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The Travel Boom: Which Companies Will Walk Out the Door 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 (ticket:


DAL

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

Indeed, the number of people passing through TSA checkpoints was approaching 2019 levels, according to government data. In New York, a city dependent on tourism, demand for taxis has doubled since January, while demand in Chicago and Washington DC has tripled, said Jason Gross, vice president of mobile at Curb.

Meanwhile, March web traffic data indicated continued strength in the industry, as website visits to travel sites rose across the board, catching up with – and in some cases exceeding – levels. of 2019, calculated Citi analyst James Ainley.

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

Travel exchange-traded funds were up on Thursday. the


ETFMG Travel Tech ETF

(AWAY) rose 1.5%, while airlines


US Global Jets ETFs

(JETS) gained 1%.

But despite the positive outlook, the industry still has to navigate an environment filled with hurdles, from rising labor costs and staffing shortages to rising inflation and its impact on the portfolio of consumers.

Staying the course may be more difficult for some industry sub-sectors than others. Airlines, for example, are facing rising fuel costs and a growing shortage of pilots that could threaten their ability to meet demand and pressure margins.

Rising fuel prices could also play a role 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 on Wall Street is still taking a cautious approach.

Only 41% of analysts surveyed by FactSet rated


Norwegian Cruise Line Holdings

(NCL


H

), one of America’s favorite cruise titles, a buy, while 59% rated it a hold. Competitor


carnival society

(


CCA

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

Car rentals and hotels may be a safer bet for investors looking to cash in on the travel upsurge.

Rising used car prices have given car rental companies like


Hertz

(


HTZ

) and


Avis Budget Group

(


SELF

) new pricing powers and robust demand. Hertz was one of Barrons best stock picks for 2022. At the time, Barrons highlighted Hertz’s healthy balance sheet and new partnerships with


You’re here

(


TSLA

) and


carvana

(


CVNA

).

The hospitality industry’s performance this year is in stark contrast to the anarchic state of the hospitality industry following the 2020 pandemic.

“I think 2022 will really bring more stability in terms of revenue, revenue, occupancy and rates,” said Deborah Friedland, practice leader of EisnerAmper’s Hotel Advisory Services Group.

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

“It’s way ahead of what anyone expected,” Friedland added.

Still, rising costs for supplies, labor and utilities will continue to pressure margins and profitability, Friedland said. This will particularly affect hotels serving the midscale market, which may struggle to pass prices on to cost-conscious consumers.

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

Revenue per available room for luxury and upscale hotels increased by 47% and 88% respectively on an annual basis. It increased by 24% for midscale hotels and 13% for budget accommodation.

International channels like


Marriott International

(


MAR

) and


Hilton Worldwide Holdings

(


HLT

) have both been “factors of long-term value as businesses and very strong holdings,” said Jefferies analyst David Katz. Katz has a buy rating on both stocks, as well as high price targets. Marriott has gained 9% YTD and Hilton is up 0.4%.

InterContinental Hotels (


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


Hyatt Hotels

(H) the stock gained 1%, and


Airbnb

(


ABNB

) about 4%.

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


Host Hotels and Resorts

(


HST

), but it also has outperforming ratings on


Xenia Hotels & Resorts

(


XHR

),


Pebblebrook Hotel Trust

(


PEB

), and


Park Hotels and Resorts

(


PACK

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


Park Hotels and Resorts

gaining as much as 9.4%, but fell about half a percentage point on Thursday.

The industry has still not fully recovered, with business travel and group events lagging behind leisure travel. But Katz sees this as an opportunity as these businesses begin to gain traction.

“The rest of this year should see a significant acceleration,” he said.

Write to Sabrina Escobar at [email protected]