Tourists are heading back to Europe, and the recovery is showing up in everything from rising hotel bookings to tax-free shopping and air traffic, leading to a brighter earnings outlook for travel and leisure companies.
A rebound in emerging markets is bringing visitors from countries like China, Brazil and Russia to continental Europe, while a weaker pound since Britain voted to leave the EU has boosted UK tourism.
“International travel both to and from emerging markets has been growing, while average spend per trip has also been increasing. For hotels, the revenue per available room has improved in Europe and the UK,” said Jeff Meys, head of optimized portfolio strategies at NN Investment Partners.
The pan-European STOXX 600 travel and leisure sub-index, which includes hoteliers, airlines, brewers and bookmakers, is up 2 percent so far this year, after dropping 11 percent last year.
Security fears after attacks on Paris in January and November 2015, and in Nice the following July dampened tourists’ appetite for France. That cost French hotels an estimated US$675 million in lost revenue over 2016, the research firm MKG said in January.
However, France saw tourist numbers grow in the fourth quarter, figures from the national statistics agency showed, indicating a return to health.
The improvement in travel was apparent in the latest earnings at companies such as Spain’s Amadeus, which provides booking systems for airlines, and Eurostar operator Groupe Eurotunnel.
Merlin Entertainments, which runs London’s Madame Tussauds wax museum and more than 100 other attractions, said earlier this month a weak pound was drawing tourists back to London, reporting a jump in visitors from the EU in November and December last year.
The pound has fallen 11 percent against the euro and 17 percent against the US dollar since Britain voted to leave the EU in June last year.
Luxury goods makers Prada, LVMH and Hugo Boss all cited higher tourist spending and increased inflows from Asia in their results.
Tax-deductible shopping in Europe, a measure of tourist spending, grew 21 percent in January, the second straight month of growth after a year of decline, figures from Global Blue, a tourism tax refund company, showed.
An earlier-than-usual Chinese New Year delivered a surge of Chinese visitors in late January, Global Blue said.
Tax-free shopping in France grew 20 percent, while sales in Italy and Germany rose for the first time in a year. Sales in Britain grew 45 percent in January, with average spending also increasing as tourists took advantage of the cheaper pound.
Europe’s capitals are competing for high-spending tourists. Madrid is banking on developing its luxury shopping and culture credentials to attract more high-spending Chinese tourists.
“It’s been very much a tale of Spain and the periphery, which are usually weak, but they have swung back very hard,” Standard Life Investments European equities manager Jonathan Frearon said.
Increased air travel into and within Europe has also underpinned investor enthusiasm for shares of companies that operate airlines and airports in the region.
British Airways owner IAG reported increased traffic last month, and budget airlines Easyjet and Ryanair saw an increase in passengers of 8 percent to 10 percent for the month compared with last year.
UBS analysts said it expected strong growth in the first half of this year for the Spanish airport network of ENAIRE, the bank’s preferred company in the airports sector.
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