After a busy air travel season this Thanksgiving, the Christmas travel season was expected to display similar strength. But news headlines were dominated by a record amount of COVID-19 staffing-related flight cancellations starting around Christmas Eve. While resulting in some initial concern for the sector, underlying passenger flight data suggests that bookings and consumer demand are still strong, and most of the current capacity issues seem relatively short-term compared to 2020 and early 2021 disruptions. The leisure travel sector, as measured by the S-Network Global Travel Index (TRAVEL) showed resiliency to these late 2021 headwinds and stayed essentially flat during the past month. First of all, airline stocks held up relatively well during the disruptions—perhaps offsetting short-term uncertainty with the long-term demand outlook. Additionally, the TRAVEL index represents the broader leisure travel sector with a 25% weighting (as of January 7, 2022) to ancillary beneficiaries like consumer goods and services companies, which may be less sensitive to travel disruptions and can benefit more from consumer sentiment and retail spending.

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Consumer leisure demand persists, while current capacity issues seem to be temporary.

The chart below shows TSA checkpoint figures around the Thanksgiving and Christmas holidays, which serve as a proxy for passenger volumes and can provide a readthrough for leisure travel demand. Flight bookings are usually the highest during the winter holidays—as opposed to hotel bookings which are usually lower since people tend to spend time visiting family. On average, there were only about 15% less passengers in the 2021 holiday season compared to the 2019 holiday season, which suggests that most travelers are resuming their regular vacation schedules. The widening gap toward the end of December can be attributed to the record number of flight cancellations starting in late December—mostly due to staffing shortages from COVID-19 infections. According to data from FlightAware, over 24,000 U.S. flights were cancelled in between Christmas Eve and January 7, which amounted to as much as 7% of planned capacity.[1]

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What’s different this time?

While COVID-19 related flight cancellations and staffing shortages might seem like a repeat of the early pandemic days, the environment should be very different in 2022. Unlike 2020, many consumers are vaccinated and ready to resume travel after holding off vacation plans for almost two years. Long-term demand fundamentals are further supported by a large annual increase in 2021 aircraft orders reported by airline manufacturers this week.[2] This suggests that airlines are starting to see a recovery in demand, in addition to being in a better position to spend cash. On the supply side, while December’s COVID-related staffing shortages may be detrimental to operations in the next quarter, these are easier to overcome relative to factors like global travel regulations. Countries seem less reactionary and restrictive now than they were during the initial outbreak in 2020 given more widespread vaccine distribution.

Bottom Line:

While the leisure travel sector held up relatively well despite headwinds in 2021, gains were muted relative to expectations that the COVID-19 vaccine would revive the travel industry. 2022, however, is a very different environment relative to both 2020 and 2021. On top of higher vaccination rates and more lenient travel restrictions, years of pent-up consumer demand and widespread inflation may contribute to both higher volumes and prices within the travel industry, which could support a more positive outlook for 2022. These may be reflected first within airline bookings and consumer discretionary spending but should eventually extend into other leisure sectors like hotels, rental car agencies, and cruise lines.

The S-Network Global Travel Index (TRAVEL) is the underlying index for the ALPS Global Travel Beneficiaries ETF (JRNY).

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Originally published by Alerian on January 13, 2022.

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