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The Travel Resurgence: Have We Finally Arrived?


Chief Investment Officer, Defiance ETFS

The global pandemic closed borders and made it nearly impossible to pursue travel and adventures outside of our own backyards. For nearly two years, Covid-19 forced airline, hotel and cruise companies to halt operations and essentially close down. Travel and leisure companies sat idle, losing revenue, employees and market valuations as days passed.

This is a familiar story. However, times are changing, and the question is how to position ourselves to benefit from the improving situation. Globally, populations are being vaccinated and boosted; most borders have reopened just in time for spring and summer travel. Concerns around rising Covid cases or new variants are slowly falling to the wayside as the pandemic transitions to being an endemic. There is a sense of moving toward normalization. There is so much pent-up demand to get out and travel, see our families or have an in-person business meeting with a client who resides in another state. Could this finally be the year of the travel resurgence? It is certainly playing out that way so far, based on bookings data.

U.S. And International Travel Data

Let’s take a look at some major travel players as potential investment opportunities. We could very much be on the precipice of a bull run, for airlines, cruises and hotel stocks. Airlines and hotels for example, are starting to see near pre-pandemic bookings. According to U.S. Travel, travel spending was close to pre-pandemic levels in December 2021, reaching $92 billion, or just 2% below December 2019 levels. Additionally, hotel room demand reached 2019 levels in December for the first time since the start of the pandemic.

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In contrast, international travel has remained nearly completely stalled, but with borders reopening and case counts improving day by day, we see the potential seeds of recovery. International travel fell dramatically in 2020, and only recovered 4% in 2021, according to the World Tourism Organization. But for business travel, which is always expected to lag behind the tourist sector, the Global Business Travel Association (GBTA) forecasts a 2022 surge of 38% and a full recovery by 2024. That same report quotes GBTA CEO Suzanne Neufang as describing “optimism overall as the industry, companies and travelers worldwide lean into recovery and the much-needed return to business travel.” Overall it’s safe to say there’s significant pent-up demand to travel again.

Travel Opportunities Within Broader Uncertainty

There are many opportunities in the market today, as well as much uncertainty. Geopolitical instability, inflation and other factors are weighing on equity valuations and market performance.

However, travel may prove to be an area of the market that might have less volatility and a more linear upward performance in 2022. Travel stocks have participated in the cyclical rotation trade. As we enter into a period of economic recovery, with unemployment at nearly 4%, wages increasing, high levels of consumer savings and a pent-up desire to get out and about and see the world again, spending in this space could be incredibly robust.

According to Statista, global travel contributes roughly 10% to the global GDP. In 2020, that number plummeted to around 5%, but in 2022 it is poised to grow. The World Travel & Tourism Council (WTTC) expects the U.S. travel sector to grow 28.4%, which would exceed pre-pandemic levels.

The New Normal

Exactly how travel will change in the coming months is hard to predict. Some say the “new normal” will shape innovative travel trends, such as sustainable travel, travel as self-care or increased domestic activity. The notion of the hotel as a destination, with wellness experiences, culinary offerings and inspirational spaces, such as art galleries, could also take off, as well as highly adventurous travel, bringing the excitement or exhilaration that was lacking in lockdown.

It is hard to look at the wider market right now and think about where we could see high double-digit growth, given ongoing risks and concerns to major sectors like tech, healthcare, commodities, etc. However, the travel trade stands out as a potential sweet spot in the market. A good way to access this space is to think about global hotel, airline and cruise ship stocks that represent the reopen trade for global citizens. For those who are less comfortable picking stocks, several ETFs exist in this space that might mitigate risk without compromising exposure.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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