Rising interest rates and persistent inflation should be damping demand for leisure travel, but that’s not happening. Not yet, anyway.
That’s a plus for travel stocks and the related exchange traded funds, including the ALPS Global Travel Beneficiaries ETF (NYSEARCA: JRNY). Of course, the airlines, casino operators, and hoteliers that dot the JRNY roster aren’t going to turn away leisure business, but airlines and hotel operators in particular need to sell more seats and rooms in the Monday through Thursday period.
That’s where business travelers come in. Predictably, the coronavirus pandemic hamstrung business travelers. What were once in-person meetings morphed into Zoom calls, and hundreds of conventions and meetings across the U.S were canceled, but with safety measures dwindling, positive business travel trends could emerge.
“Airlines’ early fears that videoconference applications such as Zoom, Teams, and Skype might keep lucrative business travelers home permanently are subsiding as governments ease border restrictions and executives rediscover the commercial value of human contact. Data from four top companies that manage corporate travel show that two years after Covid-19 pushed aviation to the brink, premium-class cabins are filling up again,” report Angus Whitley and Danny Lee for Bloomberg.
Specific to the JRNY thesis, the ALPS fund allocates 29.33% of its weight to industrial stocks — its second-largest sector weight. That’s the sector where airline equities reside, confirming that the fund is levered to rebounding business travel. Corporate travelers are more lucrative for carriers than cost-conscious or leisure travelers.
“Corporate clients typically deliver bigger returns than those packed in coach, spending more than $1 trillion on travel in 2019, according to the World Travel & Tourism Council,” notes Bloomberg.
Likewise, hotel operators benefit from higher occupancy rates on “off” nights. That means the more conventions and in-person meetings that return, the more catalysts there are for JRNY.
For now, just a handful of U.S. markets are seeing convention traffic return to or surpass pre-coronavirus levels, indicating that there’s work to be done on this front. However, one of the markets where business travel is rebounding is Las Vegas.
That’s a positive on multiple levels. First, it could be a sign that other U.S. cities will join the business travel bounce-back party. Second, JRNY features exposure to shares of MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR), the two largest operators on the Las Vegas Strip.
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.