The Golden Age of Travel is Over
2012-2019 really was it. Does the stock market hate the Balkans?
A month from now, I’m going to Greece for a few weeks of exploration and leisure. My travel companion needs to return before I do, leaving me alone for a few days. I was debating whether to spend this time in Greece or potentially check out another country I haven’t been to before nearby.
Some initial ideas came to mind, but with the time constraints none made any sense. I resorted to what most people do when planning a trip in 2025. I asked ChatGPT “Could you plan me a trip where I leave from Athens on a Thursday, visit interesting cities/towns, that are approximately a 2 hour flight away from Athens? I need to return to Athens for Saturday evening?”
It suggested the usual suspects: Rome, Venice, Dubrovnik or Barcelona. I was hoping for something less obvious. After a few more prompts, I got some better responses for places in Macedonia, Albania, Bulgaria and Hungary. Only problem was, when I went to book a flight, there were no direct options or even trips without layovers 2-3 times the length of the flight. Given I was only going for a couple of days, spending more than 12 hours on travel alone was not feasible. Why are airlines so afraid of the Balkans?
Upon reflection I noticed this wasn’t exclusive to countries belonging to the former Yugoslavian republic. When I went to Sweden last summer, I noticed Stockholm was also lacking direct flights from major cities. It’s strange. When I was doing a school exchange back in 2016, it seemed like you could easily find direct flights to and from all the major European capitals. So what happened? Was I enjoying too much French wine to notice some places were harder to access or have airlines actually cut down on the number of routes?
Keep reading if you are interested in finding out.
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How airlines work. What’s happening in Europe?
Perhaps you are less fussy about direct flights than I am, I would imagine so because airlines have historically functioned on something called the hub and spoke model. The hub-and-spoke model works by centralizing operations through a few key airports (hubs), which connect to other destinations (spokes). Having direct routes between every airport, is not logistically feasible, since there are constraints on the number of airplanes, flight crews and passengers. Airlines are looking to optimize the maximum number of full flights. If they are running too many empty flights, their margins will suck. If they aren’t running enough, they leave money on the table.
This is why airlines regularly add or reduce the number of flights they offer, as well as modify their routes. When the travel industry is doing well, airlines are adding more flights, more routes, which increase the likelihood you can find a direct flight to your destination. If the industry is tightening, airlines start cutting down on less profitable routes, which forces travelers to connect through one of the central hubs.
This is why it is slightly misleading when you look at flight numbers, which are finally starting to catch up to pre-pandemic levels. Based on this, it would appear travel has rebounded, but in fact, airlines are running fewer routes than they did 6 years ago. The total air connectivity in Europe, encompassing both direct and indirect flights, is still about 14% below pre-pandemic levels. Many airlines are cutting down on less profitable flights for a variety of reasons, all related to margin pressure.
Warren Buffett always told himself to avoid airline stocks. When he did, he would regret it. He took steep losses on his positions in the major American airlines when he sold at the onset of the COVID-19 pandemic, and he had similar misfortune 30 years earlier with USAir. The airline industry has always been known as a difficult sector. There are many factors that make demand variable, competition is fierce, operating costs are high, buying and maintaining airplanes are expensive. The industry is highly cyclical, and in recent years they have been facing higher fuel, staffing and airport costs. More than 30 European airlines have disappeared since 2015.
“If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
Berkshire Hathaway 2007 Annual Letter
The Stock Market Prefers Low Cost Carriers
It’s difficult for traditional airlines to compete with Low-Cost Carriers (LCCs) when it comes to intra-European travel. The market has shown passengers are willing to put up with quite a lot of abuse for tickets at half the price (or less). These low-cost carriers have major cost advantages, over the legacy players, which means even with these cheap tickets, they can have better margins. Among the key differences is instead of hub and spoke, they go point to point. LCCs can’t fly to as many destinations but they have much less complexity, and built-in overhead. Therefore, traditional airlines have a difficult time competing where LCCs fly to. This is why LCCs such as Ryanair can get operating margins above 15%, while Air France, Lufthansa Group & Scandinavian Airlines (SAS) range closer to 1-6%.
Since stocks are valued on future earnings, these difference in margins and growth explains why RyanAir has the highest market cap of any European airline at $24B, with $14B in revenues, 33% as much as International Airlines Group ($32B in revenue, $12B market cap), Lufthansa Group ($38B, $7.4B) and Air France-KLM ($32B, $2B). The net effect is, RyanAir and the LCCs, can trade at higher multiples, and have structural cost advantages. Unlike traditional national airlines that need to serve passengers across their country, LCCs can focus their efforts on the higher traffic routes. The net effect is, traditional airlines, looking to reduce their costs, are abandoning less profitable routes, making it harder for travelers to get to less common destinations.
This creates an unfortunate cycle because:
Modern Tourism works like the Stock Market
Ever go on a vacation only to find it overcrowded and over curated? Depending on how you pick your vacation destination, this probably happens a lot. If you decide based on what an Instagram or TikTok account suggests, chances are, you won’t be alone. Even before the creation of travel-tock or travelgram, armies of people have been looking to The Lonely Planet or Rick Steves’ Guide for inspiration. If doing this kind of research is too much, people can also just opt for a cruise.
There’s a certain safety in this, since millions of people do these trips each year. If they were dangerous or lacking attractions, you would expect to see less content on these destinations. Instead of doing your own original research or taking a chance to go somewhere new and less ventured, you are outsourcing your vacation to the market. You’re not planning a vacation, you’re buying the travel equivalent of an exchange-traded-fund (ETF1).
