With vaccines rolling out (albeit slowly), how are sectors hard hit by the pandemic faring in terms of staging a comeback? Today, we’ll focus on airlines, cruise lines and hotels to see 1) which makes the best investment case and 2) what the data says about the US consumer. First, here is a combination of real-time indicators to assess current demand for each industry:
#1) Airlines: Our favorite way to gauge consumer demand for the airlines is by simply tracking ticket prices. Computer algorithms set these based on demand to maximize load factors and total revenues, so there is typically little human decision-making bias. Here is the cost of a non-stop, round-trip flight from New York to Orlando during popular times to fly over the balance of this year (using Wednesday to Wednesday timeframes to make the data comparable):
- Spring break (3/31 – 4/7): $56 (not a typo)
- 4th of July week (6/30 – 7/7): $128
- Labor Day week (9/1 – 9/8): $133
- Thanksgiving week (11/24 – 12/1): $235
- Christmas week (12/22 – 12/29): $276
Takeaway: US airlines are seeing increasing pricing power throughout 2021. Even if these costs are getting skewed by airlines manually setting higher prices in the back half of this year with the expectation of widespread inoculation, it still signals industry confidence about pent-up demand for travel.
#2) Hotels: Another way we track consumer demand for various industries is by looking at Google Trends search volumes. People tend to search for information before making a purchase, so it can act as a leading indicator. Here is a chart of Google queries for “Hyatt” (blue line), “Marriott” (red line) and “Hilton” (yellow line) over the last 12 months:
- Searches for these 3 hotels cratered once lockdowns occurred last mid-March and have never recovered since.
- The two highest levels after the pandemic hit were early last June (when the virus outlook improved after the first wave) and in early September (around the Labor Day holiday weekend).
- More recently, interest in these hotels received a short boost over the week of New Year’s.
- Queries for “Hyatt”, “Marriott” and “Hilton” are up 11 pct, 13 pct and 13 pct respectively since the first week of January.
Takeaway: demand for hotels is steadily improving, but still needs to nearly double to get back to pre-pandemic levels.
#3) Cruises: We also looked at Google searches for “book cruise” to see if there’s any incremental interest in this leisure activity ahead of summer.
- Searches for “book cruise” collapsed after shutdowns last March.
- Queries have remained at depressed levels since, still below even the worst levels of the last 5 years.
Takeaway: major cruise lines’ sites indicate that they have suspended all sailings through at least the end of April. Canada also recently banned cruise ship travel until February 2022. Needless to say, we don’t expect much activity in this space until potential customers receive more clarity on when they will actually be able to reliably book and go on a cruise.
Bottom line: airlines are staging a modest recovery, hotel queries are picking up slightly, and cruise lines have the furthest to climb. Their respective stock performance tells the same story year-to-date:
- Carnival (CCL): -3.37 pct YTD
- Norwegian Cruise Line (NCLH): -5.07 pct
- Royal Caribbean (RCL): -7.93 pct
- Average: -5.46 pct
- Hilton Hotels (HLT): -1.73 pct YTD
- Hyatt (H): -0.89 pct
- Marriott (MAR): -3.92 pct
- Average: -2.18 pct
- American Airlines (AAL): +10.40 pct YTD
- United Airlines (UAL): +1.23 pct
- JetBlue (JBLU): +14.44 pct
- Southwest Airlines (LUV): +10.02 pct
- Delta Air Lines (DAL): +6.69 pct
- Average: +8.56 pct
- U.S. Global Jets ETF (JETS): +5.23 pct
Of course, the quicker and wider the rollout of vaccines, the faster these industries can bounce back, but that will happen at different rates. At the margin, we continue to favor airlines which can leverage pent-up demand in leisure travel this year as more Americans get vaccinated. While we like hotels over cruise lines, these are highly levered to business travel which tends to rebound slower than leisure travel. By contrast, Airbnb relies on the latter, so it’s no coincidence it’s up 44.2 pct YTD while major hotels are in the red. Lastly, given the uneven rollout in vaccines and restrictions across the world, the cruise line industry could remain challenged for many months to come, especially as long as their operations remain unclear and customers cannot plan accordingly.