Americans may be cutting back on their spending, but one thing they aren’t ready to give up yet is travel. Inflation-weary consumers have been less likely to pull out their wallet for discretionary purchases, several retailers reported this earnings season. That sentiment was echoed in a recent survey by KPMG, which found consumers expected to spend a smaller percentage of their monthly household budget this summer across discretionary and essential categories compared with winter 2023. Furniture, toys and hobby supplies were expected to experience the largest drop in spending, the survey found. Yet despite all odds, 61% of those surveyed said they plan to travel this summer, up from the 49% who said the same in summer 2021. The KPMG Consumer Pulse Survey was fielded April 21 to April 26, with a representative sample of 1,003 consumers across the United States. “A lot of this travel and vacation was taken away from them for a two- to three-year period,” explained Matt Kramer, national sector leader for consumer and retail at KPMG. “They’re reluctant to pull back on those experiences and events that they treasure.” That’s translating into outperformance for some names in the travel sector. “You’ve definitely seen a lot of travel stocks benefiting from consumer spending this year,” said Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs. The firm’s Airline, Hotel and Cruise ETF (CRUZ) is up about 12% so far in 2023, after losing 24% in 2022. For instance, Royal Caribbean is up nearly 58% year to date, after losing 35.72% in 2022. Carnival has gained about 36% so far this year, after losing nearly 60% in 2022. Online travel site Booking Holdings is also outperforming the broader market, up about 29% so far this year, and Marriott added 15% year to date. Meanwhile, United Airlines is up nearly 26%. The savvy traveler As consumer spending pivots from goods to services, fueling the post-pandemic travel recovery, they are also being savvy in the face of rising prices. “They’re just being thoughtful about how they spend and where they actually booked their accommodations,” Kramer said. “I think you’re going to see, just like in groceries where consumers are willing to trade down to lesser brands or private label, they’ll do the same thing with their travel planning.” In fact, price is the top consideration travelers are taking into account when they book a trip, according to a Morning Consult report on the state of travel and hospitality in the first half of 2023. However, they are more apt to hunt for less-expensive alternatives than cancel plans altogether. Some 48% of those Morning Consult polled said they searched for cheaper options, up from 46% in July 2022, while 38% canceled plans — less than the 40% who canceled in July 2022. Then there is the effect of remote work, which has helped unlock travel demand. A separate survey conducted by Morning Consult for the American Hotel & Lodging Association found 86% of business travelers are interested in extending a work trip for leisure purposes, known as “bleisure” travel. Some 4,117 U.S. adults were polled from April 28 to May 3. “Freed from the curse of a two-day weekend, and empowered with tools to work remotely, why not take a longer weekend trip and mix in a little remote time on Zoom?” Bernstein analyst David Vernon wrote in a note to clients earlier this month. Cruises are the last to recover After being shuttered for more than a year during the Covid-19 pandemic and then dealing with a myriad of restrictions that kept passengers away, cruise lines are now on track for perhaps the biggest recovery in travel this year, according to analysts. Price increases have yet to catch up to those of hotel rooms, for example, which means there’s more room for prices to run higher. It can also be a bargain for passengers. Royal Caribbean stands out as a top pick for UBS analyst Robin Farley. She also has a buy rating on Carnival, but the company has more European passengers than Royal Caribbean. The European consumer hasn’t been as strong as their North American counterpart, she noted. RCL 5Y mountain Royal Caribbean 5-year performance In addition, Royal Caribbean has about 64% of its cruises in the Caribbean, which is a very strong market. It also has a private island, CocoCay, with features such as a waterpark, zip lining and hot air balloons that contribute to Royal’s revenue. Farley boosted her price target on the stock earlier this month to $103 per share from $91, suggesting shares could rally 32% from Thursday’s close. Meanwhile, Citi analyst James Hardiman is bullish on Carnival. He upgraded the stock to buy from neutral Thursday and raised his price target to $14 per share from $10, implying 27% upside from Thursday’s close. CCL 5Y mountain Carnival’s 5-year performance Carnival’s balance sheet is at a turning point, Hardiman said, with the opportunity to become “significantly ‘less ugly’ in the years to come.” The namesake Carnival brand is also seeing strength, which is early evidence CEO Josh Weinstein’s turnaround story is working, he added. ‘Improvement in every region of the world’ Hotels are farther ahead in their recovery from the pandemic. Average hotel occupancy is expected to reach 63.8% in 2023, which is just shy of the 65.9% reached in 2019, according to the AHLA. Prices are still climbing, although not as much as in 2022, when the industry’s average daily rate (ADR) and revenue per available room (RevPAR) were the highest for any year on record, according to hotel data company STR. In April 2023, the ADR increased…
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2023-05-26 15:47:22