The Skift Health Score is a proprietary metric that assesses the strengths of public travel companies. Our current version includes scores for 93 travel companies across hospitality, airline, cruise, and online travel and distribution sectors.
A company’s final health score is derived from analyzing and combining three underlying company sub-scores, each formulated to measure a specific component of the business. The sub-scores are:
- Survivability: how prepared the company is to weather the current COVID-19 crisis.
- Current Performance: how the company is operating at present.
- Future Prospects: how well-positioned the company is to return to growth in a post-coronavirus world.
Skift Health Score Overview
The Skift Health Score is a proprietary metric that indicates the strength of travel businesses on a scale of 0–100.
This cross-sectional approach allows us to compare travel companies to their peers within the industry. A high score indicates a best-in-class travel business, even though that business may still be struggling with the broad-based challenges that all travel companies face today.
The Skift Health Score combines three underlying company sub-scores, each designed to measure a specific component of the business. The sub-scores are: Survivability, how prepared the company is to weather COVID-19 or other crises; Current Performance, how the company is operating at present; and Future Prospects, how well-positioned the company is to return to growth in a post-coronavirus world.
Updating the Skift Health Score for 1Q 2021 Earnings
84 out of the 98 (86%) public travel companies that we provide health scores have public filings available through March 31, 2021. The remaining companies are mostly on a semi-annual reporting cycle and haven’t updated performance yet. As a result, the current performance segment of the health score is primarily based on 1Q 2021 earnings.
Travel industry earnings troughed during the summer of 2020 and we saw the first green shoots of recovery over the winter. But the summer seems to have been a turning point. American hotels saw a key performance indicator exceed 2019 levels for the first time in July, albeit only for a week. United Airlines now expects its 2022 capacity to be higher than in 2019, among much other optimism from airline executives. And even in the hard-hit cruising business, things are slowly returning to a more normalized level. Now in our July update, with full first quarter data in and second quarter earnings underway, we can confirm that the travel recovery has begun in earnest, at least in the U.S.
Future Prospects for Global Hotel Brands Drives Top Scores
The key driver of improved health scores for the top travel companies for this update was the future prospects score. This is the forward-looking component of our methodology and incorporates estimates for growth in revenue and EBITDA growth in 2021 and 2022 as well as Wall Street analyst expectations for future stock performance, over the next twelve months. These expectations are updated in real time and so reflect recent news and performance updates that have arisen since first quarter earnings were reported.
Hilton held onto its number one spot to remain the best scoring public company in travel this update. Marriott, previously in fourth place, rose to be our second best travel stock. Intercontinental Hotels Group saw the largest gain among the top four, climbing seven spots to be the third best performing company in travel. Booking Holdings rounded out the top four, though dropping two spots from last quarter.
It’s worth noting that the top three spots all belong to some of the largest hospitality franchising giants in the world: Hilton, Marriott, and IHG. This is not a coincidence as their prospects over the next few quarters appear bright. These companies all run high margin, asset light businesses that many expect to profit from the recovery of the travel sector.
All three have seen steady improvements in business trends with more travelers hitting the road and boosting occupancy and RevPAR figures. The more than 71 percent average occupancy in the last week of July in the U.S. was the highest rate seen since October of 2019, STR reported. The pent-up demand and the strength of the economy clearly shows that consumers love to travel and they love to come stay at our hotels,” Leeny Oberg, Marriott’s chief financial officer, told reporters last week at the Americas Lodging Investment Summit.
In addition, the current distressed market means that many hotel owners are likely to consider adding a recognizable flag, like a Hilton, to their properties to attract guests. Flying a well-respected flag also makes it easier for hotel owners to attract much needed bank financing.
There is a precedent for this. The 2008 financial crisis spurred a ‘flight to safety’ wave of conversions. It took a while for hotels to file for bankruptcy, but by 2011, as the defaults from the financial crisis shook out, Hilton saw 46% of the company’s unit growth came from conversions. That was up 23 percentage points from the previous year. The following years remained hot for conversions which drove 35%+ of new unit growth at the brand in 2012 and 2013 as well. Finally, as the cycle normalized, Hilton returned to its baseline of ~20-25% of unit growth from conversions.
