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Vacation Variants

Travel Indicators Mark Different Recovery Paths

06 August 2021
4 min read
James T. Tierney, Jr.| Chief Investment Officer—Concentrated US Growth
Dev Chakrabarti| Chief Investment Officer—Concentrated Global Growth
Jonathan Berkow| Director of Quantitative Research and Data Science—Equities

As the summer progresses, US vacationers are out in force while the European and Asian holiday scene remains relatively subdued. Identifying travel-related trends can help investors capture the global recovery from the pandemic mobility shutdown in diverse sectors.

COVID-19 has accelerated many behavioral changes for consumers. But one tradition—vacations—is highly unlikely to change. If anything, we believe the suppressed travel of the last 18 months is likely to give way to a travel boom when people feel safe to get back on trains and planes and to stay in hotels. The recovery of travel around the world is unlikely to be uniform. But with the help of big data, we can observe how vacation appetites are playing out in real time this summer and develop actionable investment insights.  

Major Milestone in US Hotel Bookings

Travel has recovered in fits and starts so far. In the US, a major milestone was reached over the July 4 holiday as passengers screened at US airports exceeded pre-pandemic levels for the same week in 2019 (Display, left). Hotel bookings confirm the US recovery.

For example, higher prices at US hotels have helped offset volumes that remain slightly below 2019 levels. As a result, RevPAR, a measure of nightly revenues to the hotel industry per available room-night, has been steadily rising and briefly exceeded the pre-COVID-19 level in July (Display, right)—well before many Americans are comfortable traveling. Good luck getting a holiday hotel reservation!

US Travel Indicators Rebound Sharply, Europe and Asia Remain Subdued
Line charts show the recovery in US passenger traffic at airports and hotel revenue per room in the US, China, Asia and Europe.

Past performance does not guarantee future results.
Left display through July 29, 2021; right display through July 18, 2021
*TSA passenger throughput is based on the number of passengers crossing through the Transportation Security Administration’s checkpoints at US airports. 
†RevPAR is the total room revenue divided by the total number of available rooms. Chart compares RevPAR in 2021 with the corresponding week in 2019 to account for the seasonality of travel trends. Europe includes the UK, France, Italy, Germany and Spain. Asia (ex China) includes Japan, South Korea and Singapore.
Source: Morgan Stanley, STR, US Transportation Security Administration and AllianceBernstein (AB)

But the reopening trends seen in the US aren’t universal. Europe and Asia are still suffering from depressed levels of activity and the travel and leisure industry may be facing another “lost summer.” Indeed, RevPAR statistics for Europe and Asia are still down sharply from 2019 levels.

From Vaccinations to Vacation

As investors, our goal is to anticipate what happens next, with an awareness of appropriate timeframes. Looking at vaccination rates by country as well as Google searches for vacation-related topics provides insights.

Vaccination rates in the US were initially well ahead of the rest of the world. By April 30, 44% of the US population had received at least one dose of a vaccine, according to Our World in Data. This compared to rates of around 25% in Western Europe. But by the end of June, the US and Western Europe both recorded similar one-dose vaccination rates of approximately 55%.

While the Delta variant is causing COVID-19 cases to rise around the world, when we are on the other side of this spike, we believe Western Europe will start to look more like the US in terms of mobility and activity. This possibility isn’t well recognized today. In fact, Google searches for vacation-related topics have recovered worldwide to about 75% of their pre-pandemic peak. But it varies by country, with interest in Germany and South Korea surging, Spain and the US near pre-pandemic peaks, while Australia and the UK still show little interest in holiday-making.

Internet Searches for Vacation-Related Topics Are Rebounding
Google Search Interest for Vacation Topic: Percent vs. Peak for Period Shown
Left chart shows global Google search interest for vacation topics since 2019. Right chart shows current interest in 12 countries.

