“There is little doubt that travel is one of the activities that consumers have missed the most during the pandemic, and we believe demand will come roaring back as an increasing portion of the population gets vaccinated and we approach herd immunity,” says Wedbush research analyst, James Hardiman, CFA®.
That said, any recovery in the travel and leisure industry is likely to be an uneven one across industry sectors.
The Impact of the Pandemic
Spending on travel in the U.S. declined by 42% in 2020 according to one source. Online travel booking service Expedia saw their revenues decline by 57% in 2020, with gross bookings down 66% for the year.
Travel companies including airlines, cruise ships and hotels all reported similar drastic declines in 2020. Airline revenues for 2020 were about 40% of what they were in 2019. This brought revenues back to levels not seen since the year 2000. American Airlines has said that its business was off some 70% versus 2019.
By one estimate, the downturn in cruise ship travel will have cost the U.S. over $32 billion in economic activity and a loss of over 254,000 jobs. Complicating the return to business as we come out of the pandemic is the situation in Florida between Norwegian Cruise Lines and the state.
The governor of Florida has indicated that businesses in the state cannot require customers to show proof of vaccination to receive service. This is at odds with the policies of Norwegian and may cause the company to skip Florida for ports in the Caribbean and other states.
Hardiman says of the cruise industry, “While the demand for cruise travel will almost certainly outstrip supply in the near term, the cruise industry remains at the whims of regulators worldwide, most notably the CDC, which has given mixed messages and shown little urgency in the effort to get ships back on the water.”
In a recent interview the Norwegian Cruise Line CEO indicated that their advance bookings for 2022 was the best it’s ever been.
Preparing for COVID Protocols and Restrictions
Regardless of where people might be traveling this summer, they should prepare for any restrictions in terms of vaccination status or others that might be in place either in transit to their destination, or at their ultimate destination. It is very wise to do your homework in advance, so you are not surprised or disappointed along the way.
Airlines, cruise ships and other forms of transportation all may have their own pre-boarding rules, as well as rules while on the plane or the ship. Different destinations may have their own requirements. Those traveling abroad should be aware of any entrance requirements in terms of safety, as well as any masking or other requirements while in the country.
Budgeting for Major Trips in Advance
As demand for travel increases, the cost of some destinations and some modes of travel might see an increase in price due to both an increase in demand and in some cases limited supply. This might result in a much more expensive travel experience than you had anticipated, especially if the trip involves a large group such as an extended family reunion.
If this is your situation, it is a good idea to discuss this expense with your financial advisor to ensure that you budget for this cost accordingly.
Leveraging Vacation Insurance
Vacation or travel insurance has grown in popularity post-pandemic. According to one travel insurance company, they are seeing upwards of 40% of all travelers purchase some sort of travel insurance when booking their trip or at least prior to leaving for their travel destination.
Some countries may require insurance, Costa Rica is one example.
Travel insurance coverage can include health insurance, in some cases including coverage if you or a member of your traveling party contract COVID-19. Policies might also include trip cancellation or interruption insurance, coverage for lost luggage and other types of coverage that you hopefully will not need, but that can be a financial life saver if you do.
When shopping for vacation insurance you will want to consider the cost of your trip and the features of the policy you are looking to purchase.
How Rising Demand for Travel can Impact Investors
Hardiman says, “Within our coverage, we expect theme parks to have a robust summer, with the biggest gating factor being labor availability and rates.” This could bode well for the stocks of theme park owners.
The increased demand for travel could benefit a number of stocks. Airlines have shown strong bookings, and this could aid their stocks. Travel booking services have also shown strong demand with many travelers looking to book vacations.
A trend that grew during the pandemic was an increase in the use of RVs for travel and it is expected that this trend will continue.
Hardiman says, “Alternative accommodations are also likely to see unprecedented demand, benefiting most directly Airbnb and Expedia’s VRBO unit, although both companies will continue to see headwinds from their international business exposure.”
The travel and tourism industry might offer some opportunities for solid gains in 2021 and beyond, but investors need to be selective in making investments in this sector. As always, look closely at the underlying business issues and financials of any company that you are considering investing in.
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