The Travel Boom: Which Companies Will Leave the Gate First

Travel is finally rebounding as countries lift restrictions, mask mandates, and open their borders to tourists after two years of widespread caution. Airline stocks soared earlier this week after Delta Air Lines (ticker: DAL) kicked off earnings season and reported a return to profitability in March, even with rising fuel […]

Travel is finally rebounding as countries lift restrictions, mask mandates, and open their borders to tourists after two years of widespread caution.

Airline stocks soared earlier this week after

Delta Air
Lines (ticker:

) kicked off earnings season and reported a return to profitability in March, even with rising fuel costs. Total passenger revenue was 75% recovered from 2019 levels, the company added.

Indeed, the number of people passing through TSA checkpoints was nearing 2019 levels, according to government data. In New York City, a tourist-dependent city, demand for taxis has doubled since January, while demand in Chicago and Washington D.C. has tripled, said Jason Gross, vice president of mobile at cab-hailing service Curb.

Meanwhile, March web-traffic data pointed toward continuing strength in the sector, as website visits to travel sites increased across the board, catching up to– and in some cases, surpassing–2019 levels, calculated Citi analyst James Ainley.

“After two years of the pandemic forcing vast populations to stay near home, many consumers are clamoring to get moving again, which is a durable tailwind for the travel industry for the foreseeable future,” said Chelsea Wiater, a portfolio manager at EFG-New Capital.

Travel exchange-traded funds were up on Thursday. The

ETFMG Travel Tech ETF
(AWAY) was up 1.5%, while the airline-heavy

U.S. Global Jets ETF
(JETS) was gaining 1%.

But despite the positive outlook, the industry still needs to sail through an environment rife with obstacles, from rising labor costs and staffing shortages to rising inflation and its impact on consumers’ wallets.

Staying the course may be harder for some industry subsectors than for others. Airlines, for example, have to contend with an increase in fuel costs and a rapidly growing pilot shortage that could threaten their ability to keep up with demand and pressure margins.

Rising fuel prices could also play a factor in the revival of cruise ships. While some analysts are bullish on the sector–one Wells Fargo analyst called it “one of the few remaining recovery stories”–most of Wall Street is still taking a cautious approach.

Only 41% of analysts polled by FactSet rated

Norwegian Cruise Line Holdings

), one of the favored U.S. cruise stocks, a Buy, while 59% rated it a Hold. Competitor

Carnival Corporation

), in turn, could face additional challenges given its high international exposure, which in the past has been affected by geopolitical tensions, said Wells Fargo analyst Daniel Politzer in a research note.

Car rentals and hotels may be a safer choice for investors looking to take advantage of the travel resurgence.

Rising prices for used cars have given car-rental companies like


) and

Avis Budget Group

) new pricing powers and robust demand. Hertz was one of Barron’s top stock picks for 2022. At the time, Barron’s highlighted Hertz’s clean balance sheet and its new partnerships with


) and



The hotel industry’s performance this year creates a stark contrast to the haphazard state of the hospitality industry after the pandemic struck in 2020.

“I think that 2022 is really going to bring more stability in terms of revenue, topline, occupancy and rates,” said Deborah Friedland, practice leader of EisnerAmper’s Hospitality Advisory Services Group.

For the week ended April 2, U.S. revenue per available room increased about 43% year over year, with occupancy up 11%, J.P. Morgan analyst Joseph Greff said in a research note, citing industry data. This was a 4% increase to the comparable 2019 period, showing a strong improvement in the hotel landscape.

“That’s well ahead of what anybody anticipated,” Friedland added.

Nonetheless, the rising cost of supplies, labor, and utilities will continue to pressure margins and profitability, Friedland said. It will especially impact hotels servicing the mid-scale market, which may struggle to pass on prices to cost-conscious consumers.

“Demand for their services may underperform other areas of travel that cater to higher-income demographics where consumers are exiting a period of extended savings and wealth expansion,” said Wiater, the EFG-New Capital portfolio manager.

Revenue per available room for luxury and upper upscale hotels increased 47% and 88% on an annual basis, respectively. It rose 24% for midscale hotels and 13% for economy lodging.

International chains like

Marriott International

) and

Hilton Worldwide Holdings

) have both been “long-term value compounders as companies and really strong holdings,” said Jefferies analyst David Katz. Katz has a Buy rating on both stocks, as well as Street-high price targets. Marriott has gained 9% this year to date and Hilton is up 0.4%.

InterContinental Hotels

) is also up 9% year-to-date, while

Hyatt Hotels
(H) stock gained 1%, and


) about 4%.

Hospitality REITs, or real estate investment trusts, are another way to bet on the industry, wrote BMO Capital Markets analyst Ari Klein in a research note on Monday. His top pick is

Host Hotels & Resorts

), but he also has Outperform ratings on

Xenia Hotels & Resorts


Pebblebrook Hotel Trust

), and

Park Hotels & Resorts

). All four REITs were up more than 5% after Delta’s earnings on Wednesday, with

Park Hotels & Resorts
gaining as much as 9.4%, but dipped about half a percentage point on Thursday.

The industry still hasn’t fully recovered, with business travel and group events lagging behind leisure travel. But Katz sees that as an opportunity as these activities start to gain traction.

“The remainder of this year should have meaningful acceleration,” he said.

Write to Sabrina Escobar at [email protected]

Dong Anker

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