Following a bumpy 2021 holiday travel season and with the persistence of the Omicron variant of the coronavirus, some investors are jittery about travel and leisure stocks as 2022 ideas.
There’s some potentially positive news pertaining to the industry. Investors considering exchange traded funds such as the ALPS Global Travel Beneficiaries ETF (NYSEARCA: JRNY) should note that the spate of flight cancellations reported in the media during the Christmas travel season doesn’t imply that airlines will be encountering the same risk on a regular basis this year.
Additionally, because JRNY spreads its bets around, providing exposure to an assortment of travel and leisure stocks — not just airlines — it can provide some buffer against weakness in a specific corner of the travel realm.
“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,” says Alerian analyst Roxanna Islam. “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.”
The index mentioned by Islam is JRNY’s underlying benchmark. Holiday flight data are often viewed as a harbinger of things to come in the following year, and on that note, JRNY’s airline and airport services components could be in for some good cheer as 2022 unfolds.
“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,” adds Islam.
That’s not bad considering that the ongoing coronavirus pandemic was raging during the most recent holiday travel season. Providing further support for the airline equity outlook this year are rising vaccination levels, consumers’ desire to get back to normal, and an increase in aircraft orders — the latter of which wouldn’t occur if carriers were bearish on industry fundamentals.
“Long-term demand fundamentals are further supported by a large annual increase in 2021 aircraft orders reported by airline manufacturers,” concludes Islam. “This suggests that airlines are starting to see a recovery in demand, in addition to being in a better position to spend cash.”
Other travel and leisure ETFs include the VanEck Vectors Gaming ETF (BJK) and the U.S. Global Jets ETF (JETS).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.