When it comes to managing your stock market portfolio, this would be sensible since you likely lack the time or skills to outperform a broader market index. Over extended periods (10+ years), only 1-10% of retail traders can outperform the market. Professional active managers, aren’t much better either, with only 10-20% beating their respective benchmark and they do this as their career. However, when it comes to vacation planning following the market is guaranteeing you will be a loser.
Going to the same vacation spots as everybody else, will ensure you miss out on any of the benefits that made the destination interesting to begin with. The views of Santorini are breathtaking but during the summer months, you barely hear any Greek. Meanwhile, Mykonos feels more like Miami than the Mediterranean. Why bother going to Greece, if you don’t get to interact with anything close to resembling Greek culture?
It’s not the fault of Santorini, Mykonos or other touristy islands. Just like companies with a fast growing stock price, they lean in to what’s lucrative. Tourism brings an influx of economic activity that extends beyond the hospitality and service sectors. These tourists with disposable income, are on vacation where their “treat yo self” attitudes reign supreme, especially after a few cocktails by the beach. They patronize all kinds of businesses, quickly getting the locals hooked on the high of Stupid Tourist Prices (STP).
The problem with STP though, is the locals can’t afford them. They aren’t on vacation and just want to enjoy their usual dinner spots without having to fight through tables of drunk Bachelor & Bachelorette parties. Eventually, these locals realize they can rent out their apartments during the peak tourist months at much higher rates and avoid the crowds. They are probably grateful for this extra money, and local businesses can keep charging STP guilt free, but the net effect is, all the locals are gone, so as a traveler, you are more likely to encounter somebody from your home city, than a local that doesn’t work in hospitality sector.
Of course, this mostly applies to smaller cities and Islands but even when you try going to big cities, like New York, London or Paris, a similar dynamic can occur. With Curated tours, Social Media, Google Reviews, OpenTable and the Michelin guide, most tourists end up doing the same trip. Travelers just look up the highest rated restaurants, or go to places they’ve seen celebrities attend. A decent number of these places are actually good establishments, but as their patrons increasingly become international travelers, they change. They start chasing Google Reviews or Michelin guides (for the wrong reasons). Perhaps it starts by adding English on the menu. Then they start offering diary-free milks and gluten free options. Then come the Vegans, because god forbid Bethany leaves a 1 star review at L’Escargot Montorgueil when she learns what Escargot means. Before you know it, none of the dishes on that menu even originate from that country and none of the locals want to go there anymore.
This is why, trusting your vacation to the market of social media influencers and tour guide publishers, is ensuring you will have an average experience on your trip. The problem is, just like with any asset class, as more people adopt this strategy, average returns converge with the market return over time, providing 0 alpha (excess returns or fun)2.
Conclusion:
Decades ago, Eugene Fama proposed the theory of the Efficient Markets Hypothesis (EMH) to explain how the stock market works. Effectively, asset prices fully reflect all available information, making it impossible to beat the market by stock picking or market timing. This is one of the underpinnings of modern finance theory, which has been hotly contested and arguably disproven by standout performers, including Warren Buffett.
Many people seem to have applied Fama’s stock market theory to tourism. Instead of trusting their own vacation planning abilities, they rely on an ETF of definitely not sponsored Instagram & TikTok accounts, Tourism Guides and Travel Blogs. The problem is, just like an elevated share price can make a company change the way it operates to please the market, the tourism industry makes cool and interesting travel destinations all feel the same.
This is being further exacerbated by airlines reducing their flight routes and concentrating on high traffic routes. Instead of the influx of stupid tourists getting spread to many destinations, they get overcrowded into a few locations, which inherently changes these places. While the stock market has been kept alive by the Magnificent Seven stocks ($AAPL , MSFT 0.00%↑ , GOOGL 0.00%↑ AMZN 0.00%↑ NVDA 0.00%↑ META 0.00%↑ TSLA 0.00%↑ ), soon the tourism industry might only be sustained by $NYC, $LONDON $PARIS $TOKYO $ROMA. $DUBAI & $IBIZA.
This is why, those not living in Hub cities, should start getting accustomed to having a difficult time finding direct flights to new and exciting locations. Airlines under margin pressure, will increasingly look to optimize flight for the most common flight paths, meaning we will see more of the same types of tourists overcrowding fewer places. In the pursuit of comfort, and risk reduction, we’ve made every place feel less foreign and more like home. Begging the question, is it worth going at all?
Which is why, in the end, I’ll probably just spend those few days alone in Mallorca.
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An ETF (Exchange-Traded Fund) is an investment fund that holds a mix of assets like stocks or bonds and trades on a stock exchange like a regular stock. It offers diversification, low fees, and the flexibility to buy or sell instantly. Investors often use ETFs to efficiently track markets or sectors without having to pick individual securities.
If you are struggling with the logic behind this one, think of it this way: Assume out the entire universe of stock market investors, only a small percentage invest through broad market ETFs, and everybody else builds their own portfolio of stocks. Some will outperform and others will underperform the ETF holders, because they are employing different strategies. However, if everybody only invested through an ETF, nobody could overperform or underperform. Therefore no excess returns (alpha) exists. Depending on which finance theories you subscribe to, even without ETFs, some believe competition and market efficiency will also eliminate excess returns.
Well said, Ben. The tyranny of the average and unabated behavioral contagion has made us more compliant consumers than adventurous travelers.
Unfortunately, I think you are right: the golden age of travel is possibly over. This, naturally, comes along with the deglobalization we are seeing in world trade.
More and more countries are putting up trade barriers in the form of export restrictions, tariffs, and import quotas. Naturally restrictions on the movement of goods will inevitably lead to restrictions on the free movement of people.
Ironically, the period post 9/11, might be remembered as the Golden age of travel. I hope that this conclusion turns out to be incorrect, that humanity once again unites with free movement of people, goods, and services.