Hotels, Motels & Cruise Lines

For hotel and cruise companies, occupancy rates and passenger volume are the core leading indicators of demand, directly determining their revenue baselines.Our goal is to screen companies whose core properties or routes can recover faster and more fully to or even exceed pre-pandemic levels during the recovery, which typically indicates strong brand appeal, superior locations, or precise market positioning.By analyzing the company's operational data, including overall occupancy rates, average daily rates, revenue per available room, and cruise passenger capacity.We focus not only on absolute values but also on their recovery speed relative to industry averages and the percentage change compared to the same period in 2019.We analyze the structure of the recovery: whether business travel recovers first or leisure travel, and how the recovery pace fluctuates among different customer groups.At the same time, we pay attention to pricing power, whether price increases can be smoothly implemented during demand rebounds.

The hotel and cruise industry has typical characteristics of high fixed costs, where depreciation, property rents, and core personnel salaries take up significant proportions.Therefore, when occupancy rates and average ticket prices rise, the new revenue will convert most of the added income into profits after covering lower variable costs, leading to a substantial profit margin expansion.Our aim is to invest in the operational leverage effect where ‘revenue growth sparks greater profit growth’.We analyze the cost structure of the company in detail, distinguishing the proportions of fixed costs and variable costs.We calculate and simulate the changes in the company's gross margin and EBITDA margin under different occupancy rate scenarios.We focus on the permanent cost reduction measures implemented by companies during industry downturns, as these may contribute additional profits after demand recovers.At the same time, we also observe the management of variable costs such as employee costs and energy consumption.

Industry downturns often consume large amounts of cash and accumulate debt.Our goal is to invest in those companies that can turn operating cash flow positive and significantly improve post-demand recovery, thus having the ability to repay debts, restore capital expenditures, or restart shareholder returns.Substantial improvements in cash flow are key indicators of the recovery entering a virtuous cycle.By analyzing the company’s operating cash flow, we observe its relation to EBITDA.We analyze its free cash flow, assessing the cash available for debt repayment or shareholder returns after meeting necessary maintenance capital expenditures.We focus on key indicators of its balance sheet, such as net debt levels and the improvement in interest coverage ratios.Ultimately, strong recoveries in cash flow will support companies in restoring credit ratings, resuming dividends or share buybacks, directly enhancing shareholder value.