Skift Health Score: Month of July

Overview

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.


Survivability, Current Performance, and Future Prospects

Each of these three sub-categories are formulated to track different parts of a company’s performance. The most important distinction is between the survivability score versus the current performance and future prospects score. While the latter two metrics speak to operational excellence, or lack thereof, the survivability score is designed to measure how vulnerable a business is to bankruptcy.

Each of these three sub-categories are formulated to track different parts of a company’s performance. The most important distinction is between the survivability score versus the current performance and future prospects score. While the latter two metrics speak to operational excellence, or lack thereof, the survivability score is designed to measure how vulnerable a business is to bankruptcy.

Current performance, for instance, looks at metrics like revenue growth in the latest quarter. Future Prospects analyzes long-term margins as well as other metrics core for evaluating the business’s potential performance post-COVID-19. Survivability, on the other hand, looks at cash on hand and leverage ratios.

Deep and unexpected crises often create liquidity shortfalls that would never appear in normal day-to-day activities. There are, sadly, many perfectly good businesses that could have otherwise continued to succeed in a post-crisis world, but instead have been forced into bankruptcy due to short term cash crunches. As a result, some companies will have high overall Health Scores but low survivability scores.

The Heath Score ranges on a scale of 0–100, calculated based by looking at 23 individual indicators. We assign all companies into four travel subsectors and then average all indicators by sub-sector. Each company is then compared to its peers to see how it stands. A score of 100 indicates that the business far outperforms its sub-sector averages whereas a score of 0 indicates it far underperforms.

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. Details on all metrics used and weightings can be found in our detailed methodology note.

Moving forward, we will incorporate new available data and update the Health Score on a monthly basis. In addition. We will publish quarterly reports to highlight key changes and trends as they appear.


Top Ten Travel Companies for July

The table below shows the ten highest scoring companies for the month of July. It consists of two online travel and distribution businesses, three in hospitality, four airlines, and a cruise line. Eight of the ten are based in North America with one business in Europe and another in South America.

The top five highest scoring companies all earn their top spots due to their high survivability scores — these are some of the largest, and therefore most financially secure business in travel. The bottom half of the list score higher on their current performance and future prospects score. We will discuss the nuances of these scores in greater detail below.

Highest Skift Health Scores

Booking Holdings: It should perhaps be no surprise that Booking Holding tops our Skift Health Score list. As the largest online travel agency in the world, it has over $7 billion of cash in the bank, making it highly survivable. We also think that Booking’s prospects in the recovery are better than many of its online travel peers. Booking has been one of the best run online travel sites, consistently generating a ~40% EBITDA margin (earnings before interest, taxes, depreciation, and amortization). This puts Booking in a good position to outperform booking site peers in a recovery.

Marriott International: With over 1.3 million rooms worldwide, Marriott is the largest hotel chain in the world. It is more than just size, though. Marriott’s asset-light business model positions the company well to success in a downturn. The company owns very few hotels and many of the property-level challenges that come from running a hotel in a recession do not apply here. Instead, Marriott collects durable, high margin franchise and management fees.

Hilton Worldwide: Another franchisor earns a spot in the top tiers of our list as the asset-light business model shines in a downturn. The third-largest hotel operator in the world by room count, Hilton has high survivability given its access to capital markets, and high cash balances.

Delta Air Lines: The first airline on our list. Our Skift Recovery Index indicates that air travel has taken the biggest hit of any travel vertical, but Delta is making the best of its bad lot. Delta scores high driven by its size advantage, strong management team, and powerful domestic and international network.

Southwest Airlines: Southwest is one of the strongest airlines facing down this crisis. It holds more than three times as much cash as the average global airline does ($5.5B vs. $1.8B on March 31st) and is less levered to boot. Plus, Southwest’s domestic route network is a positive, as most international flights are grounded, hurting the large network carriers.

Royal Caribbean Cruises: It’s tough to run a cruise line these days, but Royal Caribbean is trying to make the best of a bad situation. It ranks as the highest cruise on our list due to being the most survivable. Royal holds $2.5B more in cash than either Carnival or Norwegian.

