Consumers, businesses and the share market are all, understandably, worried about an economic slowdown after ten consecutive months of interest rate rises.
But the recent reporting season showed how one industry is defying the odds, with Australians throwing cash at it like it's going out of fashion.
Wilsons equity strategist Rob Crookston was impressed.
"While a number of services businesses performed admirably in 1H23, none have quite measured up to the strength of those leveraged to the rebound in travel," he said in a memo to clients.
"[Travel companies] reported exceptional results as the significant pent-up demand following years of restrictions continued to be unleashed by consumers."
Travel stocks have done pretty well, but there's more to come
Despite many travel shares in the S&P/ASX 200 Index (ASX: XJO) taking off in price the past year, Crookston's team is convinced the boom will continue this year.
In fact, he reckons the market still hasn't fully woken up to how profitable the industry will be.
"We have been positive on the 're-opening thematic' for some time on the view that the market has underestimated the significant amount of pent-up demand for travel, which has helped keep air passenger volumes elevated, even in the face of elevated prices and the broader consumer slowdown," said Crookston.
"The reopening still has legs."
The hot demand will last well into the 2024 financial year, according to Crookston, who said consumers were prioritising travel costs over other non-discretionary expenses.
"China's recent re-opening from lockdown provides another tailwind for the sector."
The best ASX travel shares to buy right now
As for which specific ASX shares are the best exposures to this trend, Crookston's team is recommending investors go "overweight" on Qantas Airways Limited (ASX: QAN) and IDP Education Ltd (ASX: IEL).
The Qantas share price has already rocketed more than 32% over the past 12 months.
"We still believe Qantas is an attractive investment opportunity, given its discount to US peers, the ongoing strength in travel volumes, its leaner cost base post-pandemic, and the attractive industry structure with Virgin and Qantas operating as an effective duopoly."
The Wilson team had its bullish thesis confirmed with Qantas' first-half results.
"Qantas guided that travel demand is expected to remain strong into FY24, while group capacity continues to increase strongly and airfares are still elevated."
International education placement provider IDP is a recent addition to Wilson's focus portfolio, according to Crookston.
The Chinese government's recent ruling that its students must attend face-to-face classes to have credentials from Australian universities recognised is a major coup for IDP Education.
"Longer term, IDP Education is exposed to significant secular tailwinds, including the rise of India's middle class, increased university participation rates and rising international student mobility."
The reporting season update showed off some incredible numbers.
"IDP Education's 1H23 update demonstrated the ongoing acceleration in student placement volumes which increased +53% vs the prior comparable period."
IDP shares are currently trading 6.2% lower than they were a year ago.
