Article last updated 14 October 2025.
What are the key trends shaping the sector?
Spending on travel and leisure has rebounded strongly since the Covid pandemic, proving resilient even in the face of cost-of-living headwinds. Consumers are seeking experiences over material goods.
The result is structural growth in many different markets, including live events, dining out, gambling and hotel stays. Business travel has also recovered, but seems to have settled at a structurally lower level than before. That’s because the move towards online meetings reduces the need for frequent corporate trips. This has been partly offset by the rise of trips that combine business and leisure.
Digitisation continues to reshape the industry more generally. Companies such as Booking.com and Airbnb have strong positions in accommodation search and booking, taking share from traditional bricks-and-mortar travel agents. Hotels also continue to invest in technology to improve their offering to guests, from mobile check-ins to digital room access.
In the future, AI-driven searches will streamline the booking process and personalise trips and experiences. AI can analyse past searches, bookings and reviews to suggest hotels, flights and experiences that fit a traveller’s preferences and budget. For gambling companies, digitisation is making it easier for customers to place bets online, giving them more ways to bet, and creating more markets. It’s also making the experience of buying concert tickets easier and more personalised.
Taking off: More people are flying and planes are more full, though we’re wary of the industry’s cyclicality
What developments should clients know about?
Prices are higher than before the pandemic. This reflects capacity constraints, cost inflation and strong consumer demand. Hotels have managed to maintain strong average daily rates because of healthy numbers of bookings, aircraft are full and demand is high for restaurants and live events. Although there’s structural growth in the sector it’s still largely a cyclical business, so we need to monitor how the sector will be affected by weakening economic data. For example, recent US data has softened slightly, with worries about the labour market, though US demand for travel and leisure remains strong.
Healthy appetite: Restaurants and hotels in the world’s largest economy
have kept pricing power
How are these trends affecting valuations?
This is an incredibly diverse sector, so there are always pockets of strength and pockets of weakness. Investor sentiment is usually strongest for companies with attractive business models and clear paths for profitable growth. Hotel chains that are adding rooms and new hotels, and restaurant chains adding new outlets, fit this description. So too do online travel agents and gambling stocks. These businesses tend to trade at higher valuations, such as higher price-earnings ratios, than more cyclical or capital-intensive parts of the sector. The major hotel brands are capital-light because they don’t own their hotels – instead they operate franchise models. In contrast, sentiment is weaker in areas where earnings are volatile and where cost-of-living pressures are greater. Revenue at airlines and package holiday companies is often hit when household finances are under pressure.
Are there any emerging risks or opportunities?
Digitisation is an opportunity, with AI and mobile channels improving personalisation and the customer experience. But also it raises the risk that online travel platforms could be cut out, as Google and other technology companies aim to capture more of the booking life cycle. Concerns about sustainability and social issues could affect consumer demand and result in regulations that pose challenges for companies. An example is laws restricting short-term rentals to reduce overcrowding in tourist hotspots and pushing locals out of the property market.
Are there parts of the sector that are particularly promising for investors?
Online travel agents continue to gain market share from both bricks-and-mortar agents and direct hotel bookings. The sector has a duopolistic market structure, with Booking.com and Expedia dominant. They have attractive business models that are highly scalable and high profit margins. We also see attractive opportunities in live event ticketing, which benefits from a similarly favourable market structure and business model. Franchised hotel chains have good earnings visibility: they have a fairly clear idea of what their growth rates will be over the next two or three years as the number of new hotels and rooms added to their systems is agreed years in advance.
What’s the best investment strategy?
When it comes to client portfolios, we suggest staying selective, concentrating on the less cyclical stocks.
What are we watching in the short term?
We’re keeping an eye on how resilient consumer spending is. So far this has stayed strong despite softer economic data and relatively high inflation in many countries, driven partly by US tariffs. We’ll monitor booking volumes for hotels, airlines and live events to see how they’re affected by the economy. We’ll keep a watch on whether tariffs are putting pressure on profit margins.
Booking habits
“I haven’t spoken to a travel agent in years because I do all my research on destinations, hotels and activities online, using travel platforms or tools like ChatGPT. I can’t remember the last time I stepped into a travel agency or picked up the phone to book a holiday. The convenience, breadth of choice and user reviews make these platforms hard to replicate, underlying their competitive strength. Looking ahead, I hope AI can help me quickly find the best hotel or holiday tailored to my own interests and requirements.”