Source: AFP
Source: AFP
In 2Q23, we started to see a slowdown in global travel recovery, even as near-term travel demand indicators remain strong. Growth momentum continues to be positive across Europe and Singapore, while revenue per available room (RevPAR) in the US may begin to trend downwards on the back of slower average daily room rate (ADR) growth and a potential dip in occupancy in the coming months. Although we expect further room for recovery in 2H23, any upside may be less robust, in our view, as much of the optimism may have already been priced into selected stocks. This leads us to be more cautious and to advocate for a selective bottom-up approach.
A bright spot for 2H23 is the more meaningful recovery of outbound travel from China, supported by further policy relaxation and the resumption of international flights. We see the return of the Chinese traveller as the last piece of the global reopening puzzle, and expect it to benefit Chinese online travel agencies (OTAs), European luxury brands, and consumer and transport names within the broader Asia Pacific region.
While many players in the hospitality sector already employ artificial intelligence (AI) based solutions such as chatbots and personalised recommendations to varying degrees of success and sophistication, the explosion of ChatGPT onto the international scene is likely to propel the industry into the next stage of AI adoption, where the travel research and booking process become even more personalized, interactive, conversational, efficient, and integrated. We have a preference for OTAs that are actively investing in AI-based capabilities, and are therefore likely to stay relevant in the next era of travel. We think that a material change in consumer behaviour and preferences will take time, with further information required to accelerate end-user adoption. This means that near-term macro travel fundamentals remain the key driver of company performance and stock returns. However, in the longer term, investors should remain watchful of the evolving intersection between AI and global travel, which could present interesting investment opportunities in the form of emerging disruptors or companies with a first mover advantage.
Sector overview
Hospitality players posted a generally stellar performance in 1H23, as the global travel recovery continued to accelerate.
Going into the second half of the year, we continue to see room for further recovery in the hospitality sector, given that near-term travel demand indicators remain strong. However, any upside is expected to moderate from 1H23 levels, and we are cautious on the hospitality sector for three reasons:
A bright spot for 2H23 is a faster-than-expected recovery in outbound travel from China, amidst further policy relaxation and support from the government. We see this as a positive for Chinese OTAs, European luxury brands, and consumer names within the broader Asia Pacific region.
Artificial intelligence: Possibilities & Perils
Travellers are increasingly using AI tools to help with vacation planning
Hordes of travellers have hopped onto the bandwagon of using ChatGPT and other generative AI software to plan their holidays.
In particular, AI is set to disrupt the travel bookings industry given the convenience that it affords travellers, which is in turn underpinned by the following two reasons:
Limitations & Risks
While the potential applications of AI are numerous and exciting, there remains teething issues with the technology (e.g. hallucinations, factually incorrect information or reliance on outdated knowledge, friction in the booking process, etc.), such that while travellers can leverage AI as a tool to make more informed decisions, they cannot rely on AI to make those decisions for them. Furthermore, while AI-powered language models like ChatGPT can generate human-like responses, it will be challenging for them to fully replicate human interaction. AI does not possess common sense, emotional intelligence, and the ability to grasp contexts, and may therefore provide nonsensical, inaccurate, or inappropriate responses. However, we expect the results – and the ability for users to book through generated itineraries – to improve over time, as models are fine-tuned and trained through use.
There are also major concerns over privacy and data protection, with Italy being the first Western country to temporarily ban ChatGPT in April 2023. According to the same travel survey by Euromonitor, 45.1% of respondents expressed concern about how much of their personal data is being stored and used by AI to generate customised recommendations. Less than a quarter (23.1%) of those surveyed felt in control of their data, while one-fifth (21.8%) were unwilling to share any personal information at all. Going forward, we could expect further and stricter regulations to be imposed on the use of AI.
Another risk of relying on AI is that itineraries generated may become increasingly generic, leading to a loss of authenticity. Travel is an extremely personal, enriching, and even transformative experience.
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