AAfter a busy flying season this Thanksgiving, the Christmas travel season was expected to show similar strength. But headlines were dominated by a record number of COVID-19 staff-related flight cancellations from Christmas Eve. While the industry was initially concerned, underlying passenger flight data suggests bookings and consumer demand are still strong, and most of the current capacity issues appear relatively short-lived compared to the disruptions in 2020 and early 2021. leisure travel, as measured by the S-Network Global Travel Index (TRAVEL), showed resilience to these headwinds of late 2021 and remained broadly flat over the past month. First, airline stocks held up relatively well during the disruptions, perhaps outweighing short-term uncertainty by long-term demand prospects. In addition, the TRAVEL index represents the broader leisure travel sector with a 25% weighting (as of January 7, 2022) for secondary beneficiaries such as consumer goods and services companies, who may be less sensitive to travel disruption and benefit more from consumer confidence and retail spending .
Consumer leisure demand continues to exist, while current capacity problems appear to be temporary.
The chart below shows TSA checkpoint figures around the Thanksgiving and Christmas holidays, which serve as an indicator of passenger volume and can provide an indication of demand for leisure travel. Flight bookings tend to be highest during the winter holidays as opposed to hotel bookings which tend to be lower as people tend to spend time visiting relatives. On average, there were only about 15% fewer passengers in the 2021 holiday season compared to the 2019 holiday season, suggesting that most travelers are resuming their normal holiday schedule. The widening gap towards the end of December can be attributed to the record number of flight cancellations from the end of December, mainly due to staff shortages due to COVID-19 infections. More than 24,000 U.S. flights were canceled between Christmas Eve and January 7, according to FlightAware data, representing a whopping 7% of scheduled capacity.
What’s different this time?
While COVID-19-related flight cancellations and staff shortages may seem like a repeat of the early pandemic days, the environment in 2022 should be very different. Unlike 2020, many consumers are vaccinated and ready to resume their travels after postponing vacation plans for nearly two years. Long-term demand fundamentals are further supported by a large annual increase in aircraft orders for 2021 reported by aviation manufacturers this week. This suggests that airlines are starting to see a recovery in demand, in addition to being in a better position to spend cash. On the supply side, while December’s COVID-related staff shortages could hurt operations in the next quarter, they are easier to overcome compared to factors such as global travel regulations. Countries now seem less reactionary and restrictive than during the first outbreak in 2020, given the more widespread distribution of vaccines.
While the leisure travel sector held up relatively well despite headwinds in 2021, profits remained muted against expectations that the COVID-19 vaccine would revitalize the travel industry. However, 2022 is a very different environment from both 2020 and 2021. In addition to higher vaccination rates and more lenient travel restrictions, years of pent-up consumer demand and widespread inflation could contribute to both higher volumes and prices in the travel industry, which could support a more positive outlook for 2022. . These may first be reflected in airline bookings and consumer spending, but should eventually extend to other leisure sectors such as hotels, car rental companies and cruise lines.
The S-Network Global Travel Index (TRAVEL) is the underlying index for the ALPS Global Travel Beneficiaries ETF (JRNY).
Originally published by Alerian on January 13, 2022.
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