Americans are jumping onto planes and checking into hotels again. And travel stocks and ETFs offer a unique way to cash in on what's increasing wanderlust.
Shares of hotel, airlines and cruise line operators are all rallying this year. Host Hotels & Resorts stock is up roughly 20% just this year. That's an impressive showing when the SPDR S&P 500 ETF Trust is down 6%. And it's not alone. Alaska Air is up nearly 13% and Royal Caribbean Group 10.7%.
It's clear investors are boarding the rally anticipating a boom. People have been holed up for years and many are eager to get on the move again. That's especially true as mask mandates on planes disappear. Demand to travel is even outweighing concerns of higher energy costs.
"While there are growing concerns around the consumer, we think pent-up leisure demand and recovering corporate keep pricing strong through the summer peak," wrote Bank of America airlines analyst Andrew Didora.
Travel Demand Is Jumping
Rising interest in travel and travel stocks is seen all around. Popularity of the online search keyphrase "book a trip" has doubled this year, says Google Trends.
Meanwhile, Delta Air Lines is one of the first major airlines to report first-quarter results on April 13. The company's $1.23 a share loss in the quarter was four cents a share smaller than analysts feared, says S&P Global Market Intelligence. But more importantly, analysts now see the airline making an adjusted profit of $1.5 billion, or $2.48 a share this year. That helps erase part of the company's massive $2.6 billion loss in 2021. Shares are up more than 12% this year.
"Domestic consumer revenues are exceeding 2019 levels. And the recovery in business travel, revenue has accelerated as offices reopen and business travelers rebuild face-to-face relationships," said CEO Edward Bastian on the earnings call.
Playing Travel Stocks With ETFs
Given the vast size of the travel industry and wide variety of travel stocks, ETFs are an easy way to play everything from airlines to hotels and cruise lines. But also due to the industry's wide range of segments, the ETF you choose sways your results.
The largest ETF in the space is also one of the most spread out. And that broad diversification in the theme is hurting its results this year.
The $1.4 billion-in-assets Invesco Dynamic Leisure and Entertainment ETF holds an "interesting" array of 30 holdings, says Todd Rosenbluth, head of research at ETF Trends. Its largest holding at more than 5% of the fund is Marriott International. And that position is working out well. Shares of Marriott are up more than 16% this year. Analysts think the company's profit will boom more than 70% this year to $5.50 a share.
But dig deeper, though, and you'll see why Invesco Dynamic Leisure and Entertainment isn't a true travel theme ETF. Its No. 2 holding at 5.2% is food services company Sysco followed by fast-food chain McDonald's. Such big weightings in stocks not directly in travel explains why the ETF is actually down roughly 3% this year.
Investors looking for a more targeted approach might look at ETFMG Travel Tech ETF. It's stuffed with holdings like Airbnb, Expedia and Lyft. And if it's "global airline exposure" you're after, there's the U.S. Global Jets ETF, he says.
But another option if you're looking for not just airlines but also airlines and hotels is the Defiance Hotel, Airline and Cruise ETF. It's small with just $42 million in assets. But with 55 holdings, it gives you most of the travel stocks you expect.
Top Performing Travel Stocks This Year
Based on year-to-date gains of stocks in the Defiance Hotel, Airline and Cruise ETF
| Company | Symbol | YTD % ch. |
|---|---|---|
| Host Hotels & Resorts | 17.5% | |
| Spirit Airlines | 16.0 | |
| Marriott International | 15.1 | |
| Alaska Air Group | 12.5 | |
| Delta Air Lines | 11.3 | |
| Apple Hospitality REIT | 11.2 | |
| Pebblebrook Hotel Trust | 10.7 | |
| Southwest Airlines | 10.5 | |
| Intercontinental Hotels | 9.9 | |
| Royal Caribbean Cruises | 9.7 |
