16th Sep 2022
Since March 2020, travelers have been waiting for the day that borders would reopen around the world and people would take to the air, sea, road, or rail to travel once more.
With the summer travel season on the doorstep, it looks like they are returning, but the impact on airline stocks, hotel stocks, cruise stocks, and the like is still unclear.
Travel demand isn’t going away
Driven by two years of pent-up demand, we’re seeing travel bookings explode in 2022 and cover all travel sectors, with Hopper, a travel booking app, reporting a 50% increase in travel booking since Q4 2021.1
Services Properties Trust, which owns brands like Sonesta and Radisson, reported that Q1 2022 revenue recovered to 25.7% below 2019 levels, compared with 37.3% in January, and trimmed losses to $119.8 million from $195 million in Q1 2021.2 Vacation rental firm Vrbo says that demand for properties is 15% above last summer3; Marriott expects an important revenue metric to reach pre-pandemic levels in North America for the rest of 20224; and AirDNA, which tracks activity on Airbnb and Vrbo, reports that travel bookings in the northern hemisphere were 49% higher than spring 2021 and 26% higher than in 2019.5
Many airlines are soaring, particularly in the US, where it’s clear that Omicron was only a blip in the travel resurgence. Data from the TSA shows that over 2.1 million people passed through US airports during spring break, only around 9% below 2019’s levels6, and February was the first time that both bookings and sales surpassed a similar pre-Covid month, with customers spending $6.6 billion on airline tickets.7
Delta Air Lines and American Airlines predict a return to profitability throughout 20228; Southwest Airlines raised its revenue outlook to up to 92% of 2019 levels9; and JetBlue has been seeing “incredible revenue momentum” with a key revenue metric ahead of 2019 levels despite an increased number of flights10. Early March saw the US airline industry hit a record one-day high for revenues booked, leading American Airlines CEO Doug Parker to declare “The demand is higher than it’s ever been.”11
Worldwide, total demand for air travel in January 2022 was up 82.3% over January 202112, with domestic air travel up 41.5% and international travel up 165.6% over January 2021. James Ferrara, president and co-founder of travel advisory firm InteleTravel, sums it up: “A travel surge is imminent this year and into 2023, which will amplify the pre-pandemic growth trends and industry outlook for the rest of the decade.”13
But travel stocks aren’t moved
But travel stock prices don’t seem to be riding the wave of travel demand. Hotel, airline, and cruise stocks prices are staying static or dropping while traveler volumes and bookings rise14. The Dow Jones U.S. Travel & Tourism index is down 20.7% year to date, and the S&P 500 Hotel Resorts & Cruise Lines index is off 7.1%.15
Airbnb is a case in point. It reported impressive Q1 revenues of $1.5 billion, a jump of 70%, and trimmed its losses to $0.03 per share from $1.95 per share a year ago, leading analysts to raise estimates for revenue and Ebitda, but stock price fell 8.4%.16
There are a number of reasons why investors aren’t rushing for the best travel stocks to buy, but the fears holding them back might not be valid.