We think a similar story could play out this crisis. Defaults do not come as immediately as many initially expect, but eventually the dominoes begin to fall and that creates an opportunity for branded conversions. “When I say conversions, it’s usually not just one word,” says Noah Silverman, Marriott’s Global Development Officer for US & Canada, “it’s three strung together: conversions, conversions, conversions!” More details on the potential for branded conversions is available in our latest report on the U.S. Hotel Ownership Landscape in 2021.
The short-term occupancy boost, paired with the potential for a long-term conversion tailwind has excited many industry-watchers who have in turn upgraded their expectations for the hotel brands’ long-term earnings potential. It is expected that these trends will be confirmed as we get deeper into the 2Q earnings cycle.
Reflecting this optimism, Hilton’s future prospects score rose from 55 in April 2021 to 61 in July 2021; Marriot’s grew from 53 to 69. It’s this excitement for new unit growth at global branded hospitality companies, paired with strong current performance and large balance sheets that has put Hilton, Marriott, and IHG atop the leaderboards for the first quarter.
Top Ten Travel Companies for 1Q 2021
Let’s have a look at what rounds out the rest of the top ten list for this past quarter. The three largest online booking sites in the U.S., Booking, Expedia, and Airbnb, all ranked top ten. As did two U.S. airlines, Delta and Southwest.
In fact, the key trend that stands out in the top ten is the dominance of North American travel companies. Seven out of the top ten companies are North American. Low-cost Brazilian carrier Azul holds our number 5 slot and while IHG is classified as a European company due to its UK HQ, more than half of its hotel rooms, revenue, and operating profit come from the Americas.
That means that nine out of ten of the top ten travel companies for July 2021 had significant exposure to the Americas. This ties out very closely with what our Skift Recovery Index is telling us. The SRI tells us that North America is by far the best performing region in the world, with travel activity nearly 90% recovered back to 2019 levels. Latin America is the next best performer at 70% recovered. Brazil, Azul’s home country, is the best performing country in Latin America and the third best performing country in the world.
Biggest Decliners and Gainers
Notably, our April top ten rankings featured major Chinese travel companies Huazhu Hotels, Trip.com Group, and China Southern Airlines. They were dragged out of the top ten by lagging current performance scores. The reasons are twofold. One, after being almost fully recovered for a year, China saw new Covid cases in the last few months which have dampened travel performance. This is again borne out by the Skift Recovery index which shows a dip in Chinese travel performance while the U.S. saw steady improvements. Two, remember that all Skift Health Scores are relatively ranked, so even though these Chinese companies didn’t do much worse, they did not improve as fast as their global peers which will drag down their scores.
However, Trip.com and China Southern remained relatively well ranked. Hauzhu, on the other hand, had a very big fall and ranked as one of our top ten decliners this quarter.
Still, it is just at the very bottom of this list. The biggest decliners by far were flag carrier airlines from Europe and Japan. IAG and Air France-KLM in particular were battered as delayed vaccination progress and renewed lockdowns due to the Delta variant in Europe stole the summer season away.
On the more positive side, we saw a lot of gainers from previously hard-hit tourism destinations that are now seeing prospects for a recovery. Notably, Indian travel companies like IndiGo, SpiceJet, and Yatra all bounced back as the terrible COVID-19 outbreak in India has passed its peak.
We have already discussed Brazil’s performance, bringing up Gol, but similar trends, if at a lower magnitude, across Latin America boosted LATAM and Avianca. There seem to be green shoots for Thai Airways and we have previously discussed Russia’s surprisingly strong domestic travel trends. Boutique expedition cruising company Lindblad saw notable improvement this quarter as well.
In addition to region-specific trends, one overarching theme seems to be that these relatively smaller travel companies have struggled to score high in the past due to weaker survivability scores. But now that we have line of sight on a recovery, their current performance and future prospect scores are helping them to rapidly climb our travel company rankings, overcoming their previous survivability handicap.
Top Ten by Industry
For ease of use we have drawn up a list of the top ten highest ranked companies for the four major sub-industries we cover. We will not provide an in-depth write up for each.
Top Ten Airlines
Top Ten Online Travel and Distribution
Top Ten Hospitality
Full Skift Health Score Tables