Travel industry stocks offer an ideal way to invest in the global tourism market, including airlines, cruise lines and resorts.
But they can be hard to spot, particularly given the instability surrounding COVID-19 which increases the risks that some stocks might fail to recover quickly enough.
1. Growth Potential
Travel is one of the world’s largest industries, contributing significantly to global gross domestic product and providing employment to over one in twelve people worldwide.
Travel has undergone significant transformation in recent years, as people increasingly turn to virtual booking platforms such as Airbnb or online booking firms for travel arrangements. These online services now represent major players in this sector.
Travel stocks continue to face some headwinds. Decades-high inflation and rising fuel costs are chipping away at profits, while new COVID variants may have scared away some potential travelers.
Even with its obstacles, the travel market is projected to experience significant expansion by 2022. A number of key travel stocks could benefit from this rising trend; such as airlines, cruise lines and transportation exchange-traded funds.
2. Diversification
Travel industry stocks offer investors an effective means of diversifying their portfolios. These companies specialize in accommodation, flights and cruise ship services as part of the travel industry.
Travel is also experiencing substantial growth, as evidenced by predictions by the World Travel and Tourism Council that global tourism will rise 4.3% per year through 2025. This growth can be attributed to an increasing middle-class household count as well as an aging population in developed nations.
However, this growth comes with inherent risks. Much like any industry, travel can be susceptible to factors like high inflation and increasing benchmark interest rates.
One way to protect yourself against such risk is investing in a travel-oriented exchange-traded fund (ETF). Such ETFs invest in various travel businesses such as online booking websites, hotels and cruise lines – offering an easy and efficient way to diversify your portfolio without much extra work required.
3. Reliability
Travel industry stocks – airlines, hotel chains and cruise lines – have experienced turbulent waters in recent years. Airline shares have dropped nearly 70% and hotel chain stocks by 74% since their 2016 high points.
Travel companies face many unique challenges to their business. These can include terrorism, natural disasters, and political unrest.
But despite these obstacles, travel demand remains strong – meaning travel stocks could rebound as travelers resume booking vacations.
Many companies were able to utilize the downturn as an opportunity to streamline operations and cut expenses; profits will likely rebound strongly once demand picks back up again. On the downside, global conflict could compromise travelers’ confidence and negatively affect industry demand.
4. Safety
Travel is an industry that can be adversely impacted by economic downturns, inflation or global conflict, leading consumers to cut back on travel plans or cut corporate travel expenses altogether. When this occurs, consumers typically reduce spending.
Travel stocks could also face the potential for a crash due to oil’s steep rise, now at over $100 per barrel. This may make it harder for airlines and cruise lines to expand as expected.
One potential upside of lower fuel prices for businesses is that they could increase profits and balance sheets over time with more affordable fuel pricing, making their operations more profitable and competitive overall.
Travel is an expansive field, comprised of hotels, airlines and online booking firms that all take different approaches to doing business. Therefore, understanding each company before making investments.