1. Fears of a recession could be needless
Some fear that the current travel hike is a bubble that could pop easily if fuel prices and the general cost of living continue to rise. On May 5th, when the Federal Reserve decided to raise rates by the biggest single-meeting increase in 22 years, stock markets tumble and anxieties about an impending recession grew.17
“Travel is one of the most sensitive areas of the economy,” warns Bankrate’s senior reporter James Royal, adding “If consumers get anxious about the economy, inflation or any number of other things, travel can be quickly cut.”18
However, demand for flight tickets is staying strong, as Hopper’s economist Hayley Berg points out. “I expect that if we do continue to see higher prices, we will likely probably still continue to see higher demand,” she says, adding that “travelers have been waiting to go on some of these bucket list trips since summer of 2019 and 2020.”19
2. War in Ukraine may not slow travel down
January’s increase in bookings for international trips, especially to Europe and Asia, tapered off in late February when Russia invaded Ukraine. Airline stocks like United and Delta, hotel stocks like Hyatt, Hilton, and Marriott, and even the best cruise stocks like Norwegian and Carnival fell on the day of the invasion.20
However, travelers seem to have changed their choice of destination rather than putting off their travel plans again. Dakota Smith, Chief Strategy Officer at Hopper, notes that US travelers continue to prefer short-haul and domestic flights. While U.S. bookings to Europe have dropped from 21% to 15% of Hopper’s international bookings, Mexico, Central America and the Caribbean are gaining in popularity.21
3. High costs could be balanced out by rising revenues
Wages, commodity prices, and fuel costs are rising even as revenues are springing back, affecting companies’ bottom lines and eating into their profit margins. AirAsia Malaysia reintroduced fuel surcharges for the first time in seven years to offset jet fuel prices22. IATA director-general Willie Walsh warned “If the jet fuel price stays that high, then over time, it is reasonable to expect that it will be reflected in airline yields.”23
But US airlines are not alarmed. “We can make money at oil prices of $100 a barrel or higher, and we will,” said Parker.24 Delta Air Lines President Glen Hauenstein sang the same tune, saying “We are very, very confident of our ability to recapture over 100% of the fuel price run-up in the second quarter and through probably the end of the summer.”25
Travel stock investors need more than patience
Higher prices for travel stocks are likely to arrive eventually if travel demand continues, but it’s going to take time. Anthony Denier, CEO of trading platform Webull, advises investors to take a long-term view. “If you look further out, this could be a buying opportunity,” he said.26
However, not all travel stocks are the same, and analysts are advising investors to choose carefully. Companies that used the last 2 years to cut expenses, rethink their offerings, increase agility, and undergo a digital transformation could succeed while others drown.
All this uncertainty could make a travel ETF more attractive for investors who believe in the long-term future of the travel sector but aren’t sure which may be the most profitable travel stocks to invest in.
An alternative for those who neither have the time, resources or inclination to pore over research reports, run the numbers or try to find the ‘next big winner’, an ETF that focuses on the travel industry may be the answer. If you already have an online broker, with just a few clicks you could put your investment capital to work, potentially in a more diversified portfolio of travel related stocks, some of which trade in on foreign exchanges.
A travel ETF like Defiance’s CRUZ allows you to spread your investment across a number of travel stocks. While diversification does not assure a profit, nor does it protect against a loss, a travel focused ETF could make for an appealing alternative for those looking to add more leisure to their time.
As of this writing the following stocks mentioned are current holding of Defiance’s ETF, CRUZ: Service Property Trust, Marriott Intl Inc New, Delta Air Lines Inc Del, Qantas Airways, Southwest Airls Co, Jetblue Awys Corp, Hyatt Hotels Corp, Hilton Worldwide Hldgs Inc, Norwegian Cruise Line Hldg Ltd Shs, Carnival Corp.
For current performance and holdings, please visit defianceetfs.com/CRUZ
1 “U.S. booking sites seeing strong demand for 2022 travel” March 18, 2022 https://www.reuters.com/world/the-great-reboot/us-booking-sites-seeing-strong-demand-2022-travel-2022-03-18/
