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Investment Case for CRUZ, The Defiance Hotel, Airline, and Cruise ETF

Investment Case for CRUZ, The Defiance Hotel, Airline, and Cruise ETF

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CRUZ, The Travel Reopening Trade. Invest in Cruise Lines, Airlines and Hotels

Covid-19 confined us to our homes for over a year. As countries struggled to control its spread, borders were closed, flights cancelled, cruise ships beached and hotels shuttered. Individuals suddenly had their liberty to travel, explore, experience and connect severely curtailed.

As vaccinations are rolled out and many governments are able to slowly dismantle protective measures, the trauma, frustrations and sacrifices of the pandemic could fuel a renewed thirst for travel. The desire to compensate for the restrictions of the past year with longer, further and more expensive holidays has become known as “revenge travel”. The revenge is not against anyone in particular. It describes the visceral need to reconnect with distant family, friends and work colleagues, to satisfy the travel itch, to break out of the daily grind and discover new horizons.

Defiance’s CRUZ ETF aims to provide next generation investors with exposure to the growth potential that we believe reopening and revenge travel represents.  As people feel safer and world tourism begins to revive, companies that have seen repressed valuations could see strong recoveries. The pre-covid travel and tourism industry contributed $8.9 trillion to world GDP, 1  and it has cost the sector an estimated $3.3 trillion. 2  That’s a lot of suppressed demand, notwithstanding the potential surplus consumption among some frustrated consumers.

Travel plans on hold

The travel industry, which accounts for 10% of the global economy, 3 was largely put on hold from early 2020, when many countries froze arrivals and closed hotels, culture and entertainment venues. In the first 10 months of 2020 alone, the pandemic cost the tourism industry $935 billion in revenue worldwide.

For the USA, travel and tourism contributed more than $1.1 trillion to the USA’s 2019 GDP with around 80 million international tourists. 4  It then suffered the biggest single drop in tourism revenue as a result of the pandemic: a $147,245 million loss over ten months from the start of 2020.

In the cruise industry, the US Center for Disease Control and Prevention (CDC) ordered it to cease operations and world governments imposed sailing restrictions. Business meetings moved to Zoom* and thousands of flights were cancelled.

2021 Reopening and Growing Confidence

The vaccine rollout, social distancing measures and safeguarding procedures have allowed a tentative reopening of the economy in many countries. The question of international travel remains, as it involves the mixing of populations and authorities need to protect passenger safety. However, it seems that the demand remains, albeit temporarily suppressed. If you take the UK as an example, only 10% of people said they would not rebook their cancelled travel plans once the corona restrictions were lifted.

Source: https://www.statista.com/statistics/1127596/rebooking-cancelled-holidays-due-to-coronavirus-uk/

Travel vouchers from cancelled trips in 2020 are beginning to expire, along with credit card points and airline miles possibly losing value. However, this would not be enough to get people back into the skies and seas in our opinion. This could come as a result of the coalescence of numerous factors: A vaccine rollout, greater availability and use of testing, better understanding and awareness of what spreads covid and how to stop it. The industry’s adaptations to reassure travelers of cleanliness, hygiene and safety are also key. All of these together, combined with a growing frustration and unmet consumer need, is beginning to impact sales in the travel sector. Carolyne Doyon, president and CEO of Club Med North America and the Caribbean, has noted that “Since the end of 2020, we were seeing a large increase in family reunion bookings for the 2021–2022 holiday season, with a 17% increase compared to the 2019 holiday season. This shows us that families are really looking forward to reconnecting after so much time spent apart and coming together for the holidays, as so many plans were canceled in 2020.” 5

In the US, the cruise industry got a boost in May when the House approved a measure to temporarily lift the requirement for Alaska-bound ships to stop at Canadian ports. Canada has banned cruise ships till 2022 because of the pandemic, thereby preventing the reopening of the $160 million Alaskan tourist industry. The CDC has also eased restrictions for vaccinated passengers, allowing them to board without additional covid testing. A number of companies have renewed their ticket sales for vaccinated passengers and Royal Caribbean indicated booking volumes were within historical ranges for volume despite higher prices than pre-pandemic levels. CEO Richard Fain noted that it is not just the seasoned cruisers hurrying to book when possible. 80% of Singapore guest were first-timers, perhaps taking advantage of the relatively controlled environment and population on a ship. “So we’re getting a lot of surprising data as things come out, and it’s mostly positive,” said Fain, whose company’s shares rose after the release of its fourth-quarter results. For air travel, a recent Morgan Stanley report suggested that “the U.S. could return to pre-pandemic levels by late 2021 or early 2022.”  And a McKinsey report showed potential passengers’ readiness to travel when their confidence is bolstered by a variety of means.

Source https://www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/for-corporate-travel-a-long-recovery-ahead

CRUZ – The Travel Reopening Trade

Defiance’s CRUZ ETF aims to capture the potential growth inherent in the reopening travel industry. It seeks to track the performance before fees and expenses of the BlueStar Global Hotels, Airlines, and Cruises Index, a carefully designed index of globally listed companies primarily engaged in the passenger airline, hotel, and cruise industries.

Companies in the Index must have a free-float of at least 10%, a market capitalization of at least US $150 million and a 3-month Average Daily Value traded of at least US $1 million USD. There are a minimum 25 companies in the Index, and a maximum weight for any single company of 8%. The index is reconstituted on a semi-annual basis and rebalanced quarterly.

Defiance ETFs aspires to bring retail and institutional investors access to cutting edge developments. The exact pace and dynamic of the post-pandemic reopening is hard to identify, which is why we believe an ETF with broad coverage of the travel industry could help investors benefit from sector growth while mitigating the risk of over exposure to any single company.

CRUZ Top Ten Holdings

Fund holdings are subject to change and should not be considered recommendations to buy or sell any securities. Performance of securities discussed did not contribute in any way to Fund results and are not indicative of future returns.

Investment Case for CRUZ, The Travel Reopening Trade. Invest in Cruise Lines, Airlines and Hotels

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1  “The Covid-19 Pandemic Has Cost The Global Tourism Industry $935 Billion,” Duncan Madden, January 14, 2021. https://www.forbes.com/sites/duncanmadden/2021/01/14/the-covid-19-pandemic-has-cost-the-global-tourism-industry-935-billion/?sh=7852ded17d40

2  “The Future of Travel in the Covid-19 Era,” Nikki Ekstein, April 26 2021. https://www.bloomberg.com/news/storythreads/2020-05-08/the-future-of-travel-in-the-covid-era 

3 “The Future of Travel in the Covid-19 Era,” Nikki Ekstein, April 26 2021. https://www.bloomberg.com/news/storythreads/2020-05-08/the-future-of-travel-in-the-covid-era 

4 “The Covid-19 Pandemic Has Cost The Global Tourism Industry $935 Billion,” Duncan Madden, January 14, 2021. https://www.forbes.com/sites/duncanmadden/2021/01/14/the-covid-19-pandemic-has-cost-the-global-tourism-industry-935-billion/?sh=7852ded17d40

5 “’Revenge Travel’ Will Be All The Rage Over The Next Few Years,” Caroline Bologna, April 6, 2021 https://www.huffpost.com/entry/revenge-travel-future_l_6052b724c5b638881d29a416