This report introduces the Skift Health Score, a proprietary metric that assesses the strengths of public travel companies. Our current version includes scores for 100 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.
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 the current COVID-19 crisis; 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 Skift Health Scores for 2Q Earnings
The month of August brought with it the ugliest earnings season the travel industry has ever seen. We knew the numbers would be rough, but with these second quarter earnings reports we can finally understand just how bad this year has been on an individual company basis.
That said, not every company has reported earnings yet. At the time of writing, 86 out of the 100 public travel companies that we provide health scores for have reported 2Q 2020 earnings but 14 companies still only have data as of March 31, 2020 available. We excluded companies that did not yet report earnings from our analysis of 2Q earnings and our top ten overall August ranking. But these businesses have been incorporated into all other data tables. Given that it is just a small share of travel businesses lagging the broader industry, we do not believe that they skew the overall data significantly.
If we look at just these companies, in the second quarter of 2020 compared to the same period last year, our data shows a loss of more than $137 billion in travel revenue. And that is just for this small sampling of public businesses, the industry-wide damage to travel in this quarter will have been much greater.
In dollar terms, the hardest hit sector were the airlines, losing more than $84 billion in revenue compared to 2019. The airline industry has in fact been incredibly hard hit as international travel has been effectively grounded and domestic travelers remain afraid to fly, most preferring to drive.
Keep in mind, this is just public company data and doesn’t represent the global industries. The airline industry is more concentrated than the hospitality industry, so a greater share of airlines are public and therefore our data is closer to representing the full scope of damage done to that industry. Structurally too, the airlines report gross revenue whereas online travel revenue is based off of commissions and the dollar figure represents just a fraction of the gross bookings these sites process. Similarly, with hotels, most public hotels are chains and their revenue comes in the form of franchise and management fees, again representing just a fraction of the gross room revenue these companies control.
Perhaps then, a more accurate approach would be to look at the percentage change in revenues. This adjusts for biases in how revenue is recognized and how many companies within an industry are public. By this measure, cruise lines are far and away the hardest hit sector in travel.
Cruise revenues declined an eye-popping -90% year-on-year in the second quarter of 2020. This is perhaps unsurprising though, given how cruise ships were at the center of the initial COVID-19 outbreak and no-sail orders have been put in place.
On a relative basis, hotels are performing the best, down only 70%. This is consistent with the data indicating that some people are still traveling, but shifting their mode of transit from flying to driving; in those cases the hotels still capture the demand that the airlines have lost.
Top Ten Travel Companies for August
Skift Health Scores fell across the board, mostly driven by declines in the current performance score as the impacts of COVID-19 in April, May, and June are more accurately reflected in our data. As a reminder, this top ten list only includes the 86 companies that have reported 2Q earnings. We will recalculate the scores and rankings once we have the 2Q figures for the remaining 14 companies.
In August Booking Holdings held onto its top slot overall. The travel giant has the benefits of high gross margins, large exposure to alternative accommodations, the ability to quickly reduce its variable cost base, and a truly global footprint to diversify its exposure to localized COVID-19 flare-ups.
Marriott, Hilton, Delta, Southwest, and Amadeus all stayed on the top ten list, though their health declined. Extended Stay America remained on the top ten and actually saw its health score increase as the extended stay segment continues to outperform its peers in hospitality.
Perhaps more interesting is what’s changed: InterContinental Hotels Group (IHG), Ryanair, and China Southern Airlines, all shot up our rankings to grab top ten slots.
IHG saw its current performance score lift by five points from July. The increase doesn’t mean that the company actually grew during the quarter but that its performance was less bad than peers. IHG is heavily positioned in the mid-scale U.S. domestic market – it owns the Holiday Inn brand – which did relatively better than most hotels. It has also been expanding into the upscale market in Europe. And in fact, despite reporting a $275 million loss for the first half of the year, IHG still managed to open 90 new hotels and signed deals for 181 more in the same time frame.
Ryanair did less bad than its struggling airlines peers but also took off by focusing on survivability. It aggressively cut costs by reducing overheads and raised new capital. Ryanair has been aggressive in negotiating concessions from its employee unions and from Boeing Ryanair cut its weekly cash burn to $66 million, down from $220 million in March, and CEO Michael O’Leary expects his business to be “reasonably cash neutral going forward.”
China Southern Airlines, the largest of China’s big three by passenger volume, rocketed to the top on strong current performance. It saw revenues and seat capability grow in the high single digits. This is indicative of the general snap-back in Chinese travel taking place as that country puts a lid on its Coronavirus cases. To drive this message home, China Southern is the largest Chinese airline operating out of Wuhan.
Royal Caribbean dropped out of top ten as its survivability and current performance further eroded. As did smaller airlines like SkyWest and Copa as the pressure continued to mount on these regional players.
It is interesting to note the geographic makeup of these businesses, with all three new additions being headquartered outside the U.S.
The Skift Recovery Index demonstrates that Asia and Europe have seen the strongest increases in travel performance over the past few weeks. These gains are linked to COVID-19 case incidences, which have been fairly contained on both an absolute and per capita basis in these regions. That stands in contrast with ongoing community spread in North and South America.
The Skift Health Score is confirming at a company level what the Skift Recovery index is telling us at an aggregate level. We can expect European and Asian travel companies to improve their health scores faster than American businesses as long as the current coronavirus dynamics remain in play.
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. From this point forward in the report, we use all 100 public companies we track, regardless of when they last reported earnings. For those 14 companies that have not reported, we blend last quarters data into their Health Scores.
Full Skift Health Score Tables
These full tables track 100 public companies with a Skift Health Score, regardless of when they last reported earnings. For those 14 companies that have not reported, we blend last quarters data into their Health Scores.