2 “Corp. Travel Rebound Boosts SVC Q1 RevPAR” May 5, 2022 https://www.businesstravelnews.com/Procurement/Corp-Travel-Rebound-Boosts-SVC-Q1-RevPAR
3 “U.S. booking sites seeing strong demand for 2022 travel” March 18, 2022 https://www.reuters.com/world/the-great-reboot/us-booking-sites-seeing-strong-demand-2022-travel-2022-03-18/
4 “Travel stocks: Ready for a ‘revenge’ rebound or stymied by sky-high inflation?” March 2, 2022 https://www.bankrate.com/investing/travel-stocks-outlook-revenge-rebound-or-high-inflation/
5 “U.S. booking sites seeing strong demand for 2022 travel” March 18, 2022 https://www.reuters.com/world/the-great-reboot/us-booking-sites-seeing-strong-demand-2022-travel-2022-03-18/
6 “After 2 years of empty airports, the demand for travel is at a high. So are airfares” April 1, 2022 https://www.npr.org/2022/04/01/1089768617/airports-airlines-spring-break-travel-high-fares
7 “Get ready for higher fares: Airlines bet surge in travel demand will help offset fuel costs” March 15, 2022 https://www.cnbc.com/2022/03/15/airlines-raise-revenue-outlook-as-travel-demand-jumps-fuel-costs-jump.html
8 “Travel Stocks Haven’t Recovered Yet. Where the Opportunities Are.” May 8, 2022 https://www.barrons.com/articles/travel-recovery-stocks-opportunities-51651856510?tesla=y
9 “Get ready for higher fares: Airlines bet surge in travel demand will help offset fuel costs” March 15, 2022 https://www.cnbc.com/2022/03/15/airlines-raise-revenue-outlook-as-travel-demand-jumps-fuel-costs-jump.html
10 “Haven’t booked those airline tickets yet? Don’t dawdle. Bookings are bonkers, pushing prices up” March 15, 2022 https://www.usatoday.com/story/travel/airline-news/2022/03/15/airline-tickets-flight-prices-up/7048166001/
11 “After 2 years of empty airports, the demand for travel is at a high. So are airfares” April 1, 2022 https://www.npr.org/2022/04/01/1089768617/airports-airlines-spring-break-travel-high-fares
12 “Air Travel Sees Strong Demand Recovery in January but Impacted by Omicron” March 10, 2022 https://www.iata.org/en/pressroom/2022-releases/2022-03-10-01/
13 “Travel stocks: Ready for a ‘revenge’ rebound or stymied by sky-high inflation?” March 2, 2022 https://www.bankrate.com/investing/travel-stocks-outlook-revenge-rebound-or-high-inflation/
14 “Expedia and other travel stocks drop after Hilton’s guidance disappoints” May 3, 2022 https://seekingalpha.com/news/3831022-expedia-and-other-travel-stocks-drop-after-hiltons-guidance-disappoints
15 “Travel Stocks Haven’t Recovered Yet. Where the Opportunities Are.” May 8, 2022 https://www.barrons.com/articles/travel-recovery-stocks-opportunities-51651856510?tesla=y?mod=article_signInButton
16 “Travel Stocks Haven’t Recovered Yet. Where the Opportunities Are.” May 8, 2022 https://www.barrons.com/articles/travel-recovery-stocks-opportunities-51651856510?tesla=y?mod=article_signInButton
17 “Travel Stocks Haven’t Recovered Yet. Where the Opportunities Are.” May 8, 2022 https://www.barrons.com/articles/travel-recovery-stocks-opportunities-51651856510?tesla=y?mod=article_signInButton
18 “Travel stocks: Ready for a ‘revenge’ rebound or stymied by sky-high inflation?” March 2, 2022 https://www.bankrate.com/investing/travel-stocks-outlook-revenge-rebound-or-high-inflation/
19 “After 2 years of empty airports, the demand for travel is at a high. So are airfares” April 1, 2022 https://www.npr.org/2022/04/01/1089768617/airports-airlines-spring-break-travel-high-fares
20 “TRAVEL STOCKS FALL AS UKRAINE CRISIS ENTERS THIRD WEEK” March 8, 2022 https://www.phocuswire.com/Travel-stocks-fall-Ukraine-conflict-enters-third-week
[21 “U.S. booking sites seeing strong demand for 2022 travel” March 18, 2022 https://www.reuters.com/world/the-great-reboot/us-booking-sites-seeing-strong-demand-2022-travel-2022-03-18/
22 “Nowhere to hide for travel stocks hit by oil and war” March 6, 2022 https://www.afr.com/markets/equity-markets/nowhere-to-hide-for-travel-stocks-hit-by-oil-and-war-20220306-p5a24g
23“Air Travel Sees Strong Demand Recovery in January but Impacted by Omicron” March 10, 2022 https://www.iata.org/en/pressroom/2022-releases/2022-03-10-01/
24 “Get ready for higher fares: Airlines bet surge in travel demand will help offset fuel costs” March 15, 2022 https://www.cnbc.com/2022/03/15/airlines-raise-revenue-outlook-as-travel-demand-jumps-fuel-costs-jump.html
25 “Haven’t booked those airline tickets yet? Don’t dawdle. Bookings are bonkers, pushing prices up” March 15, 2022 https://www.usatoday.com/story/travel/airline-news/2022/03/15/airline-tickets-flight-prices-up/7048166001/
26 “Travel stocks: Ready for a ‘revenge’ rebound or stymied by sky-high inflation?” March 2, 2022 https://www.bankrate.com/investing/travel-stocks-outlook-revenge-rebound-or-high-inflation/