As the omicron variant recedes, with reported infections down nearly 90% from their highs, there are signs this might be the year travel takes off once again and this could benefit related ETFs.
The first two months of the year saw dampened TSA checkpoint travel throughput relative to two years prior. However, the gap has closed heading into the spring and summer months, which are typically popular for travel.
The data also shows a sharp increase over 2021, before vaccines were readily available for most Americans. The combination of receding cases, accessible vaccinations and boosters for those who want them, as well as pent-up demand could cause travel to exceed even the prepandemic rate.
After being beaten down in spring 2020, when lockdowns and restrictions brought the travel industry to a screeching halt, travel stocks soared through the rest of the year and into early 2021.
Flows in the U.S. Global Jets ETF (JETS) reflected this changing sentiment. More than $2 billion flowed into the fund in calendar year 2020. While the fund still had positive inflows in 2021, $651 million was a sharp decline from the year prior. But as of Feb. 23, the fund has seen another $480 million pour in.
At $4 billion in assets under management, JETS is one of the largest funds that could benefit from an increase in travel. The fund offers exposure to U.S. as well as non-U.S. airlines, though it is tilted toward domestic passenger airlines. Top holdings include familiar airline companies like Delta, United and Southwest.
The ETFMG Travel Tech ETF (AWAY) launched in February 2020, offering a tech twist on travel and tourism ETFs. The fund tracks an index of global travel technology companies that are fundamentally screened and weighted based on market cap and liquidity.
The resulting portfolio is quite different from that of JETS, with top holdings including names like Expedia, Airbnb and TripAdvisor.
The fund is more expensive than JETS, with an expense ratio of 0.75% relative to JETS’ 0.60%. However, the portfolio represents a little more diversification relative to JETS, which solely invests in airlines.
Given the ongoing nature of the pandemic, some might be more likely to opt for driving over flying. Some consumers might choose to stay in private homes such as those offered for rent on Airbnb instead of a hotel. If this shift in consumer behavior persists, names such as those held within the AWAY portfolio would benefit.
Two pure-play options targeting the airline, hotel and cruise industries were launched in mid-2021. The SonicShares Airlines, Hotels, Cruise Lines ETF (TRYP) and the Defiance Hotel, Airline, and Cruise ETF (CRUZ) launched in May and June 2021, respectively. Both use a revenue requirement, with holdings deriving at least 50% of revenue from one of the three segments.
The resulting portfolios are very similar, with eight of the top 10 names overlapping between the two.
One big difference between these portfolios is the expense ratio, with CRUZ’s coming in 0.30% cheaper than that of TRYP. CRUZ also has more than 4x the average daily volume, resulting in a smaller average spread.
Both ETFs have underperformed the SPDR S&P 500 ETF Trust (SPY) since common inception, as both travel numbers and travel stock performance were relatively subdued last year.
However, these ETFs could benefit from increasing travel numbers going forward and offer more diversified exposure relative to JETS.
High Pricing Power
One potential hurdle for travel-related companies, particularly airlines, is rising fuel costs. As one of the major expenses, the increasing price of oil has the potential to be an air pocket for travel-related stocks.
However, pent-up demand due to consumers’ inability or unwillingness to travel during the past two years could mean they are also more willing and better able to absorb any price increases that are passed on by companies such as airlines.
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Sylvia Jablonski, CIO of Defiance, expects consumers will resume prepandemic levels of travel spending in spite of increased costs.
“Global travel is about 10% of GDP, and in 2021, it was 5%,” she said. “If you look at international travel, it’s projected to be 200% year-over-year as international borders open up. I think we’re going to get back to [travel being] 10% of global GDP, if not more.”