Is Now the Right Time to Invest in Travel Stocks?

For an economy that’s weakening and a trading environment characterized by fear and hesitations, the travel sector — by no means invulnerable to recessions — is having a breakout year.

As of the end of trading Thursday, the Dow Jones Industrial Average was up a scant 0.05% year to date. But the Dow Jones U.S. Travel & Tourism Total Stock Market Index, or DWCTTR, which tracks major travel companies in that sector, was up more than 29%.

That’s a wide margin, especially for a sector still recovering from a pandemic that almost killed it.

Though travel companies still have challenges, they’ve been growing significantly in a weak economy. Is now the best time to invest in travel stocks? Let’s look at two positive trends in the industry and see.

So far in 2023, nearly every travel-related index is outperforming major market indices. For example, here’s how the S&P 500 compares with three travel and tourism exchange-traded funds, or ETFs:

Taken after hours Thursday, Feb. 23.

The travel sector is even performing better than most “safe” stocks, like utility and bank companies. For comparison, here’s how the DWCTTR compares with similar Dow Jones indices for banks, food and utility companies.

Taken after hours Thursday, Feb. 23.

Such wide margins between the travel sector and popular market indices point to the optimism around travel companies in general, even while investors take a cynical position to the market as a whole.

Exactly why investors are feeling enthused about travel has much to do with the fourth-quarter earnings reports released by the sector’s leading companies.

In a nutshell, companies from every segment of the sector — from hotel chains to airlines — toppled Wall Street’s expectations.

Major hotel companies, for instance, had higher-than-expected revenues per available room, or RevPAR. Marriott’s RevPAR has grown 28.8% since 2021 and 5% compared with 2019, just before the COVID-19 pandemic. Meanwhile, Hilton’s RevPAR grew 24.8% year over year and 7.5% from 2019, and Hyatt grew its RevPAR 34.8% from 2021 and 2.4% from 2019.

Airbnb, a short-term vacation rental company, also reported stronger revenues and net income than consensus estimates. The release of its fourth-quarter earnings report led to the company’s best market day — a whopping 13.35% gain.

Then there were airlines. Delta’s fourth-quarter revenues and profits toppled expectations, as did those of United Airlines and American Airlines. In fact, the International Air Transport Association, or IATA, expects airline companies in 2023 to report their first profitability since before the pandemic.

All in all, travel companies have performed solidly since the start of the year. Here’s a quick look at year-to-date gains for eight major companies in the sector:

Taken after hours Thursday, Feb. 23.

So is now the right time to buy travel stocks? If anything, buying shares in a travel-focused ETF could help you take advantage of gains within the larger sector. Individual travel stocks can be jumpy, but moderate exposure — alongside more stable stocks like blue chips — might help you in the long term if these positive trends continue.

• Chinese travelers are returning. In January 2023, China reopened outbound travel. Chinese tourists in 2019 totaled roughly 154 million, dropping significantly to 20.3 million in 2020 and 25 million in 2021. Though it could take some time before the number of Chinese travelers returns to pre-pandemic levels, the boost in global tourism gross domestic product is coming. 

• Not enough jets to accommodate travelers. Airlines were unable to invest heavily in their fleets during the pandemic. In the short term, that could mean fewer operating jets than travelers who want to fly.

• Staffing shortages. Airlines have fewer pilots in the job market, while airports and hotels are still struggling to attract workers.

• Greater demand for travel doesn’t necessarily mean greater spending. Rising inflation and fears of a recession could lead travelers to be more frugal. Likewise, travelers might select shorter stays, cheaper flights and forgo traditional expenses, like eating out, buying souvenirs or driving instead of flying.