The July Fourth holiday has shattered any notion of consumers scaling back on travel spending. In fact, it has become a record-breaking period for travel, defying expectations.
Busiest Air Travel Day on Record
On Friday, June 30, the Transportation Security Administration (TSA) screened over 2.88 million passengers, setting a new record for the busiest air travel day. This surpassed the previous record set after Thanksgiving in 2019. Airports across the country also experienced a surge in travel during the weekend.
Mixed Data but a Boom in Overseas Travel
While some data show mixed results, such as falling airfares and receding hotel demand domestically, overseas travel is booming. In May, airfares to Europe from the U.S. reached an average of $1,200 per round trip, the highest in over five years. London hotel room rates also saw a significant surge of close to 20% in the same month.
Potential Opportunities for Investors
Investors can potentially benefit from the trend of overseas travel. Truist analysts favor Hyatt Hotels (ticker: H) as their top hotel stock pick. Approximately 30% of Hyatt’s earnings come from its business with Apple Leisure Group, a major provider of packaged travel focused on the Caribbean. Additionally, Hyatt is poised to benefit from the strength in leisure demand in Europe. Analysts have set an average price target of $127.53 for the stock, implying an 11% upside based on recent prices.
In conclusion, despite some fluctuations in domestic travel trends, the July Fourth holiday has proven to be a momentous time for travel, with record-breaking numbers in air travel and a growing interest in overseas destinations. This presents exciting opportunities for investors, particularly those engaging with Hyatt Hotels.
Cruise-Lines Lead Travel Industry’s Growth in 2023
Cruise-line stocks have outperformed in the travel industry this year, driven by their strong focus on international markets. Royal Caribbean Group (RCL) has soared 107% in 2023, while Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH) have climbed 136% and 78% respectively.
Experts, such as Stifel analyst Steven Wieczynski, believe that Royal Caribbean still has room to grow, with a potential 17% increase to reach $120. Despite concerns about a possible consumer slowdown, Wieczynski points out that there is a significant backlog of demand that could sustain the industry for at least the next two to three years.
In addition to cruise-lines, airline stocks have also experienced a hot streak, despite a slight decline in domestic ticket prices. The U.S. consumer price index data reveals that airfares fell by 3% in May, following a 2.6% drop in April. However, experts argue that this decline may not necessarily reflect weak demand, but rather a result of lower fuel costs. Furthermore, analysts, including J.P. Morgan’s Jamie Baker, emphasize that the CPI data is heavily skewed towards domestic figures, and there is currently a shift towards international destinations.
This shift towards international travel has been advantageous for United Airlines Holdings (UAL), Delta Air Lines (DAL), and American Airlines Group (AAL). These U.S. carriers, with significant exposure to international markets, have each recorded over a 40% increase in stock value in 2023.
Analysts on Wall Street predict that Delta stock could rise another 19%, while United has an 18% potential upside, according to average price targets on FactSet.
The return of normal domestic demand is positive news for the Federal Reserve in its ongoing battle against inflation. However, it is not detrimental to travel stocks, especially those poised to benefit from the upcoming summer international tourism surge.