Where are travel stocks going in 2022?

Vaccine rollouts are providing a tantalising taste of freedom for travellers whose wings were clipped by COVID. Despite the Omicron variant the urge to take to the air again doesn’t appear to have waned, but will this deliver much-needed relief for travel stocks?

Changes to travel sector

Lockdowns and travel restrictions around the globe have battered the travel and hospitality industries, resulting in devastating job losses and falling stock values. It’s been a long, hard slog but Australia’s rising vaccine rates have finally seen travel restrictions and quarantine requirements start to ease.

Eager travellers are already packing their bags, although many will still feel uneasy about visiting crowded regions or areas. Even so, pent-up demand should result in strong travel spending levels for the next four to five years. Especially as many people were unable to take proper holidays and spend their annual travel budget over the last two years.

Australia can look to the UK for an idea of what to expect. Recently, travel restrictions in the UK have eased significantly, those who are double vaccinated no longer need a negative COVID test to enter the country, and UK airports are once again packed with eager travellers jetting off for some much-needed rest and relaxation.

People are itching to get out and about, but not everything will return to exactly the way it was. Just as the pandemic has forever changed the nature of work, it will likely forever change the nature of travel.

With the rise of the hybrid workplace, employers have accepted that most employees will work away from the office at least some of the time. Severing the traditional link between proximity and productivity will have a flow-on effect when it comes to the nature of travel, says Airbnb CEO Brian Chesky – speaking at the recent Skift Global Forum, a gathering of travel-industry leaders.

Now that business teams have learned to work productivity from afar, Chesky says the concept of travelling for work is all but dead. People will no longer board a plane just to attend a meeting.

Will the travel industry see a much needed boost?

This doesn’t mean travel as a whole is dead, just that it will move with the times. With vocation no longer tied to location for many workers, their idea of a vacation will change.

Staying at home for long periods could see remote workers develop a deeper desire to travel. Extended weekends are on the rise, according to Airbnb’s stats, with bookings for three and four-day weekends with families already up 70% in Q2 2021, compared to pre-pandemic levels.

Beyond this, Chesky anticipates that travellers will book longer stays. It’s a new take on the old “working holiday” concept, considering that people can now work from anywhere. Airbnb’s fastest-growing trip-length category is long-term stays of greater than 28 nights, showing that more people are planning extended getaways which could blend travel and work.

That said, it won’t necessarily be plain sailing for travel companies and the road back will likely be difficult. Travellers don’t want to wait for hours to prove their vaccination status and test results, when passing through already busy border controls. If such delays become common, they could dampen travel sentiment.

The future for travel stocks

The impact of all this uncertainty on stock prices will vary across the travel and hospitality sector. They’ve all suffered for a long time under COVID, but things are starting to look up for the industry as a whole and investors with a long-term outlook will likely benefit.

Global travel stocks like Airbnb, Expedia and Booking.com are expected to be the big winners, with travellers likely to feel more comfortable booking quaint stays – such as at homes, apartments or lodges – rather than in large hotel complexes with lots of people.

When it comes to air travel, the budget and short-haul airlines should see better performance in the short term, with the ability to fill flights with low fares. It’s likely to be more of a long-term play for the legacy and long-haul carriers.

That said, most international airline stocks have recovered from the dire lows experienced in 2020. You can see this is the US Global Jets ETF, which holds some of the travel industry’s most popular stocks including Delta Airlines, EasyJet, Qantas and Air Canada. The ETF has climbed more than 70% since its low in May 2020.

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Things would seem more grim for cruise liners, which were some of the hardest hit in the travel sector. They will however benefit from loyal customers, who are keen to get back on the open seas, with recent surveys indicating that many customers opted for vouchers rather than refunds. A surge in bookings for 2022 and beyond has been extremely encouraging, according to Royal Caribbean Cruises CEO Richard Fain.

Of course, we still don’t know what the future holds, particularly when it comes to the long-term effectiveness of vaccines and the possibility of future restrictions. If there are doubts, people could be reluctant to travel for fear of being caught on the wrong side of a border during another wave of lockdowns.

Travellers now demand fee-free cancellations and flexible booking policies. This is a double-edged sword, encouraging people to open their wallets but also allowing them to cancel bookings within minutes when new outbreaks or restrictions occur.

For now, vaccines appear to be the light at the end of the tunnel for travel stocks, but it may be some time before we see them flourish. If we manage to put the pandemic behind us, a new golden age of travel should give travel stocks a much-needed shot in the arm.

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