Past performance does not guarantee future results.
Through July 31, 2021
Vacation topic is defined as vacation-related searches corrected for misspellings or other variations such as searches for “holidays.” Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term.
Source: Google Trends 

Investment Insights: Beyond “Pure” Travel and Leisure 

So how do these data-driven insights translate to portfolio actions? It all depends on an investor’s risk appetite. Cruise ships, airlines and hotels might seem like the obvious way to invest in a travel rebound. But these companies are the higher risk, higher reward options; if a new variant emerges post delta, the recovery would be pushed out again and “pure” travel stocks would face a setback.

Instead, look for strong businesses that are likely to enjoy an added boost from a normalization of vacationing. This is a lower-risk approach, targeting companies outside the transport and leisure industries that also benefit from renewed travel.

Some financial services companies are important enablers of travel. When cross-border travel picks up, vacationers will use their credit cards for more purchases in foreign currency. Cross-border transactions are very profitable for credit card companies such as Mastercard and Visa. In Europe, a revival of leisure travel would also boost regional payment activity. That’s good news for companies like Worldline, a France-based operator of transaction-processing platforms across Europe.

In recent years, travel bookings have become a predominantly digital business. So as people around the world start to vacation again, online bookings are likely to rise, fueling revenue growth for companies like Booking.com and AirBnB. Beyond these direct beneficiaries, broader internet searches for travel-related bookings can be expected to rise. For example, when Google searches convert to travel bookings, it generates real revenue for Alphabet.com, Google’s parent company.

Travelers love to shop. Several luxury brand companies have historically enjoyed solid revenue gains from tourists. Easing travel restrictions could provide a brisk sales boost for products from cosmetics to swanky handbags. This could be a boon to luxury goods companies like Estée Lauder and L’Oréal, especially given the pent-up spending power accumulated during last-year’s pandemic shutdown.

Vacationers on the move are an important sign of a return to normalcy in the global recovery. Investors should follow trends in regions that haven’t fully recovered to identify companies with solid businesses in diverse industries that are poised to enjoy an added boost from a return to travel. The absolute upside might not be as exciting as investing in companies that are direct winners from a binary travel boost; yet, we believe the risk-adjusted return potential is more attractive by pursuing great businesses that will get even better as people hit the road again. 

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AB. The specific securities identified and described do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable.


About the Authors

James T. Tierney, Jr. is Chief Investment Officer of Concentrated US Growth. Prior to joining AB in December 2013, he was CIO at W.P. Stewart & Co. Tierney began his career in 1988 in equity research at J.P. Morgan Investment Management, where he analyzed entertainment, healthcare and finance companies. He left J.P. Morgan in 1990 to pursue an MBA and returned in 1992 as a senior analyst covering energy, transportation, media and entertainment. Tierney joined W.P. Stewart in 2000. He holds a BS in finance from Providence College and an MBA from Columbia Business School at Columbia University. Location: New York

Dev Chakrabarti is a Senior Vice President and Chief Investment Officer for Concentrated Global Growth. Prior to joining AB in December 2013, he was a portfolio manager/analyst on the global equity research and portfolio-management team at WPS Advisors. Chakrabarti joined W.P. Stewart in 2005 as a member of the European equity research and portfolio-management team and moved to New York in 2008 to focus on global portfolios. Earlier in his career, he worked as an M&A analyst at Merrill Lynch, a financial analyst at Unilever and an equity analyst at J.P. Morgan Securities, where he specialized in European technology stocks. Chakrabarti holds a BSc (Hons) in economics from the University of Bristol and an MSc in finance from London Business School. Location: London

Jonathan Berkow is a Senior Vice President and the Director of Quantitative Research and Data Science in the Equities division at AB. He leads the research and adoption of alternative data in equity research and systematic strategies. Prior to joining the firm in 2018, Berkow was a systematic portfolio manager and researcher at hedge funds Element Capital Management and Kepos Capital. He started his career at Goldman Sachs Asset Management, where he managed quantitative research and was a portfolio manager for global equity portfolios. Berkow's research has spanned equities and macro asset classes. He holds a BS in economics from the Massachusetts Institute of Technology. Location: New York