U.S. Travel Companies Experience High Demand But Economic Worries Cloud Outlook

Fears of recession and the impact of inflation on consumer budgets could curb a rebound in travel demand reported by U.S. travel companies in the fourth quarter, although bookings are holding up so far this year, analysts said.

Several big names in the travel and leisure industry, including Airbnb Inc, Hilton Worldwide Holdings and Royal Caribbean Cruises are reporting faster rates of bookings in 2023 than in 2019 prior to the coronavirus pandemic.

U.S. travel spending in December 2022 totaled $97 billion, 3% above 2019 levels and 7% above 2021 levels, according to the U.S. Travel Association.

The demand contrasts with declining home improvement sales and other discretionary purchases that have hurt furniture stores and retailers like Home Depot.

"Investors are increasingly becoming more comfortable that we are not going to see a travel pullback in the first half of the year, but the back half of the year remains to be seen," said Patrick Scholes, Truist Securities managing director.

International travel spurred demand growth for Airbnb and Marriott International Inc in the fourth quarter. Short-term rental demand in December increased 33% compared to 2019, according to data from analytics firm AirDNA.

American Express said bookings through its consumer travel business were 50% higher in the fourth quarter compared to pre-pandemic levels, the strongest rate that the credit card company has seen since the beginning of the recovery.

Online travel company Booking Holdings Inc CEO Glenn Fogel said on Thursday that January 2023 set a new record for monthly room night bookings.

But that is having an effect on other retailers. "You can't fight the tide (with consumer spending) going back to services, people traveling and whatnot," said Home Depot CEO Edward Decker on an earnings call earlier this week.

However, Hilton said it anticipates demand will plateau as the economy slows in the second half of 2023, Chief Executive Officer Christopher Nassetta told investors on a call.

Group bookings are still down 15% compared to pre-pandemic levels as headwinds in several industries continue to affect business travel, said Truist's Scholes.

And U.S. travel companies with large exposure to China, the largest outbound travel market in the world before the pandemic, were cautious in sales guidance, noted AB Bernstein Analyst Richard Clarke, even as they expect demand to rebound.

Hyatt Hotels said its occupancy in China in the first weeks of February was higher than in the United States.

"We believe there's still further upside in 2023, especially now that China's borders have reopened," Marriott Chief Executive Anthony Capuano told investors.