Seeking an investing roadmap in travel

E*TRADE Securities2

05/11/17

Travelers thinking about hitting the road these days may have a bit more to think about than just window or aisle seat. Questions are running deeper, particularly given the new administration’s desire to impose travel restrictions on certain countries in the name of homeland security, among other developments.    

For investors wondering about the health of the travel and leisure industry, this week we check in on some of the challenges it’s facing. In the process, we find several areas that may have interesting investment opportunities, from airlines, to online travel agencies, to multinational hospitality and leisure companies.

Accounting for turbulence

Some market observers note the attempted travel bans are having a negative effect on the travel and leisure industry, but that the true impact is difficult to quantify at this point. However, industry monitors have noted several trends, particularly concerning inbound international visitors. For example, ForwardKeys,1 which tracks daily flight bookings from travel reservation systems, reports that long-haul arrivals to the U.S. (i.e., flights 6–12 hours in duration) fell 4.3% in the first quarter. Conversely, international arrivals to what some now consider a more welcoming Canada and Mexico jumped 6.1% in Q1. Whether this is a short-term blip or long-term trend remains to be seen.

A more quantifiable factor in recent industry performance could be diminished purchasing power among inbound international travelers. The dollar’s strength relative to other currencies for much of this year may have had some leisure and corporate travelers rerouting to other locales or forgoing trips altogether.2

Notable, too, is the ever-present global threat of terrorism, and recent attacks in France, Russia, Sweden, and the United Kingdom could have left some skittish about traveling. The U.S. State Department’s recent alert for U.S. travelers planning trips to Europe this summer may be another industry factor worth watching.

Investing on and off the beaten path

For investors, finding investment opportunities in the current environment may seem difficult, given the uncertainty surrounding the industry. But if looking for exposure, the following, from flight, to room, to a bit of fun, could make for possible investing destinations.

  • Up in the air. The U.S. Global Jets Index (JETS), which tracks a mix of U.S. and international airlines, aircraft manufacturers, airports, and terminal service companies, is up 7.82% year to date.3 Some point to manageable fuel costs and an improving U.S. economy as factors in the index’s performance. To watch, however, may be how the airlines address growing dissatisfaction with the industry after several high profile customer service-related incidents won them a trip to Capitol Hill for a Senate committee hearing.   
  • Lodging by tech. Online travel agency (OTA) companies continue to provide travelers access to a wealth of global travel and leisure options. And bookings may soon take on a whole new dynamic, with several OTAs looking to engage with the virtual reality space to let travelers experience what they can expect from their trip.4 Also notable is how the sharing economy is making its way into corporate travel circles. For example, Concur Technologies and American Express’ Global Business Travel unit have partnered with Airbnb to make it easier for business travelers who prefer more homey accommodations to book stays on the road.5
  • Asia's turn to roll. Data from Asia is one of the reasons the World Travel & Tourism Council (WTTC) estimates that global travel and tourism GDP growth could increase from 3.1% in 2016 to 3.8% in 2017, despite challenging global headwinds.6 The WTTC notes Southeast Asia was the fastest growing travel and tourism sector in 2016, helped by China and growing regional passenger traffic in general. Multinational hospitality and leisure companies with exposure to Asia may be poised to benefit, particularly those affiliated with Macau, the region’s gambling hub.

Flying above the radar

The U.S. Travel Association puts economic output generated by domestic and international travel expenditure at a healthy $2.3 trillion, which translated directly and indirectly to about 15.3 million jobs in the U.S. in 2016.7 Globally, the industry spoke for 1 in 10 jobs, with growth outpacing the global economy six years running, according to the World Travel & Tourism Council. Noting the reach of the travel and leisure sector, both at home and abroad, may be an opportunity for investors to investigate whether certain pockets of the industry fit in their long-term investing plans.

  

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1. ForwardKeys. “Travel defies global challenges: International air traveller trends 2Q2017 overview,” Apr. 2017. https://forwardkeys.com/revenue-management/article/Air-travel-defies-global-challenges.html

2. Tuttle, Brad. "Trump Slump’ Could Mean Well Over $10 Billion Per Year in Lost Tourism Revenues,” Money.com, 2 Mar. 2017. http://time.com/money/4687114/trump-slump-foreign-tourism-us-immigration-travel/

3. As of May 10, 2016, according to http://www.morningstar.com/etfs/ARCX/JETS/quote.html. The U.S. Global Jets Index (JETS) consists of U.S. and international passenger airlines, aircraft manufacturers, airports, and terminal services companies.   

4. Abramovich, Giselle. “ADI: AR, VR, And Wearables Emerge As Travel Industry Disruptors,” CMO.com, 27 Apr. 2017. http://www.cmo.com/adobe-digital-insights/articles/2017/4/25/ar-vr-wearables-travel-industry-trends-adi.html#gs.xfp40B0

5. “Airbnb launches more business-friendly features,” Travel Weekly, 1 May 2017. http://www.travelweekly.com.au/article/airbnb-launches-more-business-friendly-features/

6. “Tourism supports 1 in 10 jobs, outpacing global economy for 6th consecutive year,” The World Travel & Tourism Council, 20 Mar. 2017. https://www.wttc.org/media-centre/press-releases/press-releases/2017/tourism-supports-1-in-10-jobs-outpacing-global-economy-for-6th-consecutive-year-wttc/

7. U.S. Travel Answer Sheet, U.S. Travel Association. https://www.ustravel.org/answersheet