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US-listed travel stocks see optimism creeping back in as holiday season looms

Looking at the recent performance of travel stocks, we can see clear evidence that there is still a long way to go before a full revival takes place.

It’s fair to say that travel stocks have had arguably their toughest ever spell over the past two years as the Covid-19 pandemic has disrupted tourism worldwide. The impact of the health crisis has led to the collapse of businesses and a series of government bailouts intent on keeping firms functioning amid the uncertainty. As leading travel and tourism stocks like Airbnb, and American Airlines alike show strong bounces following the Russian invasion of Ukraine, it’s worth remembering just how heavily the industry was impacted by the pandemic.

As the severity of Covid-19 became known, travel spending in the US declined by 42% in 2020 compared to the year prior. Typically, travel spending has been known to grow between 2% and 4% yearly – making the recent downturn particularly shocking. Travel overseas was impacted even heavier over the same time frame, collapsing by 76% in 2020 compared to 2019 owing to difficult travel restrictions and closed borders. Although many of the restrictions that left the industry hamstrung in 2020 have now eased, such a significant loss in earnings is likely to leave many businesses reeling in terms of cash flow.

Navigating Market Turbulence

2021 offered no respite to the difficult market conditions faced by both travel and tourism stocks. For instance, stocks linked to air carriers dropped by approximately 8% throughout the year, although hospitality firms like Hilton, Marriott, and Wyndham Hotels & Resorts recorded around 24% average gains throughout the year.

Such figures indicate the level of turbulence throughout the industry during the climate of uncertainty. This heightened volatility can be seen among booking firm stocks like Airbnb and Expedia.

As Airbnb’s recent price history illustrates, 2021 has signalled a period of severe volatility owing to a series of events that have triggered investor sell-offs. Most notably, these events have included the arrival of the Omicron variant of Covid-19 and moving into 2022, we’ve seen a further dip following Russia’s invasion of Ukraine.

Despite widespread market jitters, the news that Omicron appears to be a significantly milder variant of Coronavirus has helped to send optimism back into the market, and fresh hope that 2022 may be a lucrative year amidst a vibrant holiday season.

The Travel Stock Revival

Looking at the recent performance of travel stocks, we can see clear evidence that there is still a long way to go before a full revival takes place, but in the case of airlines like American Airlines, United Airlines, and Ryanair, we can see faster rebounds from lows, which indicates that confidence is beginning to flow back into the embattled stocks.

Although we can see that AAL has struggled to recover from recent market downturns, a swift rebound in the wake of Russia’s February invasion of Ukraine shows that the airline is unlikely to fall further in 2022.

Although the stock is currently almost 26% adrift from its value at this stage last year, AAL climbed back 38.94% from its recent geopolitical-inspired downturn – showing that the expectation of a busy holiday season is helping to keep the industry afloat.

Could Travel Stocks Become Inflation-Proof?

Although it’s clear to see that investor fears over inflation has sparked widespread sell-offs that’s impacted travel stocks, it’s likely that the two years without holidays for many citizens around the world will make the very act of going on vacation inflation-proof. As the cost of living continues to rise, the question will be whether families opt to budget for higher utility bills as well as saving for a long-overdue holiday.

“Travel demand, in general, is expected to be high in 2022, but one important factor is the course of the pandemic, omicron and other variants,” explained Maxim Manturov, head of investment advice at Freedom Finance Europe. “But, as many experts argue, the rapid spread of Omicron, while dangerous, could endow enough people with so-called ‘natural immunity’ to help move a Covid pandemic into a much less serious ‘endemic’ phase.”

With this in mind, the next challenge for travel and tourism stocks is to maximize cash flow without damaging the chances of a busy holiday period. Striking the right balance between affordability and revenue will likely be the key to recovery for a travel industry that’s eager to turn a corner from a troubling two years.

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