Britain's two big travel retailers face a bumpier ride over the coming year, according to RBC Capital Markets, which reckons softer passenger numbers on both sides of the Atlantic will make life harder for WH Smith and SSP Group.
In a sweeping note on the sector, the broker kept both UK names on a neutral "sector perform" footing and steered clients instead towards Swiss-listed Avolta, arguing its spread across geographies and formats leaves it best placed to shrug off thinning crowds.
The worry is traffic. RBC flagged a sharp deterioration in the important US market over the summer, where airfares jumped roughly 25% year-on-year in July. The culprit, it said, is jet fuel: unlike their European rivals, most American carriers do not hedge their fuel bills and have simply passed the pain on to passengers. With around 80% of US flying done domestically, and household budgets already stretched by food and energy costs, the broker expects demand to stay subdued.
Europe is not immune. Ryanair has trimmed its winter capacity to limit exposure to pricey unhedged fuel, and RBC suspects other carriers could follow, threatening airport footfall into next year.
For WH Smith, still rated with a 475p target, the American softness lands squarely on a business already in turnaround mode. The group's US arm, including its Las Vegas resorts operation, is singled out as an area where weaker demand presents a real challenge.
SSP, the food-and-drink concessions operator behind countless station and airport outlets, drew slightly warmer words. RBC acknowledged its operations are improving, but cautioned that softer European capacity could take the shine off its recovery there. The target sits at 210p.
Avolta, by contrast, earns an "outperform" tag despite a modest trim to earnings forecasts and a price target nudged down from CHF57 to CHF55. The broker likes its breadth, spanning duty free, food and drink and travel essentials, and points to expansion openings in Asia and at major global airports.
On the numbers, Avolta trades on around 9.5 times next year's earnings, against roughly 10 times for WH Smith and 11.5 times for SSP. RBC argued the premium travellers pay for diversity is worth stumping up in choppier conditions.
The message, in short: when the runway looks uncertain, spread your bets.
