Travel Is Back: What Are Investors Filling Up With?

Economy, Employment, Inflation and The Travel Industry Status

Amid slowing economic conditions, the United States economy was able to add another 263,000 non-farm payrolls in September. The steady rebound of the labor market due to mass layoffs caused by the pandemic has seen employment figures tick down to pre-pandemic levels of 3.5%.

Despite the challenges, from red-hot inflation hitting a four-decade high, to the Federal Reserve’s aggressive monetary tightening, the American labor market is holding steady against possible headwinds.

While job growth has been steady throughout most sectors, with the professional and business services sector seeing the biggest growth, sectors such as hospitality and retail, which were among the hardest hit during the early months of the pandemic, are still falling short of pre-pandemic levels.

The latest figures reveal that leisure and hospitality are still somewhat 1.1 million workers short of their February 2020 levels. In the most recent jobs report, around 83,000 hospitality and leisure jobs were added.

The worsening economic conditions and the rising cost of living have left many people to jump ship and look for high-paying jobs elsewhere.

Though the sector has been biting some hard bullets in terms of its labor performance – stock performances have been painting a completely different picture in the meantime.

The red-hot summer travel season, which led to a slew of flight cancellations, and an influx of foreign travel nearly two years after countries closed their borders to tourists has helped give the sector, and several stock options rebound to their best performance levels yet.

It’s been a tumultuous time, and travel and leisure stocks were among those impacted the most by the pandemic.

Yet, pent-up consumer demand is sending stocks in all sorts of directions as consumers adjust their habits due to inflationary concerns. The higher cost of traveling hasn’t done much to cool off the hiatus of domestic and international travel, as consumer habits are constantly changing and shifting as economic conditions move.

From pricey airline tickets, thousands of delayed and canceled flights, and costly fuel, to soaring hotel rates consumers are not pulling back, as many are eager to get back out there and travel, an ongoing trend now coined as “revenge travel.”

And that’s just what happened this year.

Illusionary rankings have placed the U.S. as the biggest travel and leisure market in the world, followed by China and Germany.

Prices are set to remain elevated for much of the year, and some experts suggest that consumers should brace themselves for costs to only keep going up in 2023 as well.

Travel Stocks Performance

But on the stock market, higher prices reflected in overall better performance.

Leading vacation ownership conglomerate, and resort management group, Bluegreen Vacations Holding Corporation (NYSE: BVH) experienced a 21.8% year-over-year Q2 growth, marking a total of $235,60 million in revenue for the period. The surge in leisure and travel has also moved the needle for BVH, with stocks gaining 21.6% in the last 12 months.

Travel + Leisure Co (NYSE: TNL), one of the world’s biggest and most well-known travel companies also experienced major gains throughout most of Q2. So far, stock performance is up 19.6%, and some analysts expect that revenue is set to balloon by 14.5% year-over-year.

This trajectory could help TNL become a low-hanging affordable stock pick for investors who are willing to diversify their portfolios with travel, tourism, and hospitality stocks.

Target Hospitality Corporation (NASDAQ: TH) is another must-watch leisure stock pick, as the company recently entered an expanded lease for enhanced infrastructure facility services. Strategic diversification means that the company can increase its hospitality services in a more diverse and community-oriented manner.

Even with prices zig-zagging between $2.72 – $15.67, the last year has seen stock prices gain more than 244.4%. TH is not the most lucrative asset for your portfolio, but it’s a growing opportunity with further room for improvement and development.

Airbnb (NASDAQ: ABNB) has made some promising performance this year, seeing an 18% increase in net profit margin during Q2. On top of this, the company has kept 38% of its $2.1 billion revenue as free cash flow. The company has also managed to bring its operational costs down, spending less in the first half of the year than in the same period last year.

The company had an impressive summer performance which helped stocks outperform other top competitors. By May, right before the summer travel chaos, stocks were up 7.71% as bookings hit an all-time high since the start of the pandemic in 2020.

The strong return on travel has also brought back online bookings and reservations websites as consumers take to the skies. Bookings Holdings (NASDAQ: BKNG) has kept a resilient performance despite enduring strong market volatility brought throughout the first half of the year.

YTD prices are down, but the company still manages to operate a healthy balance sheet and has seen improvements on most of its fundamentals. Takeaways from its Q2 earnings call saw revenues increase to $4.3 billion, a 99% increase for the same period last year.

U.S. airline carriers have also managed to rebound as the summer travel chaos saw an exodus of flights being canceled and delayed due to soaring demand and a tight labor market.

Despite these challenges, several airlines are now enjoying improved share performance, as investors start to rekindle their love for aviation stocks.

Delta Air Lines (NYSE: DAL) has been one of the strongest performers on the board. Shares have held a strong performance, with DAL jumping 4% in one day after the S&P sank to a new low. On top of this movement, revenue for Q3 increased by 53% compared to the same recorded period last year, and the company is now forecasting an EPS for Q4 between $1 to $1.25, above the consensus of $0.80.

Another airline that looks to enjoy steady performance is American Airlines (NASDAQ: AAL) which recently raised its Q3 revenue guidance ahead of earnings. The announcement by Americans saw AAL jump by 5% during premarket trading. Overall, stock prices have been struggling, but the company has managed to regain its footing in the better half of the year as oil prices came down and consumer demand remained steady.

Then there is United Airlines (NASDAQ: UAL) which saw total revenue increase by 6% for Q2 over the same quarter for 2019. The company has also boosted its guidance for Q3 which gave share prices a 5.52% performance boost due to positive forward-looking guidance. Capacity figures for the second quarter were down by 15%, but this is due to higher passenger volumes which ultimately led to the company delaying or canceling flights.

Final Thoughts

The strong return of travel, leisure, and tourism shows that consumer demand and overall spending resilience have remained strong despite the ongoing economic challenges and looming uncertainty.

The months ahead could prove to be positive if companies can hold down their prices, and see much of the inflationary costs being passed through to consumers. It’s a bit of rocky guidance, but the pent-up demand could see consumers enduring another wave of travel chaos this upcoming holiday season despite the higher traveling costs.

For investors, this does bring some good news, but it also means that they will need to continuously follow and monitor performance to ensure they are following an upward trajectory. On the back of this, investors should opt to be more diverse when looking at travel and leisure stocks, but hold strong for long-term wins instead of near-term gains.