. The International Civil Aviation Organization predicts that air passenger demand will rise in 2023, finally exceeding 2019 levels by a 3% margin this year.
While inflation is still running hot, travel costs have eased somewhat. Airline ticket prices were down 13.4% year over year in May. Airfare tracker Hopper estimates the average price of a domestic U.S. round-trip airline ticket will be $328 for June, down $72 from June 2022’s record high. Meanwhile, prices for regular-grade gasoline are down 28% from a year ago, according to AAA.
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There are plenty of transportation, lodging and amusement companies that could benefit from this summer’s travel boom. Here are five of the best travel stocks to buy in 2023, according to Morningstar analysts:
| Stock | Implied upside over June 13 closing price |
| Booking Holdings Inc. (ticker: BKNG) | 19.7% |
| Delta Air Lines Inc. (DAL) | 44.4% |
| Southwest Airlines Co. (LUV) | 32.2% |
| Expedia Group Inc. (EXPE) | 57.7% |
| Carnival Corp. (CCL) | 43.4% |
Booking Holdings Inc. (BKNG)
Booking Holdings is a leading online travel platform in the U.S. and Europe and is the parent company of Priceline, Booking.com and Agoda.
Analyst Dan Wasiolek thinks tightening credit markets and inflation are headwinds for Booking’s business in the near term, but he says the company is in good financial health. In the long term, Wasiolek says Booking will continue to grow its online travel leadership in Europe and expand its geographical footprint into the Asia-Pacific region. In addition, he says Booking is well diversified within the travel industry, including its vacation rentals, restaurant bookings, payments, flights and experiences businesses.
“Booking has built a leading network (the source of its narrow moat) of hotel properties and other services, which drives an increasing user base,” Wasiolek wrote in a research note.
Morningstar has a “buy” rating and $3,130 fair value estimate for BKNG stock, which closed at $2,614.05 on June 13.
Delta Air Lines Inc. (DAL)
Delta Air Lines is one of the largest U.S. airlines. Delta and other airlines are benefiting from a combination of pent-up post-pandemic travel demand and tight capacity. In the first quarter, Delta reported passenger revenue was up 12.5% from the same period in 2019.
Unfortunately, analyst Brian Bernard says that because airline costs have trended steadily higher over the past three years, profit margins have suffered. Bernard says Delta’s stock is undervalued, but the current favorable pricing conditions will not last indefinitely.
“You will hear more about what Delta management calls this ‘constructive industry backdrop,’ which we would describe as a once-in-a-lifetime set of circumstances that we believe could provide airlines with a few years (but only a few!) of very strong results,” Bernard wrote in a research note.
Morningstar has a “buy” rating and $60 fair value estimate for DAL stock, which closed at $41.56 on June 13.
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Southwest Airlines Co. (LUV)
Southwest Airlines is another one of the “Big Four” U.S. airlines and focuses mostly on domestic flights. In 2023, Southwest will benefit from the same favorable pricing conditions as other airlines.
Analyst Nicolas Owens thinks it will likely be another year or two before current supply constraints moderate and the airline industry returns to normalized competitive dynamics.
“Our 2023-27 forecast resembles the 2015-19 period before the pandemic — we forecast declining fuel costs, a mostly consolidated industry and robust demand for air travel,” Owens wrote in a research note.
Owens said Southwest has implemented a successful strategy of streamlining its operations and lowering unit costs, allowing it to provide lower ticket prices than full-service rivals.
Morningstar has a “buy” rating and $42.90 fair value estimate for LUV stock, which closed at $32.45 on June 13.
Expedia Group Inc. (EXPE)
Expedia is one of the world’s largest online travel companies and is the owner of leading platforms Expedia.com, Hotels.com, Vrbo, Orbitz and Travelocity.
Wasiolek says Expedia has built a leading network of online travel platforms and services that generate brand loyalty and network effects that will remain strong over the next decade. While supplier consolidation creates some headwinds in the U.S. market, Wasiolek says Expedia’s investments to expand into international markets will support its network advantages over the long term.
“We see its powerful network advantage driving higher direct traffic (which has no marketing costs), allowing the company to offset pressure from indirect channels like Google (which add to marketing costs),” Wasiolek wrote in a research note.
Morningstar has a “buy” rating and $175 fair value estimate for EXPE stock, which closed at $110.96 on June 13.
Carnival Corp. (CCL)
Carnival is the world’s largest cruise operator, managing nine global brands and operating a fleet of more than 90 ships. The cruise line industry was completely shut down for 15 months during the pandemic, and Carnival racked up a massive debt load to stay afloat during that period.
In fact, Carnival now has about $33 billion in debt, and service costs on that debt are more than $1 billion annually. Roughly 27% of Carnival’s debt is coming due between 2023 and 2025, putting the company in a difficult financial position and making the stock a high-risk investment.
However, analyst Jaime Katz says Carnival is finally positioned to return to profitability in 2024 as operations normalize.
“Carnival’s profitability is trending in the right direction as the appetite for travel persists,” Katz wrote in a research note.
Morningstar has a “buy” rating and $22 fair value estimate for CCL stock, which closed at $15.34 on June 13.
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5 of the Best Travel Stocks to Buy for Travel Season originally appeared on usnews.com
Update 06/14/23: This story was previously published at an earlier date and has been updated with new information.
