While travel metrics for January are still weighed down by the Omicron strain, first-quarter earnings reports for the travel stocks were broadly positive, with demand continuing to pick up at the end of the first quarter through April. many companies It is now forecasting record travel demand this summer with fallout that a long-awaited “re-opening of commerce” has arrived — but travel stocks haven’t reflected that sentiment yet, even as several companies report earnings to beat this quarter. The S-Network Global Travel Index (TRAVEL) — which consists of stocks within airlines, accommodation, booking/rental agencies, and other consumers of consumer entertainment — is down 14.1% year-to-date through May 6, just below the S&P 500 ( down 13.0% since the beginning of the year). This note addresses some of the uncertainties underlying recent price movements, while iterating supportive long-term trends that are particularly relevant for TRAVEL versus other peer indices.
Consensus points to strong demand this summer, but overall headwinds still weighed on the full-year outlook. Travel companies are stressing record travel demand this summer now that travel restrictions and mask mandates have dwindled. If pent-up demand materializes, the industry must be in a good position to implement pricing power to offset the inflationary costs. Hotels, for example, can continually price hotel rooms in response to occupancy levels. For example, Marriott (MAR, 5.0% of the index weight) was able to raise its average daily rate from +3% in January 2022 to +12% in March 2022 (compared to the same month in 2019) to partially offset weak demand from travel Business. (1) (2) Likewise, airlines have been able to fare in response to rising fuel and material costs with domestic airline fares up 34% this summer compared to 2019, according to Huber.[3)[3)
But after this summer, the demand environment looks more murky, which is likely contributing to some unexplained market moves. Data from the Bureau of Economic Analysis indicates that personal savings are well below pre-pandemic levels. In 2019, savings as a percentage of disposable income averaged 7.6% for the year, while it reached 33.8% through April 2020. But 2022 levels all fell below 7.0%, with the latest figures for March 2022 at 6.2%. 4) The savings hoarded during the pandemic may have supported consumer spending for longer than expected, but dwindling savings combined with persistent inflation and higher interest rates may eventually leave consumers with less spending power. While consumers may be making sacrifices to take much-anticipated vacations this summer, shorter booking periods provide less visibility into the latter part of the year. There is concern that consumers may eventually be priced out of higher hotel and airfare rates if current trends continue into the past this summer. With the current market uncertainty already weighing on the minds of investors, the market may look for a more confident outlook that extends beyond summer 2022, along with more certainty in cash flows and profitability.
Technology-related stocks are affected the most, but long-term topics remain supportive of travel. Broader market moves have been hard to ignore, and investors are widely tired of growing stocks and technology-oriented stocks. Like many other sectors of the economy, travel and leisure are increasingly becoming “technology oriented” despite not being a pure technology stock. Companies such as Booking Holdings (BKNG, index weight 5.1%), Airbnb (ABNB, 4.2% index weight), Uber Technologies (UBER, index weight 2.8%), Expedia Group (EXPE, index weight 2.0%), for example, components The Internet and applications that have strong ties to the technology sector.
But increased innovation should not be seen as a flaw in the sector in the long run, especially since underlying trends remain despite the current macro headwinds. The proliferation of electronic devices and the growing interest in the gig economy continues to support digital innovation in the travel space – for example by the aforementioned UBER and ABNB (see more here). In addition, the shift from goods to services is not limited to a post-pandemic recovery. Younger generations (for example, Millennials and Generation X) are increasingly more likely to spend on experiences rather than goods. According to Microsoft Insights data, click-throughs for events and experiences, including travel, increased past 2019 levels.[5)[5)
The Travel Index uniquely represents both traditional travel and the ‘new’ travel industry. Compared to peer benchmarks, TRAVEL broadly represents the current travel industry, while also embracing companies that support digital travel innovation. Since its inception, the TRAVEL Index has outperformed its peers but has declined in part since the beginning of the year due to its exposure to technology-oriented stocks (see charts below). Its closest peers include Solactive Airlines, Hotels, Cruise Line Index (SOLAHCLN), BlueStar Hotels, Airlines, and Cruise Index (BCRUZ), both of which limit their components to traditional areas of travel — airlines, hotels, and cruise lines. Other peer indexes are more concentrated in a particular sub-sector. For example, the US Global Aircraft Index (JETSX) focuses on sectors related to airlines. On the other end of the spectrum, the Prime Travel Technology Index (PTRAVEL) focuses solely on the travel technology sector. Despite some year-to-date weakness, TRAVEL’s unique exposure to the sector compared to its peers could position TRAVEL in the longer term to potentially benefit topics in both changing consumer spending habits along with broader digital innovation.
The current macro concerns have overshadowed the strong travel season expected in 2022. But for those investors who believe that the travel and leisure industry will benefit from key themes after 2022, TRAVEL may be well positioned among its peers to benefit from entertainment experiences alongside the digital economy. Broad – Trends that have to continue despite the current market environment.
The S-Network World Travel Index (TRAVEL) is the primary index of the ALPS Global Travel Beneficiaries ETF (JRNY).
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