After a weekslong retreat, travel stocks — from Delta Air Lines to Carnival to Marriott International — staged something that managed to look like a rally this week.
But even as some stocks set up potential buying opportunities, the backdrop remains chaotic and convoluted.
On one hand, in the U.S. — where most business is concentrated for U.S.-traded travel stocks — more people are rediscovering vacations and business travel. Hotel demand is up. Major airlines this week offered some upbeat sales forecasts. Oil prices, and what people pay for gas to go on trips, may or may not be easing, even as Russia steps up attacks on Ukraine.
Other factors abroad also complicate the setting. A fresh round of coronavirus lockdowns in China appear to be carving a big part of the world's second-largest economy out of the travel market. The lockdowns could also push prices higher by further gumming up the world's supply chains, leaving less room for travel spending.
Travel Stocks, Oil Correlations
The assault on Ukraine, followed by sanctions against Russia, launched oil prices higher. But the impact lands differently across different travel stocks.
"The price of oil is by far the biggest factor for the airlines globally and in the U.S.," Morningstar analyst Burkett Huey said. "Higher oil prices means that ticket prices should go up because oil is effectively passed through to the customer. ... So I would expect to see less travel relative to what would have happened with lower oil prices."
Patrick Scholes, a travel stocks analyst at Truist Securities, also noted that fuel made up a big chunk of the expenses for cruise lines like Carnival and Norwegian Cruise Line. Hotels? Not as much.
"Oil has less of a correlation on hotel demand," he said. Even so, "it actually makes the stocks more volatile than do earnings. Investors tend to sell the stocks and ask questions later."
Travel Stocks Bounce Back, For Now
The most recent upswing in the travel sector tracked the broader market. Delta rose 5.9% on Wednesday, giving it a three-day gain of more than 15%. Casino and resort operator MGM Resorts International gained 5.2% on Wednesday, while Hilton added 4.5%.
Prior to Thursday, markets rebounded on easing oil prices, on hopes of progress in ending Russia's attacks on Ukraine and on Wall Street's apparent backing of the Fed's game plan on fighting inflation.
Yet the softer oil prices came with a twist — they pulled back on expectations of reduced energy demand from China. Chinese cities are under a fresh wave of Covid lockdowns — placed on economic pause — after an uptick in infections.
Shares of U.S.-traded China-based tech companies also rallied, on reports the nation would try to quickly stabilize the nation's stock markets and its economy and support overseas stock listings. Authorities also said the government should "steadily advance and complete the rectification work on large platform companies as soon as possible" through transparent regulation, according to Barron's.
How that concoction shakes out for travel stocks like MGM International or Las Vegas Sands with resorts in the gaming hub of Macau is unclear. But they nonetheless joined Wednesday's rally.
Amid that mess, some names look better than others.
Hotel chain Marriott, travel-booking site Expedia and Host Hotels & Resorts, a real estate investment trust that owns higher-end hotels, have punched back above their 10-week moving averages.
Those stocks also appear to have snapped steep downtrends. But the buy points on those stocks, from bases that began forming months ago, are no longer valid.
Marriott has a best-possible 99 Composite Rating. Expedia and Host Hotels also have Composite Ratings in the 90s.
Airlines: Limited Exposure
Still, Delta, American and United on Tuesday also offered up first-quarter revenue forecasts that were better than their earlier expectations.
"In the period following the peak in COVID-19 case counts associated with the Omicron variant in January 2022, demand for travel has exceeded the Company's previous expectations," United said in a regulatory filing.
But as travel stocks contend with the rise in fuel prices, as well as the various effects of Covid and the Russia/Ukraine conflict, United and American said they expected their flight schedules to shrink further than once expected. Airfares have risen steadily since early February, according to a Cowen analysis of 278 domestic routes. Average airfares stood at $372 in mid-March, a 51% jump from a year ago.
Delta, however, said customers would be willing to pay up.
"We see the increase in fuel that we'd have to pass through as something that is very, very achievable for the demographics that we have without demand destruction," Delta President Glen Hauenstein said at a conference this month.
Cowen analyst Helane Becker said via email that the big three airlines' exposure to China and Russia was limited.
Already, they largely weren't flying to China. The exposure that Delta, American and United had to the nation was less than 3%, when measured by flight capacity, she said. Before the pandemic, there were more than 100 flights per week between the U.S. and China. Now, there are fewer than 10, as quarantine rules tighten up.
Also, she said, those airlines had no exposure to Russia. None of the airlines flew there before Russia's attack on Ukraine.
After that invasion began, Delta pulled its code-share services with the Russian airline Aeroflot. American also halted its relationships with Aeroflot and Siberia-based S7. United, Becker said, didn't have any agreement in place with Russian airlines.
Hotels, Other Travel Stocks
Dan Wasiolek, an analyst at Morningstar, said online travel booking sites like Expedia and Booking Holdings also had "no more than a low single-digit percentage revenue exposure to Russia/Ukraine."
Among other travel stocks, hotel-room demand has begun to slide in China and Europe, amid China's lockdowns and anxiety over Russia's attacks on Ukraine.
Scholes said that last week, revenue per available hotel room in China tumbled 51% when compared to the same week in 2019. Even two weeks ago, he said, it was down only 35%.
In Europe, that figure fell 27%, cutting into a string of week-over-week improvements.
Wyndham Hotels & Resorts had 19% of its hotel rooms in the greater China area as of the fourth quarter, according to research from Truist Securities and company reports. Among other hotels, Hilton had 12% in the Asia-Pacific region. Marriott had 18%.
Most of their hotel rooms were in the U.S. or North America. Europe, for all three, accounted for less than 10%.
Even if oil prices sink, a travel boom might not result. When oil collapsed in late 2014, states like Texas — where more jobs depend on fracking and other aspects of the energy business — suffered. The impact filtered through to hotel demand, Scholes said.
Huey, of Morningstar, said higher oil prices were a bigger factor for long-haul flights. But he said demand was still solid.
"I'm not saying nobody's going to go to France because of the higher ticket prices," he said. "People are going to go to France and other locations."
