Can Travel Come Back from COVID? Analyst James Lee on the Road Ahead

Jim Gorman
Jim Gorman Director
June 23, 2020

Is the farthest you’ve traveled in the past few months a quick trip to the grocery store? If so, you’re in the same quarantine boat as much of the globe, with local and international travel dropping precipitously with the onset of the COVID-19 pandemic.

So how are travel companies coping with the sudden blow? Senior US/China Internet Analyst James Lee analyzed a portfolio of international online travel agencies in the midst of the coronavirus pandemic, and finds that while it’s been a rough ride, all is not lost.

A Slower-than-Expected Recovery

With travel coming to an abrupt halt earlier this year, it’s hardly surprising that travel agencies have been hit hard. But the COVID-19 crisis has hit a number of companies even harder than expected, with companies like TripAdvisor and Trivago reporting revenue declines of more than 90% YoY in late March, before stabilizing in April.

It would stand to reason that as economies gradually open up, travel will follow in lockstep, but it won’t be so simple. Companies expect a shift toward local travel as consumers slowly regain confidence and dip their toes again before embarking on long-haul journeys, meaning revenues from international and hotel bookings – significant revenue streams – will be weak for some time. Indeed, after international travel fell nearly 100 percent YoY in March, restrictions and consumer hesitation have meant there’s been little recovery since then.

Controlling Expenses

The swift and dramatic losses in revenues across the industry have left companies scrambling to cut costs, and to do so aggressively. Take two examples: to protect their businesses, James expects TripAdvisor and Trivago, which had total combined revenues of over $2 billion in 2019, to each reduce expenses by nearly 40 percent YoY.

How will these companies achieve these massive cutbacks in spending? In addition to leveraging a flexible cost structure and targeting marketing spend – its largest variable expense – Trivago’s management is taking steps toward restructuring to meet their needed reductions. At the end of April, the company informed investors that it had started to “make changes to our organizational setup,” including “significant headcount reductions.”

Similarly, TripAdvisor is reducing its global workforce by nearly a quarter, and CEO Steve Kaufer will forgo his salary for the remainder of the year. The company has also sought to bolster its liquidity position by raising $700 million from a credit facility, strengthening its balance sheet so that it can weather the storm.

Yet even with these unprecedented cuts, it’s unlikely to cover revenue losses, which James expects to reach near 60 percent for both companies.

Short Term or Structural?

Though the blow from the pandemic is substantial and the recovery lagging, long-term forecasts are not all doom and gloom. James says long-term projections are in line with the recovery of online travel by the end of FY2022, and expects fundamentals to be largely unchanged. In other words, the impact from Coronavirus is short term, not structural.

And while subtle, there are already signs of recovery. James notes there’s been a consistent upward trend recently for China’s largest online travel agency,, and the recovery so far is encouraging: from -80% at height of the pandemic in China in February to -50% YoY in March. And while pricing is down due to lower demand and the mix shift toward local travel, Mizuho expects the pressure to be alleviated as demand starts to pick up in the second half of 2020.

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