Investment Insider: Tourism continues to ride out the turbulent times

 

Tourism is worth around £90bn to the UK and employs two million people. The industry spans hotels, inns and restaurants to trains, boats and planes. The common thread running through all these different businesses is that they provide products and services to tourists.

InterContinental Hotels Group, which operates under various banners that include InterContinental, Crowne Plaza and Holiday Inn, is an obvious play on the leisure industry. It is not difficult to see why InterContinental has been one of best-performing companies in the FTSE Leisure and Travel index. It has a wide geographic footprint that includes the US, the UK and fast-growing China. It hopes to further tap into the Chinese market through the launch of its HuaLuxe hotels and resorts.

At the other end of the hospitality spectrum is Whitbread. It owns Premier Inn, and is expected to report another year of double-digit profit growth. Whitbread has been another standout performer in the economic downturn as has the Asian-focused hotels operator Millennium & Copthorne.

Airlines are another obvious play on the tourism sector but beware. Their profits are notoriously fickle. However, budget operators easyJet and Ryanair appear to be exceptional in delivering bottom-line profits even in difficult economic times. But airlines are victims of high operational gearing. The planes need to be almost full before they start generating profits.

Perhaps less fickle are cruise line operators. That said, Carnival has faced considerable challenges on the PR front following the tragic crash of the Costa Concordia and an engine fire on another Costa ship, the Allegra. Not surprisingly, booking volumes were down following the two accidents but there are now signs of a rebound. Since there are no indications that Carnival plans to cut its dividend, a 3 per cent prospective yield looks like a reasonable payout while waiting for the shares to recover.

Overall, despite the global downturn, tourism has beaten the market. Since 2008, around the time of the collapse of Lehman Brothers, the FTSE Leisure and Travel index has delivered a total return of 35 per cent to shareholders. Not bad for an industry that should be struggling in tough times.

David Kuo is director of investment website fool.co.uk

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