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Travel & Leisure ETFs Turning Around: Will It Last?

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As the pandemic is slowly turning into an endemic, economic-reopening-friendly stocks, like leisure stocks, are finding reasons to fly higher. Pent-up demand is evident in the surge of new business openings in nightlife, beauty, and travel and hotels. Delayed trips and increased consumer savings have resulted in the wellbeing of the travel industry.

There has been a steady rise in room prices, which hotel chain executives say will not come down soon, per an article published on CNBC. A recent Biden administration’s decision to repeal COVID-19 testing for inbound international air travelers has also aided the travel and leisure industry.

The CNBC article indicated that Hyatt president and CEO Mark Hoplamazian said on “Squawk on the Street” on Tuesday that foreign travelers to the United States tend to spend a lot more than domestic travelers. Hence, hotel industry will get a huge benefit from no pre-departure COVID-19 testing now onward as it will boost international inbound travel.

Agreed. There is a wall of worry as inflation is running high and has the ability to slow down economic growth (or even cause a recession). But such warnings are failing to cool down the hotel industry’s demand.

Marriott CEO Tony Capuano said that over Memorial Day weekend the company’s revenue per available room was up about 25% in 2022 compared to 2019. Marriott’s luxury portfolio recorded a nearly 30% increase in rates in the first quarter of 2022 compared to 2019. The CEO of IHG Hotels & Resorts also expects travel and hotel demand to continue growing for the rest of the year.

Hilton CEO Chris Nassetta is predicting that the hotel chain will “have the biggest summer we’ve ever seen in our 103-year history this summer,” per the CNBC article. Nassetta said that two things are keeping the hotel industry’s demand in fine fettle: the leisure consumers’ more than $2.5 trillion in additional savings, and strong corporate balance sheets. Plus, lack of capacity expansion is causing less supplies in the hotel industry and driving prices.

STR and Tourism Economics have upgraded the recovery timeline for U.S. hotel revenue per available room (RevPAR). On a nominal basis, Occupancy for 2022 is expected to come in under the pre-pandemic comparable, while ADR and RevPAR are forecast at $14 and $6 higher than 2019, respectively. When adjusted for inflation, full recovery of ADR and RevPAR are not expected until 2024.

The foodservice industry is forecast to touch $898 billion in sales in 2022, returning to the pre-COVID pandemic trajectory, the National Restaurant Association said. Pent-up demand for restaurant dining has also increased. Not only hotels and restaurants, airlines are also charging higher.

Despite high inflation, consumers seem willing to spend more for airline tickets after keeping their travel plans on hold for about two years. The summer season has also been propelling them to indulge on such activities. Several companies are also asking employees to return, which in turn, may push up business travel to some extent (read: Airlines ETF Stuck Between Revenue & Cost Increases).

Any Wall of Worry?

There has been a surge in COVID-19 infections. U.K. COVID-19 cases rose for the first time in two months in the week to Jun 2, according to new estimates from the Office of National Statistics. The same is happening in countries like China and India. China's capital Beijing is experiencing an "explosive" COVID-19 outbreak connected to bars, a government spokesman said on Saturday, as the commercial hub, Shanghai, conducted mass testing to contain a jump in cases tied to a hair salon, as quoted on Reuters.

Even if we have handled the latest strain Omicron, further mutations of the virus may continue to throw the global market occasionally in a wavering zone. The central banks will not likely be of much support anymore and massive fiscal support is also unlikely. All these factors may weigh on the travel sector all over again.

Reopening-Friendly ETFs in Focus

Against this backdrop, below we highlight a few travel and leisure ETFs that beat the S&P 500 (down 1%) past month (as of Jun 10, 2022).

AdvisorShares Hotel ETF (BEDZ - Free Report) – Up 1% Past Month

AdvisorShares Restaurant ETF (EATZ - Free Report) – Up 0.7%

ALPS Global Travel Beneficiaries ETF (JRNY - Free Report) – down 0.5%

 


 


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AdvisorShares Restaurant ETF (EATZ) - free report >>

AdvisorShares Hotel ETF (BEDZ) - free report >>

ALPS Global Travel Beneficiaries ETF (JRNY) - free report >>