On November 9, most online travel agency shares fell after CNN Business reported deep concerns about the slowing Chinese economy. Since the travel sector is highly sensitive to macroeconomic factors, any uncertainty in the global economy will likely have a negative impact on the companies’ prospects in the travel space.
Online travel agencies stocks including Ctrip.com International (CTRP), TripAdvisor (TRIP), Booking Holdings (BKNG), and Expedia (EXPE) have lost 6.3%, 5.4%, 2%, and 1.1%, respectively, on November 9. The Invesco Dynamic Leisure and Entertainment ETF (PEJ), which invests in US entertainment and leisure industry stock, fell ~1% on November 9.
Growing troubles for China
On November 9, CNN Business reported that the Chinese economy’s problems will likely increase due to the intensifying trade war with the US. So far in 2018, the Trump Administration has imposed new tariffs on $200 billion worth of Chinese goods. The US government plans to increase the tariffs to 25% from 10% by the end of December on various new goods imported from China.
Hefty debt and skyrocketing real estate prices might stall China’s economic growth. China’s economy is already witnessing the slowest growth rate since the depression in 2007–2009. In the last five years, China’s total debt increased two-fold to ~$33 trillion in 2017 from ~$17 trillion in 2012. However, the country’s GDP registered a compound annual growth rate of 7.2% and reached $12.2 trillion in 2017 from $8.6 trillion at the end of 2012.
There are serious concerns about China’s long-term growth prospects.
Travel agencies had a great year
So far in 2018, online travel agencies have benefited from strong travel demand due to the improving US economy, the healthy job environment, and a steady increase in wages. All of the major companies in the travel space have reported better-than-expected results in the first three quarters of 2018.
Notably, TripAdvisor, Expedia, and Booking Holdings have registered growth of 100%, 45%, and 7% year-over-year in their respective third-quarter EPS. China-based Ctrip.com International’s non-GAAP earnings per ADS of 2.88 renminbi (or $0.42) was higher than 2.70 renminbi (or $0.41) posted in the third quarter of 2017.