More Americans will hit the roads or take to the skies this Thanksgiving weekend, a number that would surpass the levels of the past 12 years. Traveling by car, train or plane is in the cards, courtesy of an uptick in personal income and steady wage growth. Upbeat consumer confidence and a healthier economy are also fueling the travel boom. Lest we forget, airfares are cheap this travel season and gasoline prices are finally declining as hurricane effects wane. Thus, traveling this season won’t burn a hole in your pocket.
Given this upbeat scenario, 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 solid. Another profitable investment options are hotel and resort companies. More travel will lead to increased hotel occupancy and in turn revenue per available room.
Thanksgiving Travel to Hit 12-Year High
According to the American Automobile Association (AAA), about 50.9 million travelers are expected to travel 50 miles or more, the highest since 2005. Thanksgiving travel is anticipated to increase 3.3% from last year.
About 89% or 45.5 million travelers are expected to travel by car, hinting at an increase of 3.2% over the last Thanksgiving weekend. Modes of transport including cruises, trains and buses are expected to make up 1.1% of all travel this Thanksgiving, serving around 1.48 million travelers.
However, 3.95 million travelers are expected to opt for flights, which is 5% higher than the year-ago level. Flights are expected to account for 9.9% of all travel this Thanksgiving.
Airports to Be Busy, Pre-Tax Profits Solid
The industry trade organization for U.S. airlines, Airlines for America (A4A) sounded even more optimistic. They expect about 28.5 million passengers to take to the skies over the 12-day Thanksgiving holiday period that stretches from Nov 17 to Nov 28, up 3% from 2016. On average, additional 69,000 travelers are expected to fly each day, compared to the same period last year. The trade organization expects Nov 26 to be the busiest, with an estimated 2.88 million passengers.
A4A Vice President and Chief Economist John Heimlich said that “airline passengers continue to benefit from the highly competitive air-service landscape this holiday season, as low fares and increased availability of seats continue to make air travel widely accessible.”
Collectively, all major airlines including Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United had posted a healthy pre-tax profit of around $14.7 billion during the first nine months of this year and operating revenues for the group jumped 3.8%.
Will Travel Become Expensive?
Airfares are expected to fall 23% this Thanksgiving compared to the previous year. For the top 40 domestic flight routes, average airfares may come in at $157 this year, according to AAA’s Leisure Travel Index.
Gasoline prices during Thanksgiving are expected to reach $2.53 a gallon. Even though this is the highest since 2014, it is far below the all-time high of $3.44 in 2012. In fact, gasoline prices are expected to drop as the effects of hurricanes and other disruptions began to wane. This possibly explains 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 is poised to be among the biggest gainers.
Meanwhile, average stay in a Two Diamond Hotel will cost 5% lower this year at $117. Conversely, the cost of a Three Diamond hotel is expected to increase 14% to $176 per night. Rise in prices, however, shouldn’t be a deterrent to travelers, thanks to the increase in wages and personal income.
What’s Boosting Travel This Thanksgiving?
Rise in income levels is driving the travel industry. Average hourly earnings increased 2.4% from October 2016 to October 2017.
Personal income, in the meanwhile, increased by $66.9 billion, or 0.4%, in September, while disposable personal income that measures the total amount of money available for use after payment of taxes rose by $73.6 billion, or 2.1%, in the third quarter, according to the Bureau of Economic Analysis.
5 Stocks to Ride 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, investing in travel and leisure companies seems profitable. 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 United States. Currently, the company has a Zacks Rank #1. The Zacks Consensus Estimate for current-year earnings rose 1.8% over the last 60 days.
SkyWest’s expected growth rate for the current year is 21.7%, in contrast to the industry’s projected decline of 4.2%. The company is also poised to grow earnings by 15.5% in 2018.
Deutsche Lufthansa Aktiengesellschaft (DLAKY - Free Report) operates as an aviation company internationally, including the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings rose 0.5% in the last 60 days.
Deutsche Lufthansa’s expected growth rate for the current year is 6.8%, in contrast to the industry’s estimated decline of 4.2%.
Hilton Worldwide Holdings Inc. (HLT - Free Report) is a hospitality company that owns, leases, manages, develops, and franchises hotels and resorts. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings rose 3.8% over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hilton Worldwide’s projected growth rate for the next year is 18.6%, better than the industry’s projected gain of 16.4%.
Marriott International, Inc. (MAR - Free Report) operates, franchises, and licenses hotels and timeshare properties. Currently, the stock has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings advanced 2.4% in the last 60 days.
Marriott International’s expected growth rate for the current year is 10.9%, higher than the industry’s estimated rally of 3.2%. The company’s earnings are set to grow 13.1% in 2018.
Choice Hotels International, Inc. (CHH - Free Report) – a Zacks Rank #2 company – together with its subsidiaries, operates as a hotel franchisor. The Zacks Consensus Estimate for current-year earnings increased 1.4% over the last 60 days.
Choice Hotels International’s projected growth rate for the current year is 15.9%, higher than the industry’s projected rise of 3.2%. The company's earnings are set to grow 10.6% in the next year.
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