We continue to look for opportunities in sectors hard-hit by the pandemic, especially with new stimulus checks on the way and Americans traveling more with vaccinations and warmer weather. Today, we’ll focus on the airlines and hotels to assess both the US consumers’ propensity to spend and these groups’ investment merits. Here is an update on some real-time indicators to assess current demand for both industries:
#1) Airlines: We gauge consumer demand for the airlines by 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): $97, and was just $56 last time we did this analysis a month ago
- 4th of July week (6/30 – 7/7): $114
- Labor Day week (9/1 – 9/8): $135
- Thanksgiving week (11/24 – 12/1): $245
- Christmas week (12/22 – 12/29): $232
Takeaway: US airlines are generally still seeing pricing power throughout 2021.
Another way we track consumer demand is by looking at Google Trends query volumes as people tend to search for flights before booking them. Here is a chart of Google searches for “Southwest” (blue line), “American airlines” (red), “United airlines” (yellow), “Jetblue” (green) and travel booking site “Expedia” (purple) since January 2019:
- Searches collapsed during lockdowns last mid-March.
- Queries have been mostly flat over the last month, but they are finally starting to turn higher.
- Since Christmas week 2020, (a popular time to travel even with the pandemic), searches are up for “Southwest” (56 pct), “American airlines” (27 pct), “United airlines” (30 pct), “Jetblue” (50 pct) and travel booking site “Expedia” (54 pct):
Takeaway: Americans are already becoming more interested in flying again ahead of Spring Break. Leisure activity tends to come back quicker and stronger after a recession than business travel, and impending stimulus checks should help.
#2) Hotels: Here is a Google Trends chart of query volumes for “Hyatt” (blue line), “Marriott” (red line), “Hilton” (yellow line) and “Airbnb” (green line) since January 2019:
- Searches for these 3 hotels cratered once lockdowns occurred last mid-March.
- Queries for “Hyatt”, “Marriott” and “Hilton” are still down 21 pct, 24 pct and 20 pct respectively since the week before the pandemic hit. Searches for “Airbnb”, however, are up 25 pct.
Takeaway: demand for hotels is improving and still has a ways to go to match pre-pandemic levels, but the ascent this soon in the year shows promise.
#3) Car rental: We also looked at Google search volumes for “car rental”:
- Searches for “car rental” fell apart last mid-March.
- They are finally above their comparable week from 2019 and are at a 12-month high.
Takeaway: demand for renting a car is on an uptrend, a positive as people make plans for Spring Break.
Bottom line: airlines, hotels and car rentals had a huge drop off in interest during the pandemic, but are finally starting to come back this year. We continue to favor airlines most and hotels next, and their respective YTD stock performance shows they are clearly benefiting from rotation into cyclicals.
- Hilton Hotels (HLT): +12.72 pct YTD
- Hyatt (H): +17.79 pct
- Marriott (MAR): +14.04 pct
- Average: +14.85 pct
- American Airlines (AAL): +36.14 pct YTD
- United Airlines (UAL): +24.99 pct
- JetBlue (JBLU): +40.72 pct
- Southwest Airlines (LUV): +29.91 pct
- Delta Air Lines (DAL): +19.07 pct
- Average: +30.20 pct
- U.S. Global Jets ETF (JETS): +19.03 pct
In sum, we believe these industries will hugely benefit as more Americans get vaccinated. Hotels face a headwind in that they are highly levered to business travel, hence the gap in YTD performance between major hotel stocks versus Airbnb. By contrast, airlines are best positioned to leverage pent-up demand in leisure travel during the balance of this year. That said, new stimulus checks should help both industries as Americans are able to increasingly travel amid more vaccinations and warmer weather.