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Time to Buy Leisure & Travel ETFs?

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Travel during the upcoming holiday season is expected to rebound greatly despite high inflation. After two years of travel bans, restrictions and lockdowns, Americans are set to hit the road. Thanksgiving and Christmas are normally two of the most traveled holidays in the fourth quarter.

"Leisure travel is more than back. It's exceeding in many cases pre-pandemic levels," Jonathan Kletzel, PwC U.S. airline and travel practice leader, told Travel + Leisure, noting that 47% of survey respondents hinted that they plan to travel over the holiday break. Kletzel explained that almost half of those, or 46%, plan to do so by plane, up from 40% in 2021 and 33% in 2020, quoted on Travel+Leisure.

Outlook for Cruise Sector Upbeat

UBS analysts are now overweight on the cruise sector due to its stronger occupancy recovery and robust bookings. The investment firm upgraded Norwegian (NCLH), following which the stock added 11.6% on Oct 12. The news acted as a cornerstone for the entire sector. Hence, Royal Caribbean Cruises Ltd. (RCL - Free Report) and Carnival Corporation & Plc (CCL - Free Report) added about 11% and 10%, respectively, on the same day.

Norwegian Cruise has kept pricing nicely ahead of the 2019 levels. The company told investors last week that occupancy levels would be around 82% in the third quarter, up from 65% in the second quarter.  Royal Caribbean Group’s occupancy is rebounding even more strongly following the pandemic and prices for cruises booked both for the second half of 2022 and 2023 are at record levels. Cruise operators are finally easing COVID restrictions, which may boost the sector’s dwindling recovery.

Airlines Flying High Too

According to Hopper's 2022 Holiday Travel Outlook released in September, the average price of a domestic plane ticket is $350 for Thanksgiving travel and $463 for Christmas travel. Thanksgiving prices are 22% higher than in 2019 and 43% more than in 2021. Christmas airfares are currently averaging 31% higher than 2019, and 39% higher than last year.

International airfare is currently averaging $795 per ticket this Thanksgiving, up 25% from 2019 and up 41% year over year. Prices for international travel will rise slowly as Thanksgiving comes closer. International airfare has risen 26% from 2019 and 20% from 2018 to $1,300 per ticket this year.

A combination of factors like jet fuel prices, fewer flights scheduled and two years of pent-up holiday travel demand should drive Thanksgiving and Christmas airfares to their highest in the last five years (read: 5 Top-Ranked Sector ETFs to Buy for Q4).

ETFs in Focus

Defiance Hotel, Airline, And Cruise ETF (CRUZ - Free Report)

The underlying BlueStar Global Hotels, Airlines, and Cruises Index is rules-based and consists of globally listed stocks of companies that derive at least 50% of their revenues from the passenger airline, hotel and resort, or cruise industries. The fund charges 45 bps in fees.

U.S. Global Jets ETF (JETS - Free Report)

The underlying U.S. Global Jets Index tracks the performance of Airline Companies across the globe with an emphasis on domestic passenger airlines. The fund charges 60 bps in fees.

Invesco Dynamic Leisure And Entertainment ETF (PEJ - Free Report)

The underlying Dynamic Leisure & Entertainment Intellidex Index comprises stocks of U.S. leisure and entertainment companies. The index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. The fund charges 55 bps in fees.

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