Travel is in the cards this Thanksgiving, courtesy of an uptick in personal income and wages. More travelers are expected to hit the roads or take to the skies in this span, a number that would surpass the levels of the past nine years.
Given this near-term surge in travel demand, investing in travel and leisure companies will be judicious. Uptick in travel during the holiday period will certainly boost airlines, while pre-tax profits of all major airlines are already up. Another investment option is hotel and resort companies. More travel will lead to increase in hotel occupancy rate and in turn revenue per available room will scale higher.
Thanksgiving Travel to Hit 9-Year High
According to the American Automobile Association (AAA), about 48.7 million travelers are forecasted to travel 50 miles or more. This would be the highest since 2007. Thanksgiving Day weekend travel is anticipated to increase 1.9% from last year.
About 89% or 43.5 million travelers are expected to travel by car, an increase of 1.9% over the last Thanksgiving weekend. Modes of transport including cruises, trains and buses are expected to make up 3% of all travel this Thanksgiving, serving around 1.44 million.
However, 3.69 million travelers are expected to opt for flights, which is 1.6% higher than year-ago level. Flights are expected to account for 7.6% of all travel this Thanksgiving.
Airports to Be Busy, Pre-Tax Profits Up
Airlines for America (A4A), the trade group representing the interests of U.S. airlines, in fact, projected that 27.3 million passengers are expected to fly this weekend, which is up 2.5% compared to the same period last year. The trade organization expects Sunday, Nov. 27, to be the busiest day in the skies, followed by Monday, Nov 28 and the Wednesday, Nov 23 before Thanksgiving Day.
Collectively, all major airlines including Alaska Air Group, Inc. (ALK - Free Report) , Allegiant Travel Company (ALGT - Free Report) , American Airlines Group Inc AAL, Delta Air Lines, Inc. (DAL - Free Report) , Hawaiian Holdings, Inc. (HA - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) , Southwest Airlines Co (LUV - Free Report) , Spirit Airlines Incorporated SAVE and United Continental Holdings Inc UAL had already posted a healthy pre-tax profit of around $18.3 billion during the first nine months of this year.
Will Travel become Costlier?
Gasoline prices during Thanksgiving are expected to reach $2.16 a gallon. Even though this is 11 cents more than the average price on Thanksgiving, it will mark the second-cheapest gas prices in Thanksgiving since 2008. This possibly explains the reason why so many Americans are willing to travel by road. As the bulk of the travel is expected to be via road, rental car giant Avis Budget Group, Inc. (CAR - Free Report) is poised to be among the biggest gainers.
Meanwhile, airfares are expected to increase 21% this Thanksgiving compared to the previous year. For the top 40 domestic flight routes, average airfares may come in at $205 this year, according to AAA’s Leisure Travel Index. Travelers also need to bear higher lodging costs this year. The average stay in a Two Diamond Hotel will cost 4% higher this year to $123, while the cost of a Three Diamond hotel is expected to remain flat at $155 per night. Rise in prices, however, shouldn’t be a deterrent to travelers, thanks to the increase in wages and personal income.
Rise in Wages and Personal Income
Average hourly earnings increased 10 cents or 0.4% to $25.92 last month, which was preceded by an increase of 8 cents in September, according to the U.S Department of Labor. Average hourly earnings rose 2.8% year on year, the highest since Jul 2009 (read more: 4 Stocks to Buy on Strongest Wage Growth Since Recession).
Personal income also increased by $46.7 billion, or 0.3%, in September, while disposable personal income that measures the total amount of money available for use after payment of taxes rose by $37.0 billion, or 0.3%, according to the Bureau of Economic Analysis.
5 Stocks to Ride on the Thanksgiving Rush
With the rise in income levels, people are willing to spend more on travel this holiday period. As travel volumes are expected to shoot up, it will be sensible to invest in travel and leisure companies positioned to grow in the near term. Increase in travel will surely lead to an uptick in demand for air tickets and hotel rooms. We have, thus, selected five such stocks that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
SkyWest Inc. (SKYW - Free Report) , through its subsidiaries, operates a regional airline in the U.S. The company sports a Zacks Rank #1. SkyWest’s growth rate for the current year is 36.2%. The Zacks Consensus Estimate for its current year earnings rose 1.9% in the last 60 days.
Copa Holdings SA (CPA - Free Report) offers daily scheduled flights in North, Central and South America. The airline provides passengers with access to flights to more than 150 other destinations through codeshare arrangements with UAL and other airlines. The company’s growth rate for the next year is 47.1%. The Zacks Consensus Estimate for its current year earnings increased 6.5% in the last 60 days.Also,Copa Holdings sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vail Resorts Inc. (MTN - Free Report) , through its subsidiaries, operates mountain resorts and urban ski areas in the U.S. The company has a Zacks Rank #1. Vail Resorts’growth rate for the current year is 30.7%. The Zacks Consensus Estimate for its current year earnings rose 6.5% in the last 60 days.
Red Lion Hotels Corporation (RLH - Free Report) is a hospitality and leisure company. The company has a Zacks Rank #2. Red Lion Hotels’growth rate for the current year is 48.7%. The Zacks Consensus Estimate for its current year earnings jumped around 13% in the last 60 days.
Intrawest Resorts Holdings, Inc. (SNOW - Free Report) operates as a mountain resort and adventure company. The company has a Zacks Rank #2. Intrawest Resorts’growth rate for the next year is 48.4%. The Zacks Consensus Estimate for its current year earnings increased 3.3% in the last 60 days.
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