What could be next for travel stocks as artificial intelligence grows

Published Sun, Jun 4 20239:06 AM EDT

The boom in artificial intelligence is leaving few industries untouched, and don't be surprised if the latest innovations alter how you book your future vacations. Wall Street's just begun to scratch the surface of AI, but companies across a host of industries are already commenting on some of the use cases, or how they currently use these tools to enhance their businesses. Travel stocks could win big in the emerging AI race, with Wall Street viewing new innovation as opportunities to cut costs, improve efficiency and increase profitability. But like any sector, some business models stand to gain, while others face significant pressure , and the lingering impact of AI could take years to play out. "You're not going to necessarily see an immediate impact — at least we don't think so," said Nick Jones, an analyst at JMP Securities. Best positioned to harness AI Some big travel industry names have already begun experimenting with AI. Earlier this year, Expedia launched a travel assistance chatbot powered by ChatGPT. Equity research firm Redburn sees recent mentions of AI as a "marketing gimmick," although it eventually could offer online travel agencies "a wider range of acquisition funnels, meaning they are no longer beholden to Google, " wrote analyst Alex Brignall in a recent note. EXPE YTD mountain Expedia shares in 2023 Who best capitalizes on AI in the future may depend heavily on financing, JMP's Jones said. He noted that Booking Holdings ' higher margins could mean more investment opportunities, but it's too early to call the travel winners. In the future, he views AI as a tool that can assist with rebooking and cancellations, and potentially automate those tasks to require fewer employees. This would allow lower costs and improve profitability. AI could also help with customer conversion and new revenue opportunities, he added. Morningstar analyst Dan Wasiolek views companies with the most traffic and consumer data as best suited to benefit from generative AI. Potential AI losers But as AI use in the travel world heats up, some major players face a rockier path. That includes Tripadvisor . Wasiolek noted that the company operates as a hybrid online travel agency and metasearch model, while Booking, Expedia and Airbnb , among others, serve as online travel agencies. "The difference is the barriers to entry are higher for online travel agencies because these operators control and manage the relationships with travel suppliers on their platform, while metasearch is simply a platform that hosts online travel agency managed content and content directly from travel suppliers," Wasiolek explained. Google already operates in the travel arena through its metasearch model and Wasiolek speculates that Meta Platforms will launch its own iteration at some point. These platforms represent more direct competition to Tripadvisor than online travel agencies. But success in travel from Google could also pose problems for online travel agencies. "It's probably more problematic if Google has more success with this for the online travel agencies, preventing users from getting to their sites to perform their search, and people just start using Google to get it done," JMP's Jones said. According to Redburn, Google's key advantage over Tripadvisor, along with Trivago , is that the search giant "does not need to buy traffic further up the funnel before selling" it to hotels and online travel agencies. The funnel describes the multi-stage process that defines a customer's travel booking journey. BKNG YTD mountain Shares in 2023 But "the creation of a new layer of search, namely chat-based AI, above the current top-of-the-funnel, traditional search engines, will create fragmentation and deflate the cost of buying traffic," that should benefit companies like Booking and Expedia, but also pose risks to Google, Redburn's Brignall wrote. Online travel agencies rely heavily on Google, paying large sums to gain customers and buy traffic often through paid advertising, he explained during a recent interview with CNBC's " The Exchange ." AI developments could eventually lead to a chat-based app that pushes Google out of the picture. "The more places there are to buy traffic from, the less you're going to have to pay," he added. For now, many analysts say it's probably too early to call travel's AI winners and losers. "It's just so early to know how that's all going to shake out because consumers are going to need to trust the system," said JMP's Jones. "It's going to make errors in the early days." — CNBC's Michael Bloom contributed reporting