Why US-Canada tensions could hurt travel stocks

Key Concepts

• Booking Holdings: The primary stock discussed, a leading online travel agency (OTA).
• Connected Trip Strategy: Booking Holdings’ approach to integrating travel planning, booking, and management within a single platform.
• Market Fragmentation: The OTA market is characterized by many smaller players, benefiting larger companies with scale.
• Macro Shocks: External economic or geopolitical events impacting the travel industry (e.g., US-Canada tensions).
• Outsized Position in Europe: Booking Holdings’ strong presence and asset base in the European travel market.

Booking Holdings: A Top Pick in Online Travel

Shelby McFadden, managing $2.6 billion in assets, identifies Booking Holdings as a top position within her firm’s Innovate Growth Fund. The core rationale centers on Booking Holdings’ dominant position as the number one online travel agency (OTA). McFadden emphasizes the fragmented nature of the OTA market, which provides a significant advantage to companies possessing substantial scale, like Booking Holdings. While acknowledging the company’s size limits extensive acquisition of competitors, she highlights its agility in implementing changes and innovations.

Innovation & The Connected Trip Strategy

A key driver behind the investment is Booking Holdings’ leadership in “connected trip strategy.” This involves proactively addressing potential travel disruptions. Specifically, McFadden points to the company’s app functionality which automatically attempts to reschedule transportation (cars, etc.) when a portion of a trip needs cancellation. This proactive approach demonstrates a commitment to enhancing the customer experience and streamlining travel management.

Short-Term Performance & Macroeconomic Factors

Despite long-term positive performance, Booking Holdings has experienced a recent dip, down approximately 9% over the last six months. The discussion acknowledges broader macroeconomic headwinds impacting the travel sector, specifically referencing tensions between the U.S. and Canada. Last year saw a decline of over 20% in tourism between the two countries, with fewer Canadians traveling to the U.S.

Mitigating Risk Through Geographic Diversification

McFadden argues that while these tensions represent a challenge for the entire travel industry – impacting companies like Airbnb and Expedia, as well as airlines – Booking Holdings possesses a mitigating factor. The company maintains a particularly strong, or “outsized,” position in the European travel market, particularly within the hotel sector. This geographic diversification allows Booking Holdings to absorb the “macro shock” of reduced U.S.-Canada travel by leveraging its substantial assets and customer base in Europe. She frames this as a “hedge” against regional economic or political disruptions.

Strategic Advantage of Scale

The conversation underscores the importance of scale in the OTA market. Booking Holdings’ size allows it to adapt quickly and innovate, despite limitations on acquiring competitors. This agility, combined with its established market leadership, positions the company favorably for continued growth.

Notable Quote

“They do have an bit of an outsized position in Europe, right? So there's some sought-after destinations there especially in the hotel space. So they have a little bit of a hedge almost, if you will, where they're able to absorb that sort of macro shock and say, what? We have a lot of assets over here.” – Shelby McFadden, regarding Booking Holdings’ resilience to US-Canada travel tensions.

Conclusion

Shelby McFadden’s investment thesis for Booking Holdings rests on the company’s market dominance, innovative “connected trip” strategy, and geographic diversification. While acknowledging short-term performance fluctuations and broader macroeconomic challenges, she believes Booking Holdings’ scale and European presence provide a strong foundation for long-term success and resilience within the evolving travel landscape.