Amadeus IT Group: Unlike the prior companies, Amadeus does not score highly due to its survivability, but rather ranks because of its current performance and future prospects scores. Distribution becomes only more important during downturns, with travel suppliers even more willing to pay a commission for a booking if it will put a head in a bed. And while all hotels and airlines are looking for expense savings, property management systems or central reservations systems are essential software that cannot be easily cut. Volumes will no doubt decline, but Amadeus’s high margins give it some breathing room.

Extended Stay America: Extended Stay America is one of the top performing hotels in the world right now. Its business model, built around ~20 day length of stays, is well suited to the current crisis. The company reported a stunning 61% occupancy rate in April, despite that likely being the trough month of the COVID-19 outbreak according to our Skift Recovery Index and Skift Travel Tracker.

SkyWest: This regional airline qualifies for our top-ten list due to its strong current performance score. This comes from the fact that SkyWest runs wet-leased regional flights for the major network carriers. This is the closest thing you can get to asset-light in the airline business. The business generates high EBITDA margins as many flying expenses are reimbursed by its partners. The risk is that larger carriers may cut these contracts as they come due in the coming months. SkyWest’s current performance will update when it reports earnings on July 31, at which point we will see if it can maintain its current strength.

Copa Airlines: How does a medium-sized Latin American carrier crack our top ten list? It’s all about the future prospects of this business. Copa consistently ranks as among the most profitable airlines in the world. Its long-term EBITDA margin trends above 20%, huge numbers for such a traditionally unprofitable industry. And as with many other airlines (e.g. LUV, SKYW) it’s much better to be doing short-haul regional flying these days. With a below-average survivability score but a high future prospects score, Copa stands on a knife’s edge, along with so many other travel businesses. Copa is not inherently a large, highly survivable business, but if they can weather this storm, there could be strong flying ahead.


A Closer Look at Survivability

As we discussed earlier the Survivability score tracks how vulnerable travel businesses are to bankruptcy. Given we are in the middle of the worst crisis to ever hit the travel industry, it makes sense to analyze our Survivability scores as a stand-alone metric.

Highest Survivability Scores

The below table shows the ten most resilient travel companies, in our view. The top five here are repeated from above (though in a slightly different order) as their survivability is what drives their overall performance in our initial ranking.

The next five are more interesting as they score high on survivability but low elsewhere. These companies have the scale to be incredibly resilient while still struggling with relative performance.

Whereas the top 10 by Health Scores were dominated by North America, this list is far more global with regional champions from China, France, Germany, and the UK all scoring well.

Highest Survivability Scores

Lowest Survivability Scores

Perhaps just as interesting is to look at the most fragile travel companies.

Coming in last is India’s seemingly always troubled Jet Airways. Other small regional airlines like Aegean and VietJet also make the list.

On the hospitality side, the Indian Hotels Company (owner of Taj hotels and other brands) and Playa Hotels and Resorts both stand out for running asset-heavy businesses. Red Lion Hotels which skews towards midscale and economy (RLH owns America’s Best Value Inn) is struggling as well.

Viking Line ABP which operates cruise-ferries in the Baltic (not to be confused with Viking River Cruises) is the smallest publicly traded cruise line and comes off as rather weak.

On the online travel side, Trivago is probably the most prominent business on this list. It went into this crisis with its core hotel metasearch businesses already struggling with encroachment by Google and challenges by Booking Holdings. And with the dramatic cut in travel advertising, matters have only gotten worse.

Though clearly a fragile business, the odds of Trivago going permanently out of business seem slight to us. That’s because of a quirk in its corporate structure, where though it is an independently listed company, ~60% of its shares are owned by Expedia. Though Trivago might be at risk of going under if it were truly independent, as an effective subsidiary of a major OTA we do not think it is likely that the business will disappear.

Most at Risk Survivability Scores


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 below.

Top Ten Airlines
Top Ten Online Travel and Distribution
Top Ten Hospitality
All Cruise


Full Skift Health Score Tables

Moving forward, we will incorporate new available data and update the Health Score on a monthly basis. In addition. We will publish quarterly reports to highlight key changes and trends as they appear.

Rank: 1–20
Rank: 21–40
Rank: 41–60
Rank: 61–80
Rank: